BIOLASE(BIOL) - 2020 Q4 - Annual Report

PART I Business Overview BIOLASE, Inc. is a leading supplier of advanced laser systems for the dental industry, developing, manufacturing, marketing, and selling Waterlase and Diode laser systems and their consumables and accessories Overview BIOLASE, Inc. is a leading supplier of advanced laser systems for the dental industry, offering significant benefits to dental professionals and patients - BIOLASE, Inc. is a leading supplier of advanced laser systems for the dental industry, developing, manufacturing, and marketing laser systems that provide significant benefits to dental practitioners and their patients[8] - The company's proprietary systems enable dentists, periodontists, endodontists, pediatric dentists, oral surgeons, and other dental specialists to perform a wide range of minimally invasive dental procedures[8] - Laser systems are designed to deliver superior clinical outcomes compared to traditional instruments, with potential patient benefits including reduced pain, injections, accelerated healing, decreased fear and anxiety, and fewer office visits[8] Products and Services The company offers Waterlase (all-tissue) and Diode (soft-tissue) laser systems, along with consumables and accessories - The company offers two laser system products: Waterlase (all-tissue) and Diode (soft-tissue)[9] - Waterlase systems combine water and laser energy, are FDA-cleared for over 80 clinical indications, and can cut both soft and hard tissues, such as implant debridement and root canal disinfection[9] - Diode laser systems are used for soft tissue, pain therapy, and aesthetic procedures, including teeth whitening[9] - The company also manufactures and sells consumables and accessories for laser systems, such as disposable laser tips, flexible fibers, and teeth whitening gel kits[10][30] 2020 Sales Composition | Product Category | Sales Percentage | | :--- | :--- | | Laser Systems | 55% | | Consumables, Accessories, and Services | 45% | Industry Background and Market Opportunity A significant global market opportunity exists for all-tissue dental laser systems due to widespread dental anxiety and superior clinical outcomes - Approximately one-third of the global population avoids dental visits due to “dental anxiety or fear,” leading to underdiagnosed and undertreated dental diseases[15] - A huge market opportunity exists for all-tissue dental laser systems due to their ability to provide superior clinical outcomes, reduce the need for anesthesia, and decrease trauma, pain, and discomfort[15][31] - The global dental equipment market was valued at $7.7 billion in 2018, projected to grow at a CAGR of 4.5% by 2025, with dental laser equipment being the fastest-growing segment at a CAGR of 6.8%[16] - The company estimates that all-tissue laser system penetration is only 7% in US dental practices and 1.4% globally, representing a market opportunity exceeding $50 billion[16] Limitations of Traditional and Alternative Instruments Traditional dental tools and alternative instruments often cause patient discomfort, require anesthesia, and have limited applications or precision - Traditional high-speed drills can cause heat transfer, vibration, pressure, and noise, leading to micro-fractures in teeth, requiring anesthesia, and inducing patient anxiety[17] - Cutting instruments like scalpels and scissors often result in pain, bleeding, post-operative swelling, and discomfort, necessitating local anesthesia and sutures[18] - Traditional X-ray films are time-consuming, inefficient, costly, and environmentally unfriendly, limiting image analysis and treatment planning, and only providing two-dimensional images[19] - Electrosurgical systems, while reducing bleeding, are less precise than lasers, can damage surrounding tissues, are unsuitable for hard tissues or near metal fillings, and cannot be used on patients with pacemakers[22] - Most traditional dental laser systems are primarily for soft tissue and are not optimized for common dental procedures[23] Benefits of BIOLASE Laser Solutions BIOLASE laser systems offer significant advantages including reduced aerosols, expanded procedure capabilities, and improved patient comfort - Waterlase systems produce 98% fewer aerosols than traditional dental handpieces, aligning with ADA recommendations for reducing COVID-19 aerosol transmission[33] - Laser systems enable general dentists to perform procedures and aesthetic treatments that would otherwise be impossible or undesirable with traditional methods, expanding service offerings and revenue opportunities[34] - Waterlase systems often eliminate the need for anesthesia, allowing multiple procedures in a single visit and reducing patient chair time[35][39] - Laser systems reduce patient trauma, swelling, and discomfort, leading to better clinical outcomes and fewer follow-up treatments[37][40] - Waterlase systems often eliminate the need for anesthesia, resulting in more comfortable, faster, and less painful patient recovery[38] Business Strategy The company's strategy focuses on increasing awareness, enhancing customer education, strengthening