Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒

As of May 4, ~~2020,~~2021, the registrant had ~~31,743,102~~150,399,159 shares of common stock, $0.001 par value per share, outstanding.

	March 31,			December 31,
	2020			2019			March 31,			December 31,
	(unaudited)			(audited)			2021			2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,511		$	5,789		$	40,842		$	17,564
Restricted cash		312			312			204			312
Accounts receivable, less allowance of $3,560 and $2,531 in 2020 and 2019, respectively		4,749			8,760
Accounts receivable, less allowance of $3,908 and $4,017 in 2021 and 2020, respectively								3,266			3,059
Inventory		12,192			10,995			11,877			11,157
Prepaid expenses and other current assets		1,205			1,163			1,560			3,018
Total current assets		19,969			27,019			57,749			35,110
Property, plant, and equipment, net		1,017			1,193			693			782
Goodwill		2,926			2,926			2,926			2,926
Right of use asset		135			276			1,890			1,976
Other assets		484			433			226			231
Total assets	$	24,531		$	31,847		$	63,484		$	41,025
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,056		$	5,332		$	3,072		$	2,651
Accrued liabilities		4,079			4,744			6,237			6,667
Deferred revenue, current portion		1,982			2,237			1,961			1,905
Term loan (net of discount)		13,562			13,466
Total current liabilities		23,679			25,779			11,270			11,223
Deferred revenue		390			358			343			374
Warranty accrual		246			245			297			384
Non current term loans, net of discount								16,295			16,186
Non current operating lease liability								1,686			1,774
Other liabilities		1,107			1,123			77			1,056
Total liabilities		25,422			27,505			29,968			30,997
Commitments and contingencies — Note 11
Redeemable preferred stock:
Preferred stock, par value $0.001 per share; 1,000 shares authorized, 70 and 70 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		3,965			3,965
Series E Preferred stock, par value $0.001 per share; 1,000 shares authorized, 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020								—			—
Total redeemable preferred stock		3,965			3,965			—			—
Stockholders' equity:
Common stock, par value $0.001 per share; 40,000 shares authorized, 31,582 and 31,439 shares issued and 31,537 and 31,439 outstanding as of March 31, 2020 and December 31, 2019, respectively		32			31
Additional paid-in-capital		236,384			235,594
Series F Preferred stock, par value $0.001 per share; 18 shares authorized, 0 and 1 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively								36			118
Common stock, par value $0.001 per share; 180,000 shares authorized, 149,427 and 97,709 shares issued and 149,382 and 97,663 outstanding as of March 31, 2021 and December 31, 2020, respectively								149			98
Additional paid-in capital								292,141			261,573
Accumulated other comprehensive loss		(719	)		(701	)		(533	)		(385	)
Accumulated deficit		(240,553	)		(234,547	)		(258,277	)		(251,376	)
Total stockholders' (deficit) equity		(4,856	)		377
Total liabilities, redeemable preferred stock and stockholders' (deficit) equity	$	24,531		$	31,847
Total stockholders' equity								33,516			10,028
Total liabilities, redeemable preferred stock and stockholders' equity							$	63,484		$	41,025


	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2020			2019			2021			2020
Net revenue	$	4,783		$	10,326		$	8,116		$	4,783
Cost of revenue		3,430			6,804			5,375			3,430
Gross profit		1,353			3,522			2,741			1,353
Operating expenses:
Sales and marketing		2,704			3,879			3,553			2,704
General and administrative		3,010			2,393			3,447			3,010
Engineering and development		991			1,424			1,803			991
Change in fair value of patent litigation settlement liability		—			190
Total operating expenses		6,705			7,886			8,803			6,705
Loss from operations		(5,352	)		(4,364	)		(6,062	)		(5,352	)
Loss on foreign currency transactions		84			43			204			84
Interest expense		589			478
Non-operating loss (income), net		673			521
Interest expense, net								575			589
Other (income) expense, net								—			—
Non-operating loss, net								779			673
Loss before income tax provision		(6,025	)		(4,885	)		(6,841	)		(6,025	)
Income tax provision		(19	)		15
Income tax provision (benefit)								60			(19	)
Net loss		(6,006	)		(4,900	)		(6,901	)		(6,006	)
Other comprehensive income item:
Foreign currency translation adjustment		(18	)		(55	)
Other comprehensive loss items:
Foreign currency translation adjustments								(148	)		(18	)
Comprehensive loss	$	(6,024	)	$	(4,955	)	$	(7,049	)	$	(6,024	)
Net loss per share:

Net loss							$	(6,901	)	$	(6,006	)
Deemed dividend on convertible preferred stock								(532	)		—
Net loss attributable to common stockholders							$	(7,433	)	$	(6,006	)

Net loss per share attributable to common stockholders:
Basic	$	(0.19	)	$	(0.23	)	$	(0.06	)	$	(0.19	)
Diluted	$	(0.19	)	$	(0.23	)	$	(0.06	)	$	(0.19	)
Shares used in the calculation of net loss per share:
Basic		31,509			21,134			134,586			31,509
Diluted		31,509			21,134			134,586			31,509


	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2020			2019			2021			2020
Cash Flows from Operating Activities:
Net loss	$	(6,006	)	$	(4,900	)	$	(6,901	)	$	(6,006	)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Depreciation and amortization		177			258			85			177
Provision for bad debts		987			19			(106	)		987
Amortization of discounts on lines of credit		46			38
Provision for sales returns								90			—
Inventory write-offs and disposals								(20	)		10
Amortization of discount on lines of credit								42			46
Amortization of debt issuance costs		50			49			95			50
Patent litigation mark-to-market								89			—
Stock-based compensation		719			757			928			719
Deferred income taxes		(32	)		(5	)		—			(32	)
Earned interest income, net		—			(1	)
Change in fair value of patent litigation settlement liability		—			190
Changes in operating assets and liabilities:
Accounts receivable		3,024			(650	)		(193	)		3,024
Inventory		(1,197	)		225			(700	)		(1,207	)
Prepaid expenses and other current assets		(142	)		463			558			(142	)
Accounts payable and accrued liabilities		(1,541	)		(1,514	)		(488	)		(1,541	)
Deferred revenue		(219	)		37			22			(219	)
Net cash and cash equivalents used in operating activities		(4,134	)		(5,034	)		(6,499	)		(4,134	)
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment		(9	)		(8	)		(8	)		(9	)
Net cash and cash equivalents used in investing activities		(9	)		(8	)		(8	)		(9	)
Cash Flows from Financing Activities:
Proceeds from the issuance of common stock, net of offering costs								13,292			—
Payments of equity offering costs		(117	)		—			(6	)		(117	)
Proceeds from exercise of stock options		—			3
Net cash and cash equivalents (used in) provided by financing activities		(117	)		3
Proceeds from the exercise of common stock warrants								16,539			—
Net cash and cash equivalents provided by (used in) financing activities								29,825			(117	)
Effect of exchange rate changes		(18	)		(49	)		(148	)		(18	)
Decrease in cash, cash equivalents and restricted cash		(4,278	)		(5,088	)
Increase (decrease) in cash, cash equivalents and restricted cash								23,170			(4,278	)
Cash, cash equivalents and restricted cash, beginning of period		6,101			8,356			17,876			6,101
Cash, cash equivalents and restricted cash, end of period	$	1,823		$	3,268		$	41,046		$	1,823
Supplemental cash flow disclosure:
Cash paid for interest	$	485		$	430		$	448		$	485
Cash received for interest							$	14		$	—
Cash paid for income taxes	$	28		$	31		$	10		$	28
Cash paid for operating leases	$	192		$	189		$	66		$	192
Non-cash accrual for capital expenditures	$	7		$	24		$	—		$	7
Non-cash right-of-use assets obtained in exchange for lease obligation	$	—		$	824
Non-cash settlement of liability							$	510		$	—

Contracts with Customers

Revenue for sales of products and services is derived from contracts with customers. The products and services promised in customer contracts include delivery of laser systems, imaging systems, and consumables as well as certain ancillary services such as training and extended warranties. Contracts with each customer generally state the terms of the sale, including the description, quantity and price of each product or service. Payment terms are stated in the contract and vary according to the arrangement. Because the customer typically agrees to a stated rate and price in the contract that does not vary over the life of the contract, the Company’s contracts do not contain variable consideration. The Company establishes a provision for estimated warranty expense.

Performance Obligations

At contract inception, the Company assesses the products and services promised in its contracts with customers. The Company then identifies performance obligations to transfer distinct products or services to the customers. In order to identify performance obligations, the Company considers all of the products or services promised in contracts regardless of whether they are explicitly stated or are implied by customary business practices.

Revenue from products and services transferred to customers at a single point in time accounted for ~~74%~~88% and ~~84%~~74% of net revenue for the three months ended March 31, ~~2020~~2021 and March 31, ~~2019,~~2020, respectively. The majority of the Company’s revenue

recognized at a point in time is for the sale of laser ~~systems, imaging~~ systems and consumables. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during the shipping process.

Revenue from services transferred to customers over time accounted for ~~26%~~12% and ~~16%~~26% of net revenue for the three months ended March 31, ~~2020~~2021 and March 31, ~~2019,~~2020, respectively. The majority of the Company’s revenue that is recognized over time relates to product training and extended warranties. Deferred revenue attributable to undelivered elements, which primarily consists of product training, totaled approximately ~~$0.5 million and $0.6~~$0.7 million as of each of March 31, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.

Transaction Price Allocation

The transaction price for a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in a contract. The primary method used to estimate standalone selling price is the observable price when the good or service is sold separately in similar circumstances and to similar customers.

Significant Judgments

Revenue is recorded for extended warranties over time as the customer benefits from the warranty coverage. This revenue will be recognized equally throughout the contract period as the customer receives benefits from the Company's promise to provide such services. Revenue is recorded for product training as the customer attends a training program or upon the expiration of the obligation, which is generally after nine months.

The Company also has contracts that include both the product sales and product training as performance obligations. In those cases, the Company records revenue for product sales at the point in time when the product has been shipped. The customer obtains control of the product when it is shipped, as all shipments are made FOB shipping point, and after the customer selects its shipping method and pays all shipping costs and insurance. The Company has concluded that control is transferred to the customer upon shipment.

Accounts Receivable

Accounts receivable are stated at estimated net realizable value. The allowance for doubtful accounts is based on an analysis of customer accounts and the Company’s historical experience with accounts receivable write-offs.

Contract Liabilities

The Company performs its obligations under a contract with a customer by transferring products and/or services in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable for the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods and/or services and the Company has not transferred control of the goods and/or services. The opening and closing balances of the Company’s contract liabilities are as follows (in thousands):


	March 31,		December 31,		March 31,			December 31,
	2020		2019		2021			2020
Undelivered elements (training, installation, product and support services)	$	476	$	559	$	706			$	670
Extended warranty contracts		1,896		2,063		1,598				1,609
Total deferred revenue		2,372		2,622		2,304				2,279
Less long-term portion of deferred revenue		390		385
Total deferred revenue — long -term		390		385
Less: long-term portion of deferred revenue						(343	)			(374	)
Deferred revenue — current	$	1,982	$	2,237	$	1,961			$	1,905

The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables at March 31, ~~2020~~2021 and December 31, ~~2019.~~2020.

The amount of revenue recognized during the three months ended March 31, 2021 and 2020 that was included in the opening contract liability balance related to undelivered elements was $0.5 million and $0.1 million, ~~and~~respectively. The amounts related to extended warranty contracts was $0.5 million and $1.0 ~~million.~~million, for the three months ended March 31, 2021 and 2020, respectively. There were 0 deferred royalties for the three months ended March 31, 2021 and 2020.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors.

The Company’s revenues related to the following geographic areas were as follows ~~for the periods indicated~~ (in thousands):


	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2020		2019		2021		2020
United States	$	3,129	$	6,116	$	5,221		$	3,129
International		1,654		4,210		2,895			1,654
	$	4,783	$	10,326
Total revenue					$	8,116		$	4,783

Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows (in thousands):


	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2020		2019		2021		2020
Revenue recognized over time	$	1,260	$	1,698	$	981		$	1,260
Revenue recognized at a point in time		3,523		8,628		7,135			3,523
Total	$	4,783	$	10,326
Net revenue					$	8,116		$	4,783

The Company acts as the principal in all its imaging equipment distribution sales. The Company takes possession and control of the equipment before they are sold and transferred to the customer. The Company provides the equipment and any related services directly to the customer. The Company has inventory risk before the equipment is transferred to a customer. The Company purchases and obtains the goods before obtaining a contract with a customer. The Company also has discretion in establishing the price sold to the customer for the equipment.

~~The revenue and percentages of revenue of the Company’s sales by product line were as follows for the periods indicated:~~

Shipping and freight costs are treated as fulfillment costs. For shipments to end-customers, the customer bears the shipping and freight costs and has control of the product upon shipment. For shipments to distributors, the distributor bears the shipping and freight costs, including insurance, tariffs and other import/export costs.

~~The~~BIOLASE's board of directors ~~of Biolase~~ (the ~~“Board”~~"Board"), without further stockholder authorization, may issue from time to time ~~authorize the issuance of~~ up to 1,000,000 shares of the Company’s preferred stock. Of the 1,000,000 shares of preferred stock, ~~500,000~~69,565 shares are designated as Series ~~B Junior~~E Participating ~~Cumulative~~Convertible Preferred ~~Stock. In 2019,~~Stock, par value $0.001 per share (“Series E Preferred Stock”), and 18,000 shares are designated as Series F Convertible Preferred Stock, par value $0.001 per share (“Series F Preferred Stock”).

On February 10, 2021, BIOLASE issued and sold in an underwritten bought deal offering an aggregate of 14,000,000 shares of common stock at a price of $1.03 per share less underwriting discounts and commissions (the "Equity Offering"). The Company received gross proceeds of approximately $14.4 million before deducting underwriting discounts and commissions and estimated offering expenses of $1.1 million.

On July 23, 2020, the Company ~~sold~~consummated the sale of an aggregate of 18,000 shares of Series ~~E Convertible~~F Preferred ~~Shares~~Stock and 45,000,000 warrants (the “July 2020 Warrants”), with each warrant exercisable for one share of BIOLASE common stock, through a

registered rights offering the Company completed on July 22, 2020 (the “Rights Offering”). Each share of Series F Preferred Stock is convertible at the Company’s option at any time on or after July 22, 2021 or at the option of the holder at any time, into the number of shares of BIOLASE common stock determined by dividing the $1,000 stated value per share of the Series F Preferred Stock by a conversion price of $0.40 per share. Each share of Series F Preferred Stock is convertible into 2,500 shares of common stock, and each July 2020 Warrant entitles the holder thereof to purchase one share BIOLASE common stock at a conversion price of $0.40 per share.

In accordance with applicable accounting standards, the $18.0 million gross proceeds from the Rights Offering were allocated to the Series F Preferred Stock and the July 2020 Warrants in the amount of $2.7 million and $15.3 million, respectively. The allocation was based on the fair value of the July 2020 Warrants of $15.3 million as of the commitment date, with the residual proceeds of $2.7 million allocated to the Series F Preferred Stock.

The Series F Preferred Stock contained a beneficial conversion feature which resulted in a ~~private offering~~deemed dividend to preferred stockholders of approximately $2.7 million, upon immediate accretion. Additionally, the July 2020 Warrants were recognized as a discount to the Series F Preferred Stock, and upon conversion of approximately 17,000 Series F Preferred Stock to common stock, this discount was accreted and also recognized as a deemed dividend to preferred stockholders in the amount of $0.5 million and $14.7 million for the three months ended March, 31, 2021 and the year ended December 31, 2020, respectively.

Approximately 268 and 882 shares of Series F Preferred Stock remained outstanding as of March 31, ~~2020~~2021 and December 31, ~~2019, 69,565~~2020, respectively.

As of ~~these shares~~March 31, 2021 and December 31, 2020, there were ~~issued and outstanding.~~

~~The~~0 shares of Series E Preferred Stock ~~automatically convert into shares of Common Stock upon receipt of the Requisite Stockholder Approval (as defined in the Certificate of Designations, Preferences~~issued and ~~Rights of Series E Participating Convertible Preferred Stock. The shares of Series E Preferred Stock have no other conversion rights.~~outstanding.

The Purchase Agreement contains customary representations, warranties and covenants by the Company, customary indemnification obligations of the Company and the Investors, including for liabilities under the Securities Act, and other obligations of the parties. The representations, warranties and covenants contained in the Purchase Agreement were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to such agreement and may be subject to limitations agreed upon by the contracting parties.

The shares of Series E Preferred Stock were offered in reliance upon exemptions from registration under the Securities Act afforded by Regulation D and corresponding provisions of state securities laws. The Company has agreed to use commercially reasonable efforts to file, within 30 days following receipt of the Requisite Stockholder Approval, a registration statement with the U.S. Securities and Exchange Commission to register the resale of the shares of Common Stock underlying the Series E Preferred Stock.

The 2002 Stock Incentive Plan (as amended effective as of May 26, 2004, November 15, 2005, May 16, 2007, May 5, 2011, June 6, 2013, October 30, 2014, April 27, 2015, and May 6, ~~2016,~~2017, the “2002 Plan”) was replaced by the 2018 Plan (as defined below) with respect to future equity awards. Persons eligible to receive awards under the 2002 Plan included officers, employees, and directors of the Company, as well as consultants. As of March 31, ~~2020,~~2021, a total of ~~approximately 3.1 million~~3,110,000 shares ~~of the Company’s common stock~~ have been authorized for issuance under the 2002 Plan, of which ~~approximately 1.0 million~~1,036,171 shares of ~~the Company’s~~ common stock have been issued pursuant to options that were exercised, ~~and restricted stock units (“RSUs”) that were settled in common stock and 1.2 million~~971,735 shares of common stock have been reserved for ~~outstanding~~ options and ~~unvested RSUs,~~restricted stock units ("RSUs") that are outstanding, and no0 shares ~~are~~of common stock remain available for future grants.

At the 2018 ~~Annual Meeting,~~annual meeting of stockholders, the Company’s stockholders approved the 2018 Long-Term Incentive Plan (as amended, the “2018 Plan”) which was amended by Amendment No. 1 to the 2018 Plan, approved by the Company’s stockholders at a special meeting on September 21, 2018 and Amendment No. 2 to the 2018 Plan, as approved by the Company’s stockholders on May 15, ~~2019.~~2019 and Amendment No. 3 to the 2018 Plan, as approved by the Company’s stockholders on May 13, 2020. The purposes of the 2018 Plan are (i) to align the interests of the Company’s stockholders and recipients of awards under the 2018 Plan by increasing the proprietary interest of such recipients in the Company’s growth and success; (ii) to advance the interests of the Company by attracting and retaining non-employee directors, officers, other employees, consultants, independent contractors, and agents; and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders.

Subject to the terms and conditions of the 2018 Plan, the number of shares authorized for grants under the 2018 Plan is ~~5.0 million.~~12,221,101. As of March 31, ~~2020,~~2021, a total ~~2.3 million~~5,745,827 shares of the Company’s common stock have been reserved for issuance upon the exercise of outstanding options and or settlement of unvested RSUs, and ~~0.8 million~~1,812,307 shares of the Company’s common stock remain available for future grants.

The Company recognized stock-based compensation expense of ~~$0.7~~$0.9 million and ~~$0.8~~$0.7 million for the three ~~months~~month period ended March 31, 2021 and 2020, ~~and 2019, respectively, based on the grant-date fair value. The net impact~~respectively. As of ~~stock-based compensation expense to earnings was $(0.02), and $(0.04) per basic and diluted share for the three months ended~~ March 31, ~~2020~~2021 and ~~2019, respectively. At March 31,~~ 2020, the Company had approximately $0.7 million and $1.1 million, respectively, of total unrecognized compensation expense, net of estimated forfeitures, related to unvested share-based compensation arrangements. As of March 31, 2021 and December 31, 2020, $0.4 million and $0.9 million of the total stock compensation cost related to performance-based awards was recognized as a liability. The Company expects that expense to be recognized over a weighted-average period of ~~1.5 years.~~1.2 years or by June 2022.

A summary of unvested stock option activity for the three months ended March 31, ~~2020~~2021 is as follows (in thousands, except per share data):

~~There were no material grants made during~~During the three months ended March 31, ~~2020,~~2021, the Company granted approximately 1.2 million RSUs and the Company canceled approximately ~~840,000 grants~~0.5 million RSUs with performance based vesting due to ~~non achievement~~non-achievement of the performance targets.

The Company issues warrants to acquire shares of ~~the Company’s~~BIOLASE common stock as approved by the Board. During the first quarter of 2021, the Company received proceeds of $15.0 million from warrants exercised in 2021 and $1.5 million from warrants exercised at the end of the fourth quarter of 2020, which was a receivable included in other current assets as of December 31, 2020.

Inventory has been reduced by estimates for excess and obsolete amounts totaling ~~$1.3 million and $1.3~~$0.7 million as of March 31, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.

Depreciation and amortization expense related to property, plant, and equipment totaled ~~$0.2~~$0.1 million and ~~$0.3~~$0.2 million for the three months ended March 31, 2021 and 2020, ~~and March 31, 2019,~~ respectively.

NOTE 8—ACCRUED LIABILITIES

Accrued liabilities are comprised of the following (in thousands):


	March 31,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
Payroll and benefits	$	1,465	$	1,726	$	2,573		$	3,552
Settlement accrual						579			0
Warranty accrual, current portion		911		865		1,099			748
Taxes						346			165
Accrued professional services						263			281
Accrued insurance premium						532			885
Lease liability		140		323		340			305
Accrued professional services		443		330
Taxes		31		242
Accrued insurance premium		374		546
Other		715		712		505			731
Total accrued liabilities	$	4,079	$	4,744
Accrued liabilities					$	6,237		$	6,667

The CARES Act allows employers to defer the deposit and payment of the employer's share of Social Security taxes through December 31, 2020. Under the CARES Act, the Company deferred $0.4 million as of March 31, 2021. The deferred liability is included in accrued payroll and benefits.

As of March 31, 2021, a settlement accrual liability related to the CAO Settlement Agreement (as defined below) was included in current accrued liabilities. See Note 11 for additional information.

Changes in the initial product warranty accrual and the expenses incurred under the Company’s initial and extended warranties ~~for the three months ended March 31, 2020 and 2019~~ are included within accrued liabilities ~~on the Consolidated Balance Sheets~~ and were as follows (in thousands):

Three Months Ended

March 31,

2020

2019

Balance, January 1

$
1,110

$
1,308

Provision for estimated warranty cost

203

239

Warranty expenditures

(156
)

(163
)
Balance, March 31

1,157

1,384

Less warranty accrual, long-term

246

577

Total warranty accrual, current portion

$
911

$
807


	Three Months Ended
	March 31,
	2021			2020
Balance, beginning of period	$	1,132			$	1,110
Provision for estimated warranty cost		664				203
Warranty expenditures		(400	)			(156	)
Balance, end of period		1,396				1,157
Less: long-term portion of warranty accrual		297				246
Current portion of warranty accrual	$	1,099			$	911

The ~~Company’s~~Company's Waterlase laser systems sold ~~worldwide~~domestically are covered by a warranty against defects in material and workmanship for a period of up to ~~16 months domestically and up to 28 months internationally,~~one year from the date of sale to the end-user by the Company or a ~~distributor to the end-user.~~distributor. The ~~Company’s Diode~~Company's diode systems sold ~~worldwide~~domestically are covered by a warranty against defects in material and workmanship for a period of up to ~~28 months~~two years from the date of sale to the end-user by the Company or a ~~distributor~~distributor. Waterlase systems and diode systems sold internationally are covered by a warranty against defects in material and workmanship for a period of up to 28 months from date of sale to the ~~end-user.~~international distributor. The Company's laser systems warranty covers parts and service for sales in its North American territories and parts only for international distributor sales.

In North America and select international locations, the Company sells extended warranty contracts to its laser systems end users that cover the period after the expiration of the Company's standard warranty coverage for its laser systems. Extended warranty coverage provided under the Company's service contracts varies by the type of system and the level of service desired by the customer. Products or accessories remanufactured, refurbished, or sold by unauthorized parties, voids all warranties in place for such products and exempts the Company from liability issues relating to the use of such products. The Company distributes extended warranties on certain imaging products, including its digital radiography products. However, all imaging products that the Company distributes are initially covered by manufacturer’s warranties.

NOTE 9—DEBT

The following table presents the details of the principal outstanding and unamortized discount (in thousands):


	March 31,			December 31,
	2021			2020
SWK Loan	$	14,300			$	14,300
PPP Loan		2,980				2,980
EIDL Loan		150				150
Discount and debt issuance costs on SWK Loan		(1,135	)			(1,244	)
Total		16,295				16,186
Current term loans, net of discount		0				0
Non current term loans, net of discount	$	16,295			$	16,186

The Company recognized approximately $0.6 million in interest expense for the three months ended March 31, 2021 and 2020, respectively. The weighted-average interest rate as of March 31, 2021 was 12.25%.

March 31,

December 31,

2020

2019

Term loan

$
15,000

$
15,000

Discount and debt issuance costs on term loan

(1,438
)

(1,534
)
Total

$
13,562

$
13,466

The future minimum principal and interest payments as of March 31, 2021 are as follows (in thousands):


	Principal		Interest (1)
2021 (nine months)	$	0		$	1,344
2022		5,080			1,755
2023		2,803			1,393
2024		9,403			1,900
2025		3			9
2026 and thereafter		141			73
Total future payments	$	17,430		$	6,474

(1) Estimated using London Interbank Bank Offered Rate (“LIBOR”) as of March 31, 2021

Lines of Credit

Pacific Mercantile Bank

On October 28, 2019, the Company entered into a loan and security agreement (the “Loan Agreement”) with Pacific Mercantile Bank, as lender ~~(the “Lender”~~(“PMB”), which provides for a revolving line of credit (the “PMB Loan”) in a maximum principal amount not to exceed the lesser of (i) $3 million or (ii) the sum of 90% of the Eligible Accounts (as defined in the Loan Agreement) plus 75% of the Eligible Inventory (as defined in the Loan Agreement, and subject to certain limitations set forth therein); provided that the maximum principal amount of the PMB Loan may be reduced from time to time in ~~the Lender’s~~PMB’s good faith business judgment as set forth in the Loan Agreement. Borrowings under the PMB Loan may be used for working capital. The PMB Loan matures on October 28, 2021, unless earlier terminated.

The Company’s obligations under the PMB Loan ~~Agreement~~ are secured by a security interest in substantially all of the Company’s property. No borrowings may be made under the PMB Loan Agreement unless and until Exim Bank agrees to guarantee the PMB Loan and the Company has entered into a borrower agreement with Exim Bank.