sales, protecting intellectual property, and expanding into new medical applications - Increase awareness and demand for product clinical benefits among dental professionals and patients through educational forums like industry exhibitions, WCLI, dental schools, and webinars[42][43][44] - Enhance customer training and clinical education by providing world-class training to improve the proficiency of dental professionals[45] - Strengthen sales and distribution capabilities, utilizing a direct sales team and telesales support in the US, independent distributors internationally, and planning expansion into group practices, GPOs, and government channels[46] - Strengthen and defend technological leadership by expanding the existing patent portfolio and strategically enforcing intellectual property[48] - Extend existing technology into adjacent medical applications such as ophthalmology, ENT, and orthopedics by developing enhancements and innovations, and considering acquisitions of complementary products and technologies[49] Operations The company manufactures laser systems in-house, provides warranties, and faces supply chain risks due to reliance on single suppliers for key components - Waterlase laser systems sold domestically come with a one-year warranty, while Diode systems have a two-year warranty; international sales receive a 28-month warranty[50] - The company internally manufactures, assembles, and tests all laser systems at its 12,000 square foot facility in Corona, California, which is ISO 13485 certified and compliant with FDA quality system regulations[51] - Three critical components of Waterlase systems (power supply, laser crystal, and fiber optic assembly) are sourced from a single supplier, posing supply chain disruption risks[52] Sales and Marketing Marketing efforts focus on brand awareness and direct patient education, with sales primarily through direct teams and distributors, and a notable portion from international markets - Marketing efforts focus on increasing brand awareness and demand for laser solutions among dental professionals, and directly educating patients about product benefits via the internet and social media[54][57] - The company primarily sells products to general dentists through its field sales team and distribution network, and expects greater recognition among specialists like periodontists and endodontists[58] Net Revenue by Product Category (Thousands of USD) 2018-2020 | Product Category | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Laser Systems | $12,342 | $22,842 | $29,733 | | Imaging Systems | — | $619 | $1,694 | | Consumables and Other | $6,124 | $7,164 | $8,287 | | Services | $4,314 | $7,162 | $6,429 | | Total Products and Services | $22,780 | $37,787 | $46,143 | | License Fees and Royalties | — | $12 | $12 | | Net Revenue | $22,780 | $37,799 | $46,155 | Net Revenue by Geography (Thousands of USD) 2018-2020 | Geography | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | United States | $16,195 | $22,814 | $28,661 | | International | $6,585 | $14,985 | $17,494 | | Total | $22,780 | $37,799 | $46,155 | - International revenue constituted a significant portion of total revenue, at 29% in 2020, 40% in 2019, and 38% in 2018[61] - The company offers financing options to customers through third-party financial institutions, without assuming credit risk[66] - Revenue typically experiences seasonal fluctuations, with lower sales in the first quarter and higher sales in the fourth quarter, consistent with dental practitioners' year-end capital equipment purchases[67] Engineering and Product Development Engineering and product development are crucial for business growth, focusing on new platforms, existing product improvements, and expansion into non-dental medical markets - Engineering and product development are key to maintaining and enhancing the business, with teams focused on developing new product platforms, improving existing products and technologies, and expanding the product range[68] Engineering and Product Development Expenses (Millions of USD) 2018-2020 | Year | Expenses | | :--- | :--- | | 2020 | $3.7 | | 2019 | $4.8 | | 2018 | $5.2 | - The company is also committed to applying its laser technology platforms and capabilities to other medical markets beyond dentistry, such as ophthalmology, ENT, and orthopedics[69] - A development and distribution agreement with IPG Medical involves collaboration on designing and developing new dental laser products and applications[70] Intellectual Property and Proprietary Rights The company relies on a robust intellectual property portfolio, including 271 granted patents, to protect its core laser technology - The company relies on patents, trademarks, trade secrets, copyrights, and other intellectual property to protect its technology, holding approximately 271 granted patents and 40 pending patent applications[71] - Most patents provide market protection for core laser systems and related accessories, with existing core technology patents expiring between 2022 and 2042[71] Competition The company faces competition from other laser companies