Borrowings under the PMB Loan bear interest at a daily rate equal to the prime rate published in the Wall Street Journal,, plus 1.5% per annum; provided,, that the interest rate in effect on any day shall not be less than 6.0% per annum. Additionally, the Company ~~was~~is required to pay an initial ~~fee~~ and ~~is required to pay an~~ annual fee of $52,500 ~~as well as a termination fee equal~~ to ~~$30,000 in the event the Loan Agreement is terminated on or prior to October 28, 2020.~~Exim Bank.

The PMB Loan Agreement requires the Company to maintain unrestricted cash at ~~the Lender~~ PMB plus unused availability under the PMB Loan in an amount equal to at least the Burn Rate. “Burn Rate” means the Company’s net profit/net loss plus depreciation plus amortization plus stock-based compensation, measured on a trailing ~~three month~~three-month basis. In addition, the PMB Loan Agreement contains customary affirmative and negative covenants for financings of its type (subject to customary exceptions).

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had no0 borrowings outstanding and unused availability under ~~this credit facility~~the PMB Loan of ~~$3.0~~approximately $2.2 million and ~~$2.7~~$2.3 million, respectively. ~~The Company was in compliance with all debt covenants at March 31, 2020.~~

~~In April 2020, the Company drew $3.0 million under the PMB Loan. Additional information is discussed in Note 15 – Subsequent Events.~~17

Term Loan

On November 9, 2018, the Company entered into a five-year secured Credit Agreement ~~(“Credit~~(the “Credit Agreement”) with SWK Funding LLC (“SWK”), pursuant to which the Company has borrowed ~~$12.5~~$14.3 million (“SWK Loan”). as of March 31, 2021. The Company’s obligations under the Credit Agreement are secured by substantially all of the Company’s assets. Under the terms of the Credit Agreement and subsequent amendments as discussed in the Company’s 2020 Form 10-K, repayment of the ~~loan~~SWK Loan is interest-only ~~for~~through the ~~first two years,~~second quarter of 2022, paid quarterly with the option to extend the interest-only period. Principal repayments ~~will~~ begin in the ~~first~~second quarter of ~~2021~~2022 and will be approximately $0.7 million quarterly until the ~~loan~~SWK Loan matures in the ~~fourth~~second quarter of ~~2023.~~2024. The loan bears interest at ~~the London Interbank Bank Offered Rate (“LIBOR”)~~ LIBOR plus 10% or another index that approximates LIBOR as close as possible if and when LIBOR no longer exists. ~~Approximately $0.9 million~~

In light of the ~~proceeds~~Company's increase in working capital from the ~~SWK Loan were used to pay off all amounts owed to Western Alliance Bank under~~Equity Offering and cash received from warrants exercised, the ~~business financing agreement entered into in 2018.~~

~~The Credit Agreement contains financial and non-financial covenants requiring the~~ Company to, among other things, (i) maintain unencumbered liquid assets of (A) no less than $1.5 million or (B) the sum of aggregate cash flow from operations less capital expenditures, (ii) achieve certain revenue and EBITDA levels during the first two years of the loan, (iii) limit future borrowing, investments and dividends, and (iv) submit monthly and quarterly financial reporting.

In connection with the SWK Loan, the Company paid approximately $1.0 million in debt issuance costs, including a $0.2 million loan origination fee, a $0.4 million finder’s fee, and $0.4 million in legal and other fees. These costs were recognized as a discount on the SWK Loan and are being amortized on a straight-line basis over the loan term which approximates the effective-interest method.

As of March 31, 2019, the Company was not in compliance with certain covenants in the Credit Agreement and in May 2019, SWK granted the Company a waiver of such covenants. On May 7, 2019, the Company and SWK agreed to amend the Credit Agreement (the “First Amendment) to increase the total commitment from $12.5 million to $15.0 million, and to revise the financial covenants to (a) adjust minimum revenue and EBITDA levels, (b) require the Company to have a shelf registration statement declared effective by the Securities and Exchange Commission before September 30, 2019, with a proposed maximum aggregate offering price of at least $10.0 million if the Company did not reach set minimum revenue levels for the three-month period ended September 30, 2019, and (c) require minimum liquidity of $1.5 million at all times. The First Amendment provided that if aggregate minimum revenue and EBITDA levels were not achieved by September 30, 2019, the minimum liquidity requirement would be increased to $3.0 million, until the Company has obtained additional equity or debt funding of no less than $5.0 million. In 2019, the Company obtained additional equity financing greater than $5.0 million. The Company borrowed the additional $2.5 million during the year ended December 31, 2019.

In connection with the amendment, the Company paid to SWK loan origination and other fees of approximately $0.1 million payable in cash and approximately $0.2 million in additional SWK Warrants (as defined below) to purchase the Company’s common stock. The Company paid an additional finder’s fee to Deal Partners Group (“DPG”) of approximately $0.1 million in cash and $0.1 million in additional DPG Warrants to purchase the Company’s common stock. The Company accounted for the First Amendment as a modification to existing debt and as a result, recognized the amounts paid to SWK in cash and warrants as additional debt issuance costs.

~~On September 30, 2019, BIOLASE, Inc~~ entered into the Second Amendment to Credit Agreement (the “Second Amendment”) with SWK, in connection with that certain Credit Agreement, by and among the Company, SWK, and the lender parties thereto. The Second Amendment amended the Credit Agreement to provide for a permitted inventory and accounts receivable revolving loan facility, secured by a first lien security interest in the Company’s inventory and accounts receivable, with a maximum principal amount of $5 million and with such other material terms and conditions acceptable to SWK in its commercially reasonable discretion. In addition, SWK agreed to waive the effect of the Company’s non-compliance with certain unencumbered liquid assets financial operating covenants as set forth in the Credit Agreement, and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of such non-compliance through October 31, 2019, or earlier in the event that an additional equity or subordinated debt financing is consummated with gross proceeds of not less than $5 million, or in the event of a default under the Credit Agreement.

On November 6, 2019, the Company agreed to further amend the Credit Agreement. Pursuant to the Third Amendment, SWK granted the Company a waiver of the Company’s non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, the Company and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment). In connection with the Third Amendment, the Company consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019. The price was adjusted to $1.00 and the impact of this was de minimis.

As of December 31, 2019, the Company was not in compliance with the covenants under the Credit Agreement, as amended, and on March 25, 2020, the Company agreed to further amend the Credit Agreement (“Fourth Amendment”). Pursuant to the FourthSeventh Amendment to the Credit Agreement (the “Seventh Amendment”) with SWK ~~granted~~on February 24, 2021, which provides for adjusted minimum aggregate revenue and EBITDA requirements at the end of certain periods, to the extent that our liquid assets are less than $15 million. While the Company's liquid assets are at or above $15 million, no additional financial maintenance covenants are applicable.

For the Seventh Amendment, the Company ~~a waiver~~paid an incremental amendment fee of $25,000, which is being amortized over the remaining life of the ~~Company’s non-compliance~~loan as of the date of the amendment.

As of March 31, 2021, the Company was in compliance with ~~certain financial~~debt covenants ~~contained~~of the Credit Agreement.

Paycheck Protection Program Loan

On April 14, 2020, the Company was granted a loan (the “PPP Loan”) under the Paycheck Protection Program from PMB in the ~~Credit Agreement through March 31, 2020. Also~~aggregate amount of $2,980,000, pursuant to the ~~Fourth Amendment,~~Paycheck Protection Program under the ~~Company~~CARES Act.

The PPP Loan, which was in the form of a note dated April 13, 2020 issued by BIOLASE, matures on April 13, 2022 and ~~SWK agreed~~bears interest at a rate of 1.0% per annum. Interest is payable monthly commencing on November 1, 2020. The note may be prepaid at any time prior to ~~(i) revise financial covenants~~maturity with 0 prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to ~~adjust minimum revenue~~continue group health care benefits, mortgage payments, rent, utilities, and ~~EBITDA levels and (ii) revise the financial covenant with respect to required unencumbered liquid assets.~~

interest on other debt obligations incurred before February 15, 2020. The Company ~~does not anticipate it will regain compliance with~~recorded the ~~financial covenants under~~principal amount of approximately $3.0 million due on the ~~Credit Agreement by June 30, 2020 due to the uncertainty surrounding the impact of COVID-19 on its business. Therefore the Term~~PPP Loan ~~is classified as a~~in non current ~~liability~~term loans in the ~~unaudited~~ consolidated balance ~~sheets.~~

~~The Company recognized approximately $0.6 million and $0.5 million in interest expense for the three months ending March 31, 2020 and 2019, respectively. The weighted-average interest rate~~sheet as of March 31, 2021 and December 31, 2020. Interest on the PPP Loan was not material. The Company believes it used the entire PPP Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

In July 2020, ~~was 12.25%~~the Company amended the provisions of the PPP Loan. The amendment modifies the original payment deferment period from six months to the date that the United States Small Business Administration (“SBA") remits the Company’s loan forgiveness to PMB or if no forgiveness is requested to ten months after the end of the 24-week measurement period. The amendment also increased the amount of non-payroll costs eligible for loan forgiveness from 25% to 40%. During 2020, the Company requested forgiveness in accordance with the application requirements. As of the date of this filing, the Company has not received a reply to its request, and there can be no assurance that the PPP Loan will be forgiven.

EIDL Loan

On May 22, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the EIDL Loan is $150,000, with proceeds to be used for working capital purposes. Interest on the EIDL Loan accrues at the rate of 3.75%, per annum and installment payments, including principal and interest, are due monthly beginning in July 2021 and are payable through July 2050.

Western Alliance Warrants

On March 6, 2018, the Company issued to Western Alliance warrants (the “Original Western Alliance Warrants”) to purchase up to the number of shares of common stock equal to $120,000 divided by the applicable exercise price at the time such warrants are exercised. The Original Western Alliance Warrants are fully vested and exercisable. The Original Western Alliance Warrants may be exercised with a cash payment from Western Alliance, or, in lieu of a cash payment, Western Alliance may convert the warrants into a number of shares, in whole or in part. The initial exercise price of the warrants was $2.35 per share. On September 27, 2018, the Company entered into the Second Modification Agreement to amend the Original Business Financing Agreement. In connection with

the Second Modification Agreement, the Original Western Alliance Warrants were terminated, and the Company issued new warrants (the “Western Alliance Warrants”) to purchase up to the number of shares of common stock equal to $120,000 divided by the exercise price of $2.13, which was the closing price of the Company’s common stock on September 27, 2018. The Western Alliance Warrants are immediately exercisable and expire on September 27, ~~2028.~~2028. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The sale of common stock in the second quarter of 2020 triggered an adjustment to the exercise price to approximately $0.60 per share. The impact of the adjustment to the exercise price was not material.

SWK Warrants

In connection with the Credit Agreement, ~~the Company issued warrants to SWK (the “SWK Warrants”)~~ on November 9, 2018, the Company issued to SWK warrants (the “SWK Warrants”) to purchase up to 372,023 shares of ~~the Company’s~~BIOLASE common stock. The SWK Warrants ~~are~~were immediately exercisable and expire on November 9, ~~2026.~~2026. The exercise price of the SWK Warrants is $1.34, which was the average closing price of ~~the Company’s~~BIOLASE common stock for the ~~ten~~10 trading days immediately preceding November 9, 2018. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The fair value of the SWK Warrants was estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 8 ~~years;~~years; volatility of 81.79%; annual dividend per share of $0.00; and risk-free interest rate of 3.13%; and resulted in an estimated fair value of $0.4 million.

In November 2019, these warrants were consolidated and the ~~strike~~exercise price was adjusted to $1.00, and in March 2020, the ~~strike~~exercise price was adjusted a second time to $0.49. The impact of both reprice events was de minimis to the ~~unaudited~~ consolidated financial statements. In connection with the Fifth Amendment, the Company entered into a Third Amendment to the SWK Warrant Agreement. Under this amendment, the Company granted to SWK 63,779 additional common stock warrants at an exercise price of approximately $0.39198. All other terms and conditions to the additional warrants were the same as those previously granted. The Company also revised the exercise price of the 487,198 common stock warrants held by SWK to $0.39198. The Company measured the fair value of the 63,779 warrants granted using the Black-Scholes. The fair value of the additional warrants and the aggregate impact of the exercise price adjustments in previous amendments to the Warrant Agreement were less than $0.1 million and not material to the consolidated financial statements. Due to the repricing that occurred in the second quarter of 2020, the down round features of these warrants was not triggered by the Company’s June 2020 sale of common stock.

DPG Warrants

In connection with the SWK Loan, the Company paid a finder’s fee to Deal Partners Group of $0.4 million cash and issued warrants to purchase up to 279,851 shares of common stock (the “DPG Warrants”). The DPG Warrants were issued on November 14, 2018, were exercisable immediately, and expire on November 9, ~~2026.~~2026. The exercise price of the DPG Warrants is $1.34 which was the average closing price of the Company’s common stock for the ~~ten~~10 trading days immediately preceding November 9, 2018. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The fair value of the DPG Warrants of $0.3 million was estimated using the ~~Black Scholes~~Black-Scholes option pricing model with the following assumptions: ex~~pected~~expected term of 8 ~~years;~~years; volatility of 81.79%; annual dividend per share of $0.00; and risk-free interest rate of 3.13%. In November 2019, the exercise price of the DPG Warrants issued on November 9, 20 182018 was adjusted from $1.34 per share to $0.8767 per share and the exercise price of the DPG Warrants issued on May, 2019 was adjusted from $2.17 per share to $1.4197 per share. The impact of the reprice was de minimis to the unaudited consolidated financial statements. The June 2020 sale of common stock triggered the down round features of these warrants, and in August 2020, the Company adjusted the exercise price of these warrants to $0.62 and $0.38 per share. The impact of this reprice was not material.