and traditional instrument providers, with competitive factors including product performance, pricing, and intellectual property - The company faces competition in the dental and other medical application markets, with key competitive factors including product performance, pricing, intellectual property protection, customer education, and support[72] - Competitors include other laser companies and those using traditional instruments (e.g., drills, scalpels), which are generally cheaper than laser systems[73][74] - Some competitors possess stronger financial, marketing, and technical resources, potentially developing more effective, safer, or lower-cost competing products[75] Government Regulations The company's products are subject to stringent regulations by the FDA and other domestic and international agencies, covering all aspects from design to distribution - The company's products are subject to strict regulation by the FDA and other domestic and international agencies, covering design, development, testing, manufacturing, advertising, labeling, marketing, and distribution[76] - In the US, new medical devices or new indications for existing devices require either 510(k) premarket notification clearance or PMA premarket approval[77] - All manufacturing facilities must comply with FDA's Quality System Regulation (QSR) and cGMP requirements, and are subject to regular inspections[80] - Medical devices can only be promoted for approved or cleared uses, with "off-label" promotion prohibited, and violations potentially leading to significant fines and criminal prosecution[83] - In the EU, medical devices must comply with MDD directive requirements and obtain a CE Mark for market entry[86] - The company's operations are subject to federal and state healthcare laws, including anti-kickback statutes, false claims acts, HIPAA privacy and security laws, and FCPA anti-bribery provisions[98][99][100][104] - Dentists and other healthcare providers rely on third-party payers (including Medicare, Medicaid, and private payers) for reimbursement of clinical procedures using the company's products[117] Human Capital Resources As of December 31, 2020, the company employed approximately 135 individuals globally, fostering a diverse and inclusive culture - As of December 31, 2020, the company had approximately 135 employees across five countries, with 120 in the United States[125] - The company is committed to fostering a diverse and inclusive culture among its employees and regularly reports diversity statistics to the Board of Directors[126] - The company attracts and retains talent through interviews and external assessments, with compensation decisions based on performance, external market data, and internal equity[126] Executive Officers John R. Beaver was appointed President and CEO in February 2021, previously serving as Executive Vice President, COO, and CFO - John R. Beaver was appointed President and Chief Executive Officer in February 2021, having previously served as Executive Vice President, Chief Operating Officer, and Chief Financial Officer[128] Risk Factors Investing in company securities involves high risk, including the ongoing adverse impact of the COVID-19 pandemic, continuous losses, and uncertain future profitability Risks Related to Our Business and Operations The company faces risks from the COVID-19 pandemic, sustained net losses, global economic uncertainty, financing needs, and reliance on third-party distributors - The COVID-19 pandemic caused global capital market volatility, dental clinic closures, and restricted sales, negatively impacting the company's 2020 operating cash flow[135] - The company has incurred net losses for three consecutive years, with an accumulated deficit of $251.4 million as of December 31, 2020, making future profitability difficult to achieve[137] - The company's business is highly sensitive to global economic uncertainty and financial market volatility, with economic downturns potentially having an adverse impact on operations[138] - The company may require additional financing, and failure to obtain funds on acceptable terms could lead to equity dilution or debt covenant restrictions[140] - The company relies on third-party distributors for sales, and if distributors do not commit sufficient resources or agreements are terminated, revenue could decline[142] - Low acceptance of laser technology by dentists and patients requires significant time and resources for education, leading to long sales cycles[144] - Failure to adequately train dental practitioners could result in product misuse, patient harm, negative publicity, and regulatory actions[146] - Future data inconsistent with clinical results or superior competitor products could lead to revenue decline[148] - The company's ability to utilize net operating loss carryforwards may be limited by IRC Section 382, potentially increasing future income tax burdens[149] - Product manufacturing issues, including capacity, quality control, component supply, and shortage of qualified personnel, could lead to production delays and sales interruptions[150] - Product