The value of both the SWK Warrants and the DPG Warrants was recognized as a discount on the SWK Loan and ~~are~~is being amortized on a straight-line basis which approximates the effective-interest method, over the loan term of five ~~years.~~years. Additionally, based on the adoption of ASU 2017-11 in the fourth quarter of 2018, these warrants are classified as equity in the consolidated balance sheet as of March 31, ~~2020.~~

~~The future minimum principal~~2021 and ~~interest payments as of March~~December 31, ~~2020 are as follows (in thousands):~~2020.

Principal

Interest⁽¹⁾

2020

—

1,388

2021

2,100

1,793

2022

2,800

1,472

2023

10,100

2,455

Total future payments

$
15,000

$
7,108

(1) estimated using LIBOR rates as at March 31, 2020

NOTE 10— LEASES

The Company enters into operating leases primarily for real estate, office equipment, and fleet vehicles. Lease terms generally range from one to five years, and often include options to renew for one ~~year.~~ year. The Company leases its 11,000 square foot corporate headquarters pursuant to a lease that expires on December 31, 2025 and leases a manufacturing facility located in Corona, California, which expires on June 30, 2025. The Company also leases additional office space and certain office equipment under various operating lease arrangements.

On January ~~1, 2019,~~22, 2020, the Company ~~adopted Topic 842, using~~entered into a five-year real property lease agreement for an approximately 11,000 square foot facility in Corona, California and moved its manufacturing operations. The lease commenced on July 1, 2020.

On February 4, 2020, the ~~modified-retrospective approach as discussed in Note 2, and as~~Company also entered into a ~~result recognized a right-of-use asset~~66-month real property lease agreement for office space of approximately ~~$0.8 million as adjusted for deferred rent at the date~~11,000 square feet of ~~adoption of $0.2 million, and a~~office space in Foothill Ranch, California. The lease liability of approximately $1.0 million. No cumulative-effect adjustment to retained earnings was required upon adoption of Topic 842. Right-of-use assets are recorded in Prepaid and other assets and lease liabilities are included in Accrued liabilities or Other liabilities dependingcommenced on whether they are current or noncurrent. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate (“IBR”) to determine the present value of the lease payments and on the date of adoption, the Company determined its IBR to be 12.78%July 1, 2020. ~~This rate was based on the Company’s financing of the SWK Loan which is a collateralized loan, and was based on prevailing market rates during the fourth quarter of 2018.~~

Information related to the Company’s right-of-use assets and related liabilities were as follows (in thousands):


				Three Months Ended
	Three Months Ended,			March 31,
	March 31, 2020			2021			2020
Cash paid for operating lease liabilities	$	192		$	66		$	192
Right-of-use assets obtained in exchange for new operating lease obligations		—		$	1,890		$	0
Weighted-average remaining lease term		—		4.5 years				—
Weighted-average discount rate		0.0	%		12.3	%		0.0	%

Lease expense consists of payments for real property, office copiers, and IT equipment. The Company recognizes payments for non-lease components such as common area maintenance in the period incurred. As of March 31, 2021, the Company had no leases that had not commenced.

The Company allocates lease cost amongst lease and non-lease components. The Company excludes short-term leases (those with lease terms of less than one year at inception) from the measurement of lease liabilities or right-of-use assets.

Maturities of lease liabilities as of March 31, ~~2020~~2021 for leases that have commenced ~~were~~are as follows (in thousands):

Due in 12 month period ended March 31,

2020

$
138

2021

7

Thereafter

—

$
145

Less imputed interest

(5
)
Total lease liabilities

$
140

Current operating lease liabilities

140

Non-current lease liabilities

—

Total lease liabilities

$
140


	March 31,
2022	$	583
2023		577
2024		587
2025		563
2026 and thereafter		367
Total future minimum lease obligations		2,676
Less imputed interest		(650	)
Total lease liabilities	$	2,026

Current operating lease liabilities, included in accrued liabilities	$	340
Non current lease liabilities		1,686
Total lease liabilities	$	2,026

As of March 31, ~~2020,~~2021, right-of-use assets were ~~$0.1~~$1.9 million and lease liabilities were ~~$0.1~~$2.0 million. ~~During~~

Rent expense totaled $0.2 million in each of the three months ended March 31, ~~2020, the Company entered into two new real property leases which will commence in July 1,~~2021 and 2020. ~~The Company expects to recognize a right-of-use asset and an offsetting lease liability in the amount of $1.8 million in the unaudited consolidated balance sheet upon lease commencement.~~

Future minimum rental commitments under lease agreements, as of March 31, ~~2020,~~2021, with non-cancelable terms greater than one year for each of the years ending December 31 are as follows (in thousands):

	Year Ended
	December 31,		Year Ended
2020 (nine months)	$	217
2021		448
			December 31,
2021 (nine months)			$	440
2022		481		573
2023		492		587
2024		503		587
2025 and thereafter		462		489
Total future minimum lease obligations	$	2,603		2,676
Less imputed interest				(650	)
Total lease liabilities			$	2,026

NOTE 11— COMMITMENTS AND CONTINGENCIES

On April 24, 2012, CAO Group, Inc. (“CAO”) filed a lawsuit against BIOLASE in the District of Utah alleging that BIOLASE’s ezlase dental laser infringes on U.S. Patent No. 7,485,116 (the “116 Patent”). On September 9, 2012, CAO amended its complaint, adding claims for (1) business disparagement/injurious falsehood under common law and (2) unfair competition under 15 U.S.C. Section 1125(a). The additional claims stem from a press release that BIOLASE issued on April 30, 2012, which CAO claims contained false statements that are disparaging to CAO and its diode product. The amended complaint sought injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest. Until January 24, 2018, this lawsuit was stayed in connection with United States Patent and Trademark Office proceedings relating to the 116 Patent, which proceedings ultimately culminated in a January 27, 2017 decision by the United States Court of Appeals for the Federal Circuit, affirming the findings of the Patent Trial and Appeal Board, which were generally favorable to the Company. On January 25, 2018, CAO moved for leave to file a second amended complaint to add certain claims, which filing the Company is not opposing.

On January 23, 2018, CAO filed a lawsuit against BIOLASE in the Central District of California alleging that BIOLASE’s diode lasers infringe on U.S. Patent Nos. 8,337,097, 8,834,497, 8,961,040 and 8,967,883. The complaint seeks injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest.

On January 25, 2019 (the “Effective Date”), BIOLASE entered into a settlement agreement (the ~~“Settlement~~“CAO Settlement Agreement”) with CAO. Pursuant to the CAO Settlement Agreement, CAO agreed to dismiss with prejudice the lawsuits filed by CAO against the Company in April 2012 and January 2018. In addition, CAO granted to the Company and its affiliates a non-exclusive, non-transferable (except as provided in the CAO Settlement Agreement), royalty-free, fully-paid, worldwide license to the licensed patents for use in the licensed products and agreed not to sue the Company, its affiliates or any of its manufacturers, distributors, suppliers or customers for use of the licensed patents in the licensed products, and the parties agreed to a mutual release of claims. The Company agreed (i) to pay to CAO, within five days of the Effective Date, $500,000 in cash, (ii) to issue to CAO, within 30 days of the Effective Date, 500,000 restricted shares of common stock of the Company (the “Stock Consideration”), and (iii) to pay to CAO, within 30 days of December 31, 2021, an amount in cash equal to the difference (if positive) between $1,000,000 and the value of the Stock Consideration on December 31, 2021. The Stock Consideration vests and becomes transferrable on December 31, 2021, subject to the terms of a restricted stock agreement ~~to be~~ entered into between the parties. The Company considered this a Type I subsequent event and recognized a $1.5 million contingent loss on patent litigation settlement in its statement of operations for the year ended December 31, 2018. In January 2019, the Company paid CAO $500,000 in cash. On January 31, 2019, the case was dismissed with prejudice. During the three-month period ended March 31, 2019, the Company recorded an additional loss on patent litigation of $0.2 million which represented the change in fair value of the restricted stock to be issued to CAO at March 31, 2019. Subsequent to March ~~31,2019,~~31, 2019, the Company reversed the additional loss commensurate with the fluctuations in the Company’s share price. In August 2020, the Company signed a Letter Agreement to terminate the Manufacturing Agreement and purchase from CAO raw materials and other inventory held by CAO as part of the original CAO Settlement Agreement.

In February 2021, the Company issued 500,000 restricted shares of common stock in satisfaction of its obligation to issue the Stock Consideration to CAO under the CAO Settlement Agreement and reduced the accrued liability to $0.6 million. As of March 31, ~~2020 and~~2021, the remaining accrued liability related to the CAO Settlement Agreement was included in current accrued liabilities in the amount of $0.6 million. As of December 31, ~~2019,~~2020, the accrued liability ~~relating~~related to ~~this agreement~~the CAO Settlement Agreement was $1.0 ~~million.~~million and was included in non current other liabilities.

NOTE 12—SEGMENT INFORMATION

The Company currently operates in a single business segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. For the three months ended March 31, 2021 and 2020, sales to customers in the United States accounted for approximately 64% and 65% of net revenue and international sales accounted for approximately 36% and 35% of net revenue, respectively. NoNaN individual country, other than the United States, represented more than 10% of total net revenue during the three months ended March 31, ~~2020~~2021 or ~~2019.~~2020.

Net revenue by geographic location based on the location of customers was as follows (in thousands):


	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2020		2019		2021		2020
United States	$	3,129	$	6,116	$	5,221		$	3,129
International		1,654		4,210		2,895			1,654
	$	4,783	$	10,326
Total revenue					$	8,116		$	4,783

Property, plant, and equipment by geographic location was as follows (in thousands):


	March 31,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
United States	$	742	$	908	$	410		$	486
International		275		285		283			296
	$	1,017	$	1,193
Total					$	693		$	782

NOTE 13—CONCENTRATIONS

Revenue from the Company’s products ~~for the three months ended March 31, 2020 and 2019~~ are as follows (dollars in thousands):


	Three Months Ended								Three Months Ended
	March 31,								March 31,
	2020				2019				2021				2020
Laser systems	$	2,051	42.9	%	$	5,964	57.8	%	$	4,898	60.3	%	$	2,051	42.9	%
Imaging systems		—	—	%		552	5.3	%		0	0	%		0	0	%
Consumables and other		1,472	30.8	%		2,112	20.5	%		2,237	27.6	%		1,472	30.8	%
Services		1,260	26.3	%		1,695	16.4	%		981	12.1	%		1,260	26.3	%
License fees and royalties		—	—	%		3	—	%		0	0	%		0	0	%
Total revenue	$	4,783	100.0	%	$	10,326	100.0	%	$	8,116	100.0	%	$	4,783	100.0	%

NoNaN individual customer represented more than 10% of the Company’s revenue for the three months ended March 31, ~~2020~~2021 or ~~2019.~~2020.

The Company maintains its cash and cash ~~equivalent~~equivalents in money market investment accounts with established commercial banks. Such cash deposits periodically exceed the Federal Deposit Insurance Corporation insured limit.

~~One~~NaN individual customer represented more than 10% of the Company’s accounts receivable at March 31, ~~2020~~2021 and December 31, ~~2019.~~2020.

The Company currently purchases certain key components of its products from single suppliers. Although there are a limited number of manufacturers of these key components, management believes that other suppliers could provide similar key components on comparable terms. A change in suppliers, however, could cause delays in manufacturing and a possible loss of sales, which could adversely affect the Company’s business, results of operations and financial condition.

NOTE 14—INCOME TAXES

The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered, and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Based on the Company’s net losses in prior years, management has determined that a full valuation allowance against the Company’s net deferred tax assets is appropriate.

Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has elected to classify interest and penalties as a component of its income tax provision. With respect to the liability for unrecognized tax benefits, including related estimates of penalties and interest, the Company did ~~not~~0t record a liability for unrecognized tax benefits for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. The Company does not expect any changes to its unrecognized tax benefit for the next 12 months that would materially impact its consolidated financial statements.

During the three months ended March 31, ~~2020~~2021 and ~~March 31, 2019,~~2020, the Company recorded an income tax provision of $60,000 and a benefit of $19,000 ~~and a provision of $15,000, respectively,~~ resulting in an effective tax rate of ~~0.2%~~0.9% and ~~0.3%~~0.2%, respectively. The income tax provisions for the three months

ended March 31, ~~2020~~2021 and ~~2019~~2020 were calculated using the discrete year-to-date method. The effective tax rate differs from the statutory tax rate of 21% primarily due to the existence of valuation allowances against net deferred tax assets and current liabilities resulting from the estimated state income tax liabilities and foreign tax liability.

The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with ~~the~~our unaudited condensed consolidated financial statements and related notes of included elsewhere in this Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions, which could cause actual results to differ materially from management’s expectations.

BIOLASE, Inc. (“BIOLASE”) and its consolidated subsidiaries (together with BIOLASE, the “Company,” “we,” “our,” or “us”) ~~included~~referenced elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and our audited consolidated financial statements and related notes included in the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020, filed with the Securities and Exchange Commission (the “SEC”) on March ~~30, 2020~~31, 2021 (the ~~“2019~~“2020 Form 10-K”). In addition to historical information, this discussion and analysis contains “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements include statements, predictions, or expectations regarding expected revenue, sales and marketing expenses, general and administrative expenses, investments in engineering and development and other investment activities, interest rate fluctuations, future liquidity, potential collaborations, market opportunities, ~~future products and services and enhancements of existing products and services, potential collaborations,~~plans with respect to a new device being developed for endodontists, our use of proceeds from the PPP Loan (as defined below), COVID-19, seasonality and the reasons therefor, operating and other expenses, anticipated cash needs, our strategy and any other statement that is not historical fact. Forward-looking statements are identified by the use of words such as “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “continue,” “expect,” “believe,” “anticipate,” “estimate,” “predict,” “outlook,” “potential,” “plan,” “seek,” and similar expressions and variations or the negatives of these terms or other comparable terminology.

The forward-looking statements contained in this Form 10-Q are based on the expectations, estimates, projections, beliefs, and assumptions of our management based on information available to management as of the date on which this Form 10-Q was filed with the SEC, or as of the date on which the information incorporated by reference was filed with the SEC, as applicable, all of which are subject to change. Forward-looking statements are subject to risks, uncertainties, and other factors that are difficult to predict and could cause actual results to differ materially from those stated or implied by our forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to:

Further information about factors that could materially affect the Company, including our results of operations and financial condition, is contained under “Risk Factors” in Item 1A in the ~~2019~~2020 Form 10-K and in Item 1A to this Form 10-Q. Except as required by law, we undertake no obligation to revise or update any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise.

We are a leading provider of advanced laser systems for the dental industry. We develop, manufacture, market, and sell laser systems that provide significant benefits for dental practitioners and their patients. Our proprietary systems allow dentists, periodontists, endodontists, oral surgeons, and other dental specialists to perform a broad range of minimally invasive dental procedures, including cosmetic, restorative, and complex surgical applications. Our laser systems are designed to provide clinically superior results for many types of dental procedures compared to those achieved with drills, scalpels, and other conventional instruments. Potential patient benefits include less pain, fewer shots, faster healing, decreased fear and anxiety, and fewer appointments. Potential practitioner benefits include improved patient care and the ability to perform a higher volume and wider variety of procedures and generate more patient referrals.

We offer two categories of laser system products: Waterlase (all-tissue) systems and diode (soft-tissue) systems. Our flagship brand, the Waterlase, uses a patented combination of water and laser energy and is FDA cleared for over 80 clinical indications to perform most procedures currently performed using drills, scalpels, and other traditional dental instruments for cutting soft and hard tissue. For example, Waterlase safely debrides implants without damaging or significantly affecting surface temperature and is the

only effective, safe solution to preserving sick implants. In addition, Waterlase disinfects root canals more efficiently than some traditional chemical methods. We also offer our diode laser systems to perform soft tissue, pain therapy, and cosmetic procedures, including teeth whitening. ~~As of March 31, 2020 we~~We have approximately ~~261~~271 issued and 5240 pending United States and international patents, the majority of which are related to Waterlase technology. From 1998 through ~~March~~December 31, 2020, we sold over 41,200 laser systems in over 80 countries around the world. Contained in this total are approximately ~~13,400~~13,600 Waterlase systems, including over ~~8,900~~9,100 Waterlase MD, MDX, Express and iPlus systems.

Consistent with our goal to focus our energies on strengthening our leadership, and worldwide competitiveness and increasing the amount of attention we pay to our professional customers and their patients, we have made strategic personnel additions to our senior management team.

Our Waterlase systems precisely cut hard tissue, bone, and soft tissue with minimal or no damage to surrounding tissue and dental structures. Our ~~Diode~~diode systems, which include the Epic system, are designed to complement our Waterlase systems, and are used only in soft tissue procedures, pain therapy, hygiene, and cosmetic applications, including teeth whitening. The ~~Diode~~diode systems, together with our Waterlase systems, offer practitioners a broad product line with a range of features and price points.

We also manufacture and sell consumable products and accessories for our laser systems. Our Waterlase and ~~Diode~~diode systems use disposable laser tips of differing sizes and shapes depending on the procedure being performed. We also market flexible fibers and hand pieces that dental practitioners replace at some point after initially purchasing laser systems. For our Epic systems, we sell teeth whitening gel kits.

Due to the limitations associated with traditional and alternative dental instruments, we believe there is a large market opportunity for all-tissue dental laser systems that provide superior clinical outcomes, reduce the need to use anesthesia, help reduce trauma, pain, and discomfort associated with dental procedures, and increase patient acceptance for treatment protocols.

Our strategy is to increase awareness and demand for (i) our products among dental practitioners by educating dental practitioners and patients about the clinical benefits of our product suite and (ii) our laser systems among patients by educating patients about the clinical benefits of the Waterlase and ~~Diode~~diode systems. An important goal of ours is to increase consumables revenue by selling more single-use accessories used by dental practitioners when performing procedures using our dental laser systems. In the short term, we are striving for operating excellence through lean enterprise initiatives, with a specific focus on our sales strategy and cash flow management, coupled with optimizing our engineering capabilities to develop innovative new products.

We also seek to create value through innovation and leveraging existing technologies into adjacent medical applications. We plan to expand our product line and clinical applications by developing enhancements and transformational innovations, including new clinical solutions for dental applications and for other adjacent medical applications. In particular, we believe that our existing technologies can provide significant improvements over existing standards of care in fields including ophthalmology, otolaryngology, orthopedics, podiatry, pain management, aesthetics/dermatology, veterinary, and consumer products. We plan to continue to explore potential collaborations to apply our proprietary laser technologies with expanded FDA-cleared indications to other medical applications in the future.

~~Recent Developments~~During the first quarter of 2021, the Company experienced revenue growth of 70%, compared to the first quarter of 2020, primarily due to high demand from new users for its dental lasers. The Company is currently forecasting revenue for the second quarter ending June 30, 2021 to be significantly above the year-ago second quarter, which was the quarter most impacted by COVID-19. Although there are signs of recovery from the impact of COVID-19 both domestically and internationally, no assurance can be provided that the favorable trends will continue.

To further accelerate our growth, over the past six months, we have formed specialist academies focused on expanding awareness of the benefits of our dental lasers into dental specialist communities. During the second quarter of 2021, we launched the Waterlase Pediatric Dental Academy (the "WPDA") for pediatric dentists. This academy will provide clinicians with an immersive training experience through peer-led learning, best practice sharing, and ongoing mentorship to help ensure optimal integration of Waterlase technology into clinical practices. During the first quarter of 2021, we also launched an innovative and first-of-its-kind program in the periodontal community. This program fosters peer-led learning about dental lasers and an ongoing mentorship from leading clinicians, featuring online meetings and case reviews by experts in the field. Additionally, during the first quarter of 2021, we launched the Waterlase Endo Academy, an exclusive community of leading endodontists dedicated to improving patient outcomes and profitability with new technology, and announced a collaboration with Einstein Healthcare Network’s Residency in Endodontics to train endodontics residents in the use of Waterlase dental lasers.

In April 2021, we also announced plans to develop a new EdgePRO laser-assisted microfluidic irrigation device for endodontists with EdgeEndo, a global leader in commercializing endodontic products. The new microfluidic irrigation device is being developed to offer a solution to endodontists seeking more from their current cleaning and disinfecting techniques. The EdgePRO will be built upon BIOLASE’s patented and proven platform that has been shown to significantly improve debridement, cleaning, and disinfection by up to 99% using the most advanced laser light sound technology.

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The novel coronavirus ~~has since~~ spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to the coronavirus outbreak. This outbreak ~~has~~ severely impacted global economic activity, and many countries and many states in the United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. These mandated business closures ~~have~~ included dental office closures ~~worldwide~~in Europe and the United States for all but emergency ~~procedures, for the most part. The ability of our~~procedures. Our salespeople were unable to call on dental customers during these ~~closures has been greatly limited.~~closures. In addition, most dental shows and workshops scheduled in the first and second quarters of 2020 have been canceled. As a result of reduced sales due to the COVID-19 pandemic and actions taken to contain it, cash generated from our operations during the first quarter of 2020 were negatively impacted. The full impact of the COVID-19 outbreak continues to evolve and the full magnitude that the pandemic may have on our financial condition, liquidity, and future results of operations remains uncertain.canceled. There is no assurance that the Company’s sales will return to normal levels during ~~the second quarter of 2020~~2021 or at any time thereafter. See Item 1A — “Risk Factors” for additional information regarding the potential impact of the COVID-19 pandemic on our business, results of operations and financial condition.

~~On April 14, 2020, BIOLASE was granted a loan~~In light of the Company's increase in working capital from ~~Pacific Mercantile Bank (the “PPP Loan”) in~~ the ~~aggregate amount of $2,980,000, pursuant~~Equity Offering (as defined below) and cash received from warrants exercised, we entered into the Seventh Amendment to the ~~Paycheck Protection Program~~Credit Agreement (the ~~“PPP”~~“Seventh Amendment”) ~~under Division A, Title I~~with SWK Funding LLC on February 24, 2021, which provides for adjusted minimum aggregate revenue and EBITDA requirements at the end of certain periods, to the ~~Coronavirus Aid Relief~~extent that the Company's liquid assets are less than $15 million. As amended, the Credit Agreement provides that while the Company's liquid assets are at or above $15 million, no additional financial maintenance covenants are applicable.

On February 10, 2021, BIOLASE issued and ~~Economic Securities (CARES) Act, which was enacted March 27, 2020.~~

~~The PPP Loan, which was~~sold in ~~the form~~an underwritten bought deal offering an aggregate of ~~a Note dated April 13, 2020 issued by the Company, matures on April 13, 2022 and bears interest~~14,000,000 shares of common stock at a ~~rate~~price of ~~1.0%~~$1.03 per ~~annum, payable monthly commencing on November 1, 2020.~~share less underwriting discounts and commissions. The ~~Note may be prepaid by the~~ Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities,received gross proceeds of approximately $14.4 million before deducting underwriting discounts and ~~interest on other debt obligations incurred before February 15, 2020.~~commissions and estimated offering expenses of $1.1 million. The Company intends to use the ~~entire PPP Loan amount for qualifying expenses. Under the terms~~aggregate net proceeds of the ~~PPP, amounts spent on authorized purchases~~offering primarily for working capital and general corporate purposes.

On February 22, 2021, Todd Norbe resigned as President and Chief Executive Officer of BIOLASE, and resigned as a member of the Company's board of directors (the "Board").

Effective February 23, 2021, the Board appointed John R. Beaver President and Chief Executive Officer of the Company. Mr. Beaver was most recently the Company’s Executive Vice President, Chief Operating Officer and Chief Financial Officer. He joined BIOLASE in 2017 as Senior Vice President and Chief Financial Officer. He assumed roles of varying responsibilities over ~~eight weeks after receiving~~ the ~~loan may be forgiven if they are used for qualifying expenses as described in~~past few years, including Interim Chief Executive Officer of BIOLASE from April 2017 until the ~~CARES Act.~~

As of December 31, 2019, the Company was not in compliance with its debt covenants under its credit agreement (as amended) with SWK Funding, LLC. In March 2020, the Company entered into a Fourth Amendment to its Credit Agreement with SWK. Under this Amendment, the financial covenant is amended to require consolidated unencumbered liquid assets of no less than $3.0 million as of any date of determination. The amendment also adjusted the Minimum Aggregate Revenue requirements.

~~In April 2020, the Company borrowed $3.0 million in connection with its credit facility with Pacific Mercantile Bank (the “PMB Loan”).~~

~~In April, 2020, the Company entered into a partnership with an intensive care equipment manufacturer to supply ICU-grade portable ventilators through BIOLASE’s FDA-registered manufacturing facility.~~

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses reported during the period. Information with respect to our critical accounting policies that we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the ~~2019~~2020 Form 10-K. There have been no significant changes during the three months ended March 31, ~~2020~~2021 in our critical accounting policies from those disclosed in Item 7 of the ~~2019~~2020 Form 10-K.

The following table sets forth certain data from our unaudited ~~consolidated statements of operations~~operating results, expressed in thousands and as percentages of net revenue:

In addition to the financial information prepared in conformity with GAAP, we provide certain historical non-GAAP financial information. Management believes that these non-GAAP financial measures assist investors in making comparisons of period-to-period operating results and that, in some respects, are indicative of our ongoing core performance. In 2019, we revised our non-GAAP financial measures to include the change in allowance for doubtful accounts in an effort to better align Adjusted EBITDA with our loan covenants and how management evaluates business performance. ~~Prior year non-GAAP disclosures have been revised to conform to the current definition of Adjusted EBITDA.~~

Management believes that the presentation of this non-GAAP financial information provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments, and amortization methods, which provides a more complete understanding of our financial performance, competitive position, and prospects for the future. However, the non-GAAP financial measures presented in this Form 10-Q have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by us may be different from similarly named non-GAAP financial measures used by other companies.

Management uses Adjusted EBITDA in its evaluation of our core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Adjusted EBITDA is defined as net loss before interest, taxes, depreciation and amortization, patent litigation settlements, stock-based compensation, ~~allowance for doubtful accounts~~ and the change in ~~fair value of our patent litigation settlement liability.~~allowance for doubtful accounts. Management uses adjusted EBITDA in its evaluation of our core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by us may be different from similarly named non-GAAP financial measures used by other companies.

The following table contains a reconciliation of non-GAAP Adjusted EBITDA to GAAP net loss attributable to common stockholders (in thousands):

Three ~~months ended~~Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020 ~~and 2019~~

Net Revenue: The following table summarizes our unaudited net revenues by category, including each category’s percentage of our total revenue, for the three months ended March 31, ~~2020~~2021 and ~~March 31, 2019,~~2020, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):

The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the three months ended March 31, 2021 and 2020, as well as the amount of change and percentage of change in each geographic revenue category, (dollars in thousands):

Typically, we experience fluctuations in revenue from quarter to quarter due to seasonality. Revenue in the first quarter typically is lower than average, and revenue in the fourth quarter typically is higher than average, due to the buying patterns of dental practitioners. We believe that this trend exists because a significant number of dentists purchase their capital equipment towards the end of the calendar year in order to maximize their practice earnings while seeking to minimize their taxes. They often use certain tax incentives, such as accelerated depreciation methods for purchasing capital equipment, as part of their year-end tax planning. In addition, revenue in the third quarter may be affected by vacation patterns which can cause revenue to be flat or lower than in the second quarter of the year. Our historical seasonal fluctuations may also be impacted by sales promotions used by large dental distributors that encourage end-of-quarter and end-of-year buying in our industry.

The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the three months ended March 31, 2020 and March 31, 2019, as well as the amount of change and percentage of change in each geographic revenue category, (dollars in thousands):

Total net revenue ~~decreased~~increased by ~~$5.5~~$3.3 million, or ~~53.7%~~70%, during the three months ended March 31, ~~2020~~2021 as compared to the same period in ~~2019~~2020 primarily due to ~~the impact~~worldwide dental office closures in 2020 as a result of the global COVID-19 pandemic. In the U.S., net revenue ~~decreased~~increased by ~~$3.0~~$2.1 million, or ~~49%~~67%, for the three months ended March 31, ~~2020~~2021 compared to the same period in ~~2019.~~ 2020.

Outside the U.S., net revenue ~~declined~~increased by ~~$2.5~~$1.2 million, or ~~61%~~75%, during the three months ended March 31, ~~2020~~2021 as compared to the same period in ~~2019. Because a majority of our sales are typically made~~2020. We believe dental offices in the ~~last month of a quarter, our sales were particularly adversely affected by~~U.S. are beginning to return to prior patient volume resulting in better revenue results, while patient volume in many countries outside the ~~stay-at-home orders issued in early to mid-March.~~U.S. are still lagging from their pre-COVID-19 levels.

Cost of Revenue and Gross Profit: The following table summarizes our unaudited cost of revenue and gross profit for the three months ended March 31, ~~2020~~2021 and ~~March 31, 2019,~~2020, as well as the amount of change and percentage of change (dollars in thousands):

Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. ~~The 62% decrease in gross~~Gross profit ~~as a percentage of revenue~~ for the three months ended March 31, ~~2020,~~2021, was $2.7 million, or 34% of net revenue, an increase of approximately $1.4 million, or 103%, as compared towith gross profit of $1.4 million, or 28% of net revenue, for the ~~three months ended March 31, 2019,~~same period in 2020. The 6% increase in gross profit reflects the impact of the ~~decrease~~increase in revenues from the COVID-19 pandemic ~~and our fixed manufacturing costs.~~combined with an increase in average selling prices for products sold in the U.S. during first quarter of 2021 compared to the same period in 2020.

Operating Expenses: The following table summarizes our unaudited operating expenses ~~for the~~(including as a percentage of net revenue) for the three months ended March 31, ~~2020~~2021 and ~~March 31, 2019,~~2020, as well as the amount of change and percentage of change (dollars in thousands):

~~The quarter-over-quarter total operating expenses are explained in the following expense categories:~~

Sales and Marketing Expense. Sales and marketing expenses during the three months ended March 31, ~~2020 decreased~~2021 increased by ~~$1.2~~$0.8 million, or ~~30%~~31%, as compared to the same period in ~~2019.~~2020. This ~~decrease~~increase is primarily due to ~~decreases of $0.4~~$0.5 million in bonus incentives for achieving sales targets, $0.2 million in sales commissions, $0.2 million in ~~travel~~increased advertising expenses, and ~~travel related expenses,~~ $0.2 million in various other expenses, partially offset by $0.3 million in reduced travel and trade show ~~and $0.1 million in advertising costs and $0.1 million in payroll and benefit costs which are primarily due to~~related expenses from the impact of the COVID-19 pandemic on our business operations. ~~Additionally, given the recent dental office closures, we expect our second quarter sales and marketing expense to be lower for the year ended December 31, 2020.~~

General and Administrative Expense. General and administrative expenses during the three months ended March 31, ~~2020~~2021 increased by ~~$0.6~~$0.4 million, or ~~26%~~15%, compared to the same period in ~~2019,~~2020, primarily due to ~~an increase~~$0.4 million in ~~our provision for bad debt~~severance expense, $0.3 million from a special shareholders meeting scheduled to be held in the first quarter of ~~$0.9~~2021, $0.3 million ~~due to uncertainties surrounding our ability to collect on certain of our accounts receivable~~ in ~~light of the COVID-19 pandemic. The increase was offset primarily by a $0.1~~legal and audit fees, $0.3 million ~~decrease~~ in ~~bank fees~~leadership bonus awards, and a $0.2 million ~~decrease~~ in ~~payroll and benefits and compensation~~various other expenses. These increases are partially offset by $1.1 million in lower allowance for doubtful accounts expense.

Engineering and Development Expense. Engineering and development expenses during the three months ended March 31, ~~2020 decreased~~2021 increased by ~~$0.4~~$0.8 million, or ~~30%~~82%, compared to the same period in ~~2019,~~2020, primarily due to ~~a $0.4 million decrease~~an increase in payroll ~~and consulting-related~~ expenses driven by ~~a reduction~~an increase in engineering projects for ~~2020~~2021 as compared to ~~2019.~~ We2020. Although our primary focus will be on our sales and marketing efforts, we expect to continue our investment in engineering and development activity in the remainder of ~~2020. However, our primary focus will be on our sales and marketing efforts.~~

~~Change in fair value of patent litigation settlement liability.~~ During the three months ended March 31, 2019, we recognized a $0.2 million loss on patent litigation settlement with CAO Group, Inc., as described in Part I, Item I, Note 11 – Commitments and Contingencies above, due to the change in fair value of the restricted stock which is pending issuance. We did not recognize a change in valuation for the three months ended March 31, 2020 as our stock price remained below $1.00 per share. 2021.

Loss on Foreign Currency Transactions. We realized a ~~$84,000~~$0.2 million loss on foreign currency transactions during the three months ended March 31, ~~2020~~2021 compared to a ~~$43,000~~$0.1 million loss on foreign currency transactions during the three months ended March 31, ~~2019,~~2020, primarily due to exchange rate fluctuations between the U.S. dollar and Euro, as well as other foreign currencies.

Interest Expense, Net. Interest expense was $0.6 million during the three months ended March 31, ~~20, 2020 increased by $0.1 million primarily due to~~2021 and was consistent with the ~~additional interest from incremental borrowing of $2.5 million on the SWK Loan~~same period in ~~the second quarter of 2019.~~2020. We expect interest expense to fluctuate depending on the movement in ~~LIBOR~~the London Interbank Bank Offered Rate (“LIBOR”) through the remainder of ~~2020~~2021 and the outstanding balance of our ~~PMB Loan.~~revolving line of credit with Pacific Mercantile Bank (the "PMB Loan"), if any.

Income Tax ~~Provision.~~Provision (Benefit). We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our provision for income taxes was a ~~benefit~~expense of ~~$19,000~~$60 thousand for the three months ended March 31, ~~2020~~2021 as compared to a ~~provision~~benefit of ~~$15,000~~$19 thousand for the same period in the prior year. For additional information regarding income taxes, see Part I, Item I, Note 14 – Income Taxes.

Net Loss. ~~Our~~ For the reasons stated above, our net loss totaled approximately $6.9 million for the three months ended March 31, 2021 compared to a net loss of $6.0 million for the three months ended March 31, ~~2020 compared to a net loss of $4.9 million for the three months ended March 31, 2019.~~2020.

At March 31, ~~2020,~~2021, we had approximately ~~$1.8~~$41.0 million in cash, cash equivalents and restricted cash. Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. The ~~decrease~~increase in ~~our~~ cash, cash equivalents, and restricted cash ~~of $4.3 million at March 31, 2020 as compared to December 31, 2019~~ was primarily due to ~~net cash used in operating activities~~proceeds of ~~$4.1 million. The $4.1~~$14.4 million from the issuance of ~~net cash used in operating activities was primarily driven by our net loss~~common stock and $16.5 million from warrants exercised during the first quarter of ~~$6.0 million for the three months ended March 31,~~2021 and fourth quarter of 2020.

The following table summarizes our change in cash, cash equivalents and restricted cash (in thousands):

Net cash used in operating activities consists of our net loss, adjusted for our non-cash charges, plus or minus working capital changes. Cash used in operating activities for the three months ended March 31, ~~2020~~2021 totaled ~~$4.1~~$6.5 million and was primarily comprised of our net loss of ~~$6.0~~$6.9 million and a net decrease in operating assets and liabilities of $1.1 million, partially offset by ~~non-cash adjustments for depreciation and amortization expenses of $0.3 million and~~ stock-based compensation ~~expenses of $0.7 million and our provision for bad debt~~expense of $0.9 million. The ~~$1.4 million~~ net ~~increase~~decrease in our operating assets and liabilities was primarily due to a ~~$3.0~~$0.7 million ~~decrease in accounts receivable primarily due to the impact of the COVID-19 pandemic on our revenues offset by an~~ increase ~~of $1.2 million~~ in inventory and a decrease in accounts payable and accrued liabilities of ~~$1.5 million.~~$0.5 million, partially offset by a $0.6 million decrease in prepaid expenses and other current assets.

Cash used in investing activities for the three months ended March 31, ~~2020 were~~2021 was minimal. We expect cash flows from investing activities to remain ~~consistent~~minimal through the remainder of ~~2020.~~2021.

Net cash ~~(used in)~~ provided by financing activities for the three months ended March 31, ~~2020 decreased by~~2021 was approximately ~~$0.1~~$29.8 million primarily due to the ~~payment~~sale of ~~the~~ common stock from our February 2021 equity offering ~~costs remaining from 2019.~~and the exercise of common stock warrants described below.

The $0.1 million effect of exchange rate ~~changes~~ on cash for the three months ended March 31, ~~2020~~2021 was ~~$18,000 and primarily~~ due to ~~fluctuations between~~recognized loss on foreign currency transactions, primarily driven by changes in the ~~U.S. Dollar and~~Euro during the ~~Euro.~~period.

As of March 31, ~~2020,~~2021, we had ~~negative~~ working capital of approximately ~~$3.7 million primarily due to the reclassification of our Term Loan from a long-term liability to short-term. .~~$46.5 million. Our principal sources of liquidity as of March 31, ~~2020~~2021 consisted of approximately ~~$1.8~~$41.0 million in cash, cash equivalents and restricted cash and ~~$4.7~~$3.3 million of net accounts receivable and any availability under our ~~credit facility with Pacific Mercantile Bank.~~PMB Loan.

Although the Company received gross proceeds of approximately $14.4 million from ~~operations~~an equity offering in February 2021 and ~~have not generated cash from operations~~$16.5 million for ~~the three years ended~~warrant exercises subsequent to December 31, ~~2019 and~~2020, the ~~three months ended March 31, 2020. Our level of cash used in operations, the need for additional capital, and the uncertainties surrounding our ability~~Company may still have to raise additional capital ~~raise substantial doubt about our ability to continue as a going concern. As a result of reduced sales due to~~in the future. Additional capital requirements may depend on many factors, including, among other things, the rate at which the Company’s business grows, the COVID-19 pandemic and the actions taken to contain it, ~~cash generated from our operations during~~demands for working capital, manufacturing capacity, and any acquisitions that the ~~first half of 2020~~Company may pursue. From time to time, the Company could be required, or may otherwise attempt, to raise capital through either equity or debt offerings. The Company cannot provide assurance that it will be ~~less than we anticipated. There is no assurance~~able to successfully enter into any such equity or debt financings in the future or that ~~sales will return~~the required capital would be available on acceptable terms, if at all, or that any such financing activity would not be dilutive to ~~normal levels during the second quarter of 2020 or at any time thereafter.~~ its’ stockholders.

~~Furthermore,~~The Company has historically experienced losses from operations and has used cash and cash equivalents in ~~order for us to continue operations beyond the next 12 months and~~operating activities. To be able to discharge our liabilities and commitments in the normal course of business, we must ~~sell~~increase sales of our products, ~~directly to end users~~control or potentially reduce expenses, and ~~through distributors,~~ establish profitable operations ~~through increased sales, decrease expenses,~~in order to generate cash from operations or obtain additional funds when needed.

We intend to improve our financial condition and ultimately improve our financial results by increasing revenues through expansion of our product offerings, continuing to expand and develop our field sales force and distributor relationships both domestically and internationally, forming strategic arrangements within the dental and medical industries, educating dental and medical patients as to the benefits of our advanced medical technologies, and reducing expenses.

On November 9, 2018, we entered into a five-year secured Credit Agreement (“Credit Agreement”) with SWK Funding LLC (“SWK”), pursuant to which we borrowed $12.5 million (“SWK Loan”). Our obligations under the Credit Agreement are secured by substantially all of our assets. Under the terms of the Credit Agreement, repayment of the loan is interest-only for the first two years, paid quarterly with the option to extend the interest-only period. Principal repayments will begin in the second quarter of 2021 and will be approximately $0.7 million quarterly until the loan matures in the fourth quarter of 2023. The loan bears interest at London Interbank Bank Offered Rate (“LIBOR”) plus 10% or another index that approximates LIBOR as close as possible if and when LIBOR no longer exists. Approximately $0.9 million of the proceeds from the SWK Loan were used to pay off all amounts owed to Western Alliance Bank. In connection with the Credit Agreement, we issued warrants to SWK (the “SWK Warrants”) on November 9, 2018 to purchase up to 372,023 shares of BIOLASE common stock and on May 7, 2019, to purchase up to 115,175 shares of BIOLASE common stock. The SWK Warrants were immediately exercisable and expire 7 years after the applicable issuance date. The exercise price of the SWK Warrants issued on November 9, 2018 is $1.34, and the exercise price of the SWK Warrants issued on May 7, 2019 is $2.17, both of which were based on the average closing price of BIOLASE common stock for the ten trading days immediately preceding the applicable issuance date.

The Credit Agreement contains financial and non-financial covenants requiring us to, among other things, (i) maintain unencumbered liquid assets of no less than $1.5 million or (B) the sum of aggregate cash flow from operations less capital expenditures, (ii) achieve certain revenue and EBITDA levels during the first two years of the loan, (iii) limit future borrowing, investments and dividends, and (iv) submit monthly and quarterly financial reporting.

~~As of March 31, 2019, we were not in compliance with certain covenants in the Credit Agreement, as described~~information set forth in Note 9 ~~to the consolidated financial statements included in Item 1 of this 10-Q, and in May 2019, SWK granted us a waiver of such covenants. On May 7, 2019, we and SWK agreed to amend the~~– Debt – Term Loan is hereby incorporated herein by reference.

Revolving Credit Agreement (the “First Amendment) to increase the total commitment from $12.5 million to $15.0 million, and to revise the financial covenants to (i) adjust minimum revenue and EBITDA levels, (ii) require the us to have a shelf registration statement declared effective by the Securities and Exchange Commission before September 30, 2019, with a proposed maximum aggregate offering price of at least $10.0 million if we did not reach set minimum revenue levels for the three-month period ended September 30, 2019, and (iii) require minimum liquidity of $1.5 million at all times. Facility

The First Amendment provides that if aggregate minimum revenue and EBITDA levels are not achieved by September 30, 2019, the minimum liquidity requirement will be increased to $3.0 million, until we have obtained additional equity or debt funding of no less than $5.0 million. In connection with the amendment, we paid to SWK loan origination and other fees of approximately $0.1 million payable in cash and approximately $0.2 million in additional SWK Warrants to purchase BIOLASE common stock. In 2019, we borrowed the additional $2.5 million.

On September 30, 2019, we entered into the Second Amendment to Credit Agreement (the “Second Amendment”) with SWK, in connection with that certain Credit Agreement, by and among us, SWK, and the lender parties thereto. The Second Amendment amends the Credit Agreement to provide for a permitted inventory and accounts receivable revolving loan facility, secured by a first lien security interest in our inventory and accounts receivable, with a maximum principal amount of $5.0 million and with such other material terms and conditions acceptable to SWK in its commercially reasonable discretion. In addition, SWK agreed to waive the effect of our non-compliance with certain unencumbered liquid assets financial operating covenants asinformation set forth in ~~the~~Note 9 – Debt – Lines of Credit ~~Agreement,~~– Pacific Mercantile Bank is hereby incorporated herein by reference.

The information set forth in Note 9 – Debt – Paycheck Protection Program Loan is hereby incorporated herein by reference.

The information set forth in Note 9 – Debt – EIDL Loan is hereby incorporated herein by reference.

On February 10, 2021, BIOLASE issued and SWK agreed to forbear from exercising rights and remedies otherwise available to it in the event of such non-compliance through October 31, 2019, or earlier in the event that an additional equity or subordinated debt financing is consummated with gross proceeds of not less than $5.0 million, or in the event of a default under the Credit Agreement. The Second Amendment contains representations, warranties, covenants, releases, and conditions customary for a forbearance and credit agreement amendment of this type. In 2019 we obtained additional equity financing greater than $5.0 million.

On November 6, 2019, we agreed to further amend the Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, SWK granted the us a waiver of our non-compliance with certain financial covenants in the Credit Agreement. Also pursuant to the Third Amendment, we and SWK agreed to (i) revise financial covenants to adjust minimum revenue and EBITDA levels and (ii) remove the automatic increase of the minimum liquidity requirement based on certain aggregate minimum revenue and EBITDA levels as of September 30, 2019 (which was added pursuant to the First Amendment). In connection with the Third Amendment, we consolidated the SWK Warrants issued to SWK on November 9, 2018 and May 7, 2019, and the exercise price was adjusted to $1.00.

As of December 31, 2019, we were not in compliance with our debt covenants under the Credit Agreement (as amended). In March 2020, we entered into a Fourth Amendment to the Credit Agreement. Under the Fourth Amendment, we obtained a waiver of our non-compliance with certain financial covenants contained in the Credit Agreement through March 31, 2020. Also pursuant to the Fourth Amendment, we agreed to revise (i) the financial covenants to adjust minimum revenue and EBITDA levels and (ii) revise the financial covenants with respect to unencumbered liquid assets. In connection with the Fourth Amendment, the Company amended the exercise price of the SWK Warrants to $0.49 per share.

~~Public Offering of Common Shares and Private Placement of Unregistered Preferred Shares~~

~~On October 29, 2019, we consummated the sale of 7,820,000 shares of BIOLASE common stock at a price to the public of $0.5750 per share~~sold in an underwritten ~~public~~bought deal offering ~~and in addition, granted the underwriters a 30-day over-allotment option to purchase up to~~ an ~~additional 1,173,000 shares~~aggregate of ~~BIOLASE common stock at the public offering price, less the underwriting discount.~~

On October 29, 2019, we also sold to existing investors affiliated with Jack W. Schuler and Oracle Investment Management, Inc., 69,565 unregistered shares of our Series E Preferred Stock at a price of $57.50 per share in a concurrent private placement. Each share of preferred stock is automatically convertible into 10014,000,000 shares of common stock at a ~~conversion~~ price ~~equal to $0.5750~~of $1.03 per share ~~subject to customary anti-dilution adjustments, at such time as BIOLASE increases the amount of its authorized common stock to permit the full conversion.~~

~~At the closing, we~~less underwriting discounts and commissions. The Company received ~~approximately $4.2 million in net proceeds from the common stock offering, after deducting the underwriting discount, and approximately $4.0 million in~~ gross proceeds ~~from the concurrent private placement, resulting in total net proceeds from the offering and private placement~~ of approximately ~~$8.2 million.~~$14.4 million before deducting underwriting discounts and commissions and estimated offering expenses.

On November 5, 2019, the underwriters exercised their over-allotment option to purchase an additional 1,173,000 shares of BIOLASE common stock at a share price of $0.5750 per share for approximately $0.6 million in net proceeds, after deducting the underwriting discount.

On October 28, 2019, BIOLASE, Inc. entered into a loan and security agreement (the “Loan Agreement”) with Pacific Mercantile Bank, as lender (“Lender”), which provides for a revolving line of credit (the “PMB Loan”), secured by substantially all of the Company’s assets, with a maximum principal amount not to exceed the lesser of (i) $3 million or (ii) the sum of 90% of the Eligible Accounts (as defined in the Loan Agreement) plus 75% of the Eligible Inventory (as defined in the Loan Agreement, and subject to certain limitations set forth therein); ~~provided~~ that the maximum principal amount of the PMB Loan may be reduced from time to time in the Lender’s good faith business judgment as set forth in the Loan Agreement. Borrowings under the PMB Loan may be used for working capital. The PMB Loan matures on October 28, 2021, unless earlier terminated.

Our obligations under the Loan Agreement are secured by a security interest in substantially all of our property. No borrowings may be made under the Loan Agreement unless and until Exim Bank agrees to guarantee the PMB Loan and we have entered into a borrower agreement with Exim Bank. Borrowings under the PMB Loan bear interest at a daily rate equal to the prime rate published in the ~~Wall Street Journal, plus 1.5% per annum;~~ ~~provided~~, that the interest rate in effect on any day shall not be less than 6.0% per annum. Additionally, we are required to pay an initial and annual fee of $52,500 to Exim Bank, as well as a termination fee equal to $30,000 in the event the Loan Agreement is terminated on or prior to October 28, 2020.

~~The Loan Agreement requires us to maintain unrestricted cash at Lender~~ ~~plus~~ ~~unused availability under the PMB Loan in an amount equal to at least the Burn Rate. “Burn Rate” means our net profit/net loss~~ ~~plus~~ ~~depreciation~~ ~~plus~~ ~~amortization~~ ~~plus~~ stock-based compensation, measured on a trailing three month basis. In addition, the Loan Agreement contains customary affirmative and negative covenants for financings of its type (subject to customary exceptions).

The Loan Agreement provides that the occurrence of any of the following events (subject to applicable cure periods, if any) will constitute an event of default: payment default, loans in excess of the credit limit, breach of representation or warranty, covenant breach, incurrence of certain liens, certain events with respect to the collateral, cross-defaults to certain other indebtedness or obligations secured by liens, a Material Adverse Change (as defined in the Loan Agreement) or a breach of a material agreement that may reasonably result in a Material Adverse Change, final judgement in excess of a certain monetary threshold, certain events of bankruptcy or insolvency, any guarantee or pledge ceasing to be in effect, payment of certain subordinated debt, a Change in Control (as defined in the Loan Agreement), a change in our President, Chief Executive Officer, or Chief Financial Officer under certain circumstances, a change in two or more members of our Board of Directors within 90 days under certain circumstances, or any felony indictment of any of our directors, officers or significant stockholders. Upon the occurrence and during the continuation of an event of default, the Lender may exercise any remedies available to it, including accelerating the repayment of the PMB Loan.

~~As of March 31, 2020, we had approximately $3.0 million of unused availability under this facility, and in April 2020, we borrowed $3.0 million on this facility.~~

On April 14, 2020, BIOLASE was granted a PPP Loan from Pacific Mercantile Bank in the aggregate amount of $2,980,000, pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act, which was enacted March 27, 2020.

The PPP Loan, which was in the form of a Note dated April 13, 2020 issued by BIOLASE, matures on April 13, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing on November 1, 2020. The Note may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. We intend to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

For a description of recently issued and adopted accounting pronouncements, including the respective dates of adoption and expected effects on our results of operations and financial condition, please refer to Part I, Item 1, Note 2 – Summary of Significant Accounting Policies, which is incorporated herein by this reference.

BIOLASE®, ZipTip®, ezlase®, eztips®, ComfortPulse®, Waterlase®, Waterlase Dentistry®, Waterlase Express®, iLase®, iPlus®, Epic®, Epic Pro®, WCLI®, World Clinical Laser Institute®, Waterlase MD®, Waterlase Dentistry®, and EZLase® are registered trademarks of BIOLASE, and Pedolase™ is a trademark of BIOLASE. All other product and company names are registered trademarks or trademarks of their respective owners.

~~Under the supervision and~~Our management has evaluated, with the participation of our ~~management, including our principal executive officer~~President and ~~principal financial officer, we conducted an evaluation of~~Chief Executive Officer, the effectiveness of the ~~design and operation of our~~Company’s disclosure controls and procedures as(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange ~~Act,~~Act) as of the end of the period covered by this ~~report (the “Evaluation Date”).~~report. Based on ~~this~~that evaluation, our ~~principal executive officer~~President and ~~principal financial officer~~Chief Executive Officer has concluded ~~as of~~that the ~~Evaluation Date that our~~Company’s disclosure controls and procedures were effective ~~such that~~as of the ~~information relating to~~end of the ~~Company, including our consolidated subsidiaries, required to be disclosed~~period covered by this report.

Changes in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.Internal Controls over Financial Reporting

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there has not been anyThere was no change in our internal control over financial reporting that occurred during the ~~quarter~~period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We identified a material weakness in internal control related to ineffective financial statement close process controls as they relate to the accounting for our Series E Convertible Preferred Stock. During our review of the consolidated financial statements as of December 31, 2019, we determined that the classification of the Series E Convertible Preferred Stock on the consolidated balance sheet was incorrect and that due to the fact that the Series E Convertible Preferred Stock is redeemable at the control of the stockholder, it should have been classified as mezzanine equity pursuant to the accounting guidance in Accounting Standards Codification Topic 480 – “~~Distinguishing Liabilities from Equity,”~~ and not a component of permanent equity. We believe that these control deficiencies were a result of a misinterpretation of the terms and conditions of the Certificate of Designations with respect to the Series E Convertible Preferred Stock Agreement which led to the misclassification. The error was corrected and the material weakness did not result in any misstatements to the consolidated financial statements, and the correction of the error did not result in any changes to previously released financial results. Based on this material weakness, the Company’s management concluded that at December 31, 2019, the Company’s internal control over financial reporting was not effective. As of March 31, 2020, the material weakness in internal controls had not been remediated.

Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated and operate, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) additional levels of review; (ii) additional training; and (iii) use of external consultants on highly technical accounting matters; and (iv) enhanced quarterly reporting on the remediation measures to the Audit Committee of the Board of Directors. We believe that these actions will remediate the material weakness. The weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2020.

In the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities. The ~~disclosure contained~~results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially and adversely affect our results of operations, cash flows and financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management resources and other factors. While the outcome of such proceedings and claims cannot be predicted with certainty, there are no matters, as of March 31, 2021, that, in ~~Part I, Item 1, Note 11 – Commitments and Contingencies is hereby incorporated herein by reference.~~the opinion of management, will have a material adverse effect on our financial position, results of operations or cash flows.

Except as set forth below, there have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of the 2020 Form 10-K. The risks and uncertainties described below and in the 2020 Form 10-K are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition, or results of operations.

Failure to meet ~~NASDAQ’s~~the continued listing requirements of the NASDAQ Stock Market, LLC (“NASDAQ”) could result in the delisting of our common stock, negatively impact the price of our common stock and negatively impact our ability to raise additional capital.

~~On March 31, 2020, BIOLASE~~We have received deficiency letters from NASDAQ in the past. For example, on December 3, 2019, we received a deficiency letter from ~~the~~NASDAQ’s Listing Qualifications Department (the “Staff”), notifying us that we violated the continued listing requirements of ~~the Nasdaq Stock Market (“Nasdaq”~~NASDAQ listing rule 5550(a)(2) (the “Minimum Bid Price Rule”), which requires that BIOLASE common stock maintain a minimum bid price of at least $1.00 per share. On March 31, 2020, we received a deficiency letter from NASDAQ notifying ~~BIOLASE~~us that, based on the ~~BIOLASE’s~~Company’s stockholders’ equity of $377,000 as of December 31, 2019, as reported in ~~its Annual Report on~~our Form 10-K for the fiscal year ended December 31, 2019, ~~BIOLASE is~~we were no longer in compliance with the minimum stockholders’ equity requirement for continued listing on ~~the Nasdaq Capital Market~~NASDAQ under ~~Nasdaq~~NASDAQ Listing Rule 5550(b)(1), which requires listed companies to maintain stockholders’ equity of at least $2.5 million. BIOLASE has until May 15, 2020 to provide Nasdaq with a specific plan to achieve and sustain compliance with the foregoing listing requirement. If the Company’s plan to regain compliance is accepted, Nasdaq may grant an extension

As of ~~up to 180 calendar days from~~ the date of this quarterly report on Form 10-Q, the ~~letter for the Company to evidence compliance.~~

~~On December 3, 2019, we received a deficiency letter from the Listing Qualifications Department~~market price of ~~The NASDAQ stating that, for the preceding 30 consecutive business days, the bid price for the Company’s~~BIOLASE common stock ~~had closed~~is below ~~the minimum~~ $1.00 per share requirement for continued inclusion on the NASDAQ pursuant to NASDAQ Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with NASDAQ rules, we have been provided an initial period of 180 calendar days, or until June 1, 2020 (the “Compliance Date”), to regain compliance with the Bid Price Rule.share. If at any time before the Compliance Date, the bid price for our common stock closes at $1.00 or more for a minimum of 10 consecutive business days, the Staff will provide written notification to us that it complies with the Bid Price Rule.

If we do not regain compliance with the Bid Price Rule by the Compliance Date, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would need to provide written notice of our intention to cure the deficiency during the additional compliance period, by effecting a reverse stock split, if necessary, provided that it meets the continued listing requirement for the market value of publicly held shares and all other initial listing standards, with the exception of the bid price requirement.

If we do not regain compliance with the Bid Price Rule by the Compliance Date and are not eligible for an additional compliance period at that time, the Staff will provide written notification to us that our common stock may be delisted. At that time, we may appeal the Staff’s delisting determination to a NASDAQ Listing Qualifications Panel.

We intend to monitor the closing bid price of our common stock and may, if appropriate, consider available options to regain compliance with the Bid Price Rule. However, we may not regain compliance with the Bid Price Rule or any of the other NASDAQ continued listing requirements in the future.

~~If, in the future,~~ we fail to comply with NASDAQ’s continued listing requirements, including the Minimum Bid Price Rule, we may receive another deficiency letter from the Staff, and if we do not regain compliance within the period specified in such deficiency letter, our common stock will be subject to delisting. If that were to occur, our common stock would be subject to rules that impose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from effecting transactions in our common stock. This would adversely affect the ability of investors to trade our common stock and would adversely affect the value of our common stock. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our common stock. ~~If we seek~~

The Company has proposed an amendment to ~~implement a further reverse stock split in order~~its certificate of incorporation to ~~remain listed on NASDAQ, the announcement or implementation of such~~effect a reverse stock split ~~could negatively affect~~of BIOLASE common stock, if and when determined by the ~~price~~Board. The Company’s stockholders will vote on the proposal at the Company's 2021 annual meeting of ~~our common stock.~~stockholders scheduled to be held on May 26, 2021. If the Company’s stockholders approve the reverse stock split, the Company expects to regain or maintain compliance with the Minimum Bid Price Rule for the foreseeable future. However, there is no assurance that the Company’s stockholders will approve the proposal.

Non-compliance with the objective and subjective criteria for the Paycheck Protection Program loan could have a material adverse effect on our business.

On April 14, 2020, BIOLASE ~~availed of PPP Loan~~obtained a loan (the “PPP Loan”) from Pacific Mercantile Bank in the aggregate amount of $2,980,000, pursuant to the Paycheck Protection Program under ~~Division A, Title I of~~ the CARES Act, which was enacted March 27, 2020. The PPP Loan, which was in the form of a Note dated April 13, 2020 issued by the Company, matures on April 13, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing on November 1, 2020. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the PPP Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act

Act. On April 23, 2020, the Secretary of the ~~U.S.~~United States Department of the Treasury stated that the ~~SBA~~Small Business Administration will perform a full review of any PPP loan over $2.0 million before forgiving the loan. In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, the maintenance of our entire workforce, notwithstanding certain obvious “work-from-home” limitations associated with the nature of our business. We also took into account our need for additional funding to continue operations, and our ability to ~~currently~~ access alternative forms of capital in the ~~current~~then-current market environment. Following this analysis, we believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the objectives of the PPP of the CARES Act. If it is later determined that we were ineligible to receive the PPP Loan, we may be required to repay

the PPP Loan in its entirety and/or be subject to additional penalties and adverse publicity, which could have a material adverse effect on our business, results of operations, and financial condition.

On March 31, 2020, BIOLASE received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market notifying BIOLASE that, based on the BIOLASE’s stockholders’ equity of $377,000 as of December 31, 2019, as reported in its Annual Report on Form 10-K for the year ended December 31, 2019, BIOLASE is no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain stockholders’ equity of at least $2.5 million. BIOLASE has until May 15, 2020 to provide Nasdaq with a specific plan to achieve and sustain compliance with the foregoing listing requirement. If the Company’s plan to regain compliance is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the letter for the Company to evidence compliance.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited):	3
	Consolidated Balance Sheets as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020	3
	Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, ~~2020~~2021 and March 31, ~~2019~~2020	4
	Consolidated Statements of Redeemable Preferred Stock and Stockholders’ ~~(Deficit)~~ Equity ~~as of~~for the three months ended March 31, ~~2020~~2021 and March 31, ~~2019~~2020	5
	Consolidated Statements of Cash Flows for the three months ended March 31, ~~2020~~2021 and March 31, ~~2019~~2020	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2824
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II	OTHER INFORMATION	34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 5	Other Information	4135
Item 4.6.	~~Controls and Procedures~~Exhibits	36
Signatures		41
~~PART II~~	~~OTHER INFORMATION~~	42
~~Item 1.~~	~~Legal Proceedings~~	42
~~Item 1A.~~	~~Risk Factors~~	42
~~Item 5~~	~~Other Information~~	43
~~Item 6.~~	~~Exhibits~~	44
~~Signatures~~		4739

	Three Months Ended
	March 31,
	2020			2019
Total redeemable preferred stock, beginning balance	$	3,965		$	—
Issuance of Redeemable preferred stock		—			—
Total redeemable preferred stock, ending balance	$	3,965		$	—

Common stock and additional paid-in capital:
Beginning balance		235,625			228,451
Issuance of common stock upon exercise of options		—			3
Settlement of liability awards		151			202
Stock offering costs		—			—
Stock-based compensation expense		640			634
Ending balance		236,416			229,290
Accumulated other comprehensive loss:
Beginning balance		(701	)		(670	)
Other comprehensive loss		(18	)		(55	)
Ending balance		(719	)		(725	)
Accumulated deficit
Beginning balance		(234,547	)		(216,692	)
Net loss		(6,006	)		(4,900	)
Ending balance		(240,553	)		(221,592	)
Total stockholders' (deficit) equity, ending balance	$	(4,856	)	$	6,973

	Three Months Ended
	March 31,						Three Months Ended
	2020			2019			March 31,
Expected term	5.9 years			6.1 years
							2021			2020
Expected term (years)								6.1			5.9
Volatility		82.2	%		86.2	%		110	%		82	%
Annual dividend per share	$	—		$	—		$	—		$	—
Risk-free interest rate		1.25	%		2.64	%		0.69	%		1.25	%


					Weighted		Weighted Average Remaining
					Average		Contractual			Aggregate
	Shares				Exercise Price		Term (Years)			Intrinsic Value(1)
Options outstanding at December 31, 2020		2,398		$		2.96		7.2	$		53
Granted at fair market value		20		$		1.29
Exercised		—		$		—
Forfeited, cancelled, or expired		(9	)	$		1.88
Options outstanding at March 31, 2021		2,409		$		2.95		6.9	$		589
Options exercisable at March 31, 2021		1,083		$		6.01		4.3	$		2
Vested options expired during the period ended March 31, 2021		—		$		—

				Weighted		Weighted Average Remaining
				Average		Contractual		Aggregate
	Shares			Exercise Price		Term (Years)		Intrinsic Value(1)
Options outstanding, December 31, 2019		1,287		$	5.77			$	—
Granted at fair market value		20		$	0.77
Exercised		—		$	—
Forfeited, cancelled, or expired		(32	)	$	8.87
Options outstanding at March 31, 2020		1,275		$	5.61		5.68	$	—
Options exercisable at March 31, 2020		1,061		$	6.35		5.11	$	—
Vested options expired during the quarter ended March 31, 2020		17		$	13.2


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☐	Accelerated filer	
Non-accelerated filer	☐
~~Non-accelerated filer~~☒	☒	Smaller reporting company	☒
		Emerging growth company	☐


	Mezzanine Equity				Stockholders' Equity
	Series E Convertible Preferred Stock				Common Stock				Paid-in Capital			Series F Convertible Preferred Stock						Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Amount			Shares			Amount			Loss			Deficit			Equity

Balances, December 31, 2020		—	$	—		97,709	$	98	$	261,573			1		$	118		$	(385	)	$	(251,376	)	$	10,028
Sale of common stock		—		—		14,000		14		13,278			—			—			—			—			13,292
Issuance of common stock for settlement of liability		—		—		500		—		510			—			—			—			—			510
Conversion of Series F Convertible Preferred Stock		—		—		1,535		2		612			(1	)		(614	)		—			—			—
Deemed dividend on Series F Convertible Preferred Stock		—		—		—		—		(532	)		—			532			—			—			—
Stock-based compensation		—		—		—		—		1,695			—			—			—			—			1,695
Exercise of common stock warrants		—		—		35,669		35		15,005			—			—			—			—			15,040
Net loss		—		—		—		—		—			—			—			—			(6,901	)		(6,901	)
Foreign currency translation adjustment		—		—		—		—		—			—			—			(148	)		—			(148	)
Balances, March 31, 2021		—	$	—		149,413	$	149	$	292,141			—		$	36		$	(533	)	$	(258,277	)	$	33,516

Balances, December 31, 2019		70	$	3,965		31,439	$	31	$	235,594			—		$	—		$	(701	)	$	(234,547	)	$	377
Settlement of liability awards		—		—		—		—		151			—			—			—			—			151
Stock-based compensation		—		—		—		—		640			—			—			—			—			640
Issuance of stock from RSUs, net		—		—		98		—		—			—			—			—			—			—
Net loss		—		—		—		—		—			—			—			—			(6,006	)		(6,006	)
Foreign currency translation adjustment		—		—		—		—		—			—			—			(18	)		—			(18	)
Balances, March 31, 2020		70	$	3,965		31,537	$	31	$	236,385			—		$	—		$	(719	)	$	(240,553	)	$	(4,856	)

				Weighted
				Average Grant					Weighted
	Shares			Date Fair Value					Average Grant
Unvested options at December 31, 2019		254		$	1.44
						Shares			Date Fair Value
Unvested options at December 31, 2020							1,323			$	0.34
Granted		20		$	0.54		20			$	1.07
Vested		(47	)	$	1.63		(18	)		$	1.18
Forfeited or cancelled		(14	)	$	2.61		—			$	—
Unvested options at March 31, 2020		213		$	1.25
Unvested options at March 31, 2021							1,325			$	0.34

	Principal		Interest⁽¹⁾
2020		—		1,388
2021		2,100		1,793
2022		2,800		1,472
2023		10,100		2,455
Total future payments	$	15,000	$	7,108

(1) estimated using LIBOR rates as at March 31, 2020

Due in 12 month period ended March 31,
2020	$	138
2021		7
Thereafter		—
	$	145
Less imputed interest		(5	)
Total lease liabilities	$	140

Current operating lease liabilities		140
Non-current lease liabilities		—
Total lease liabilities	$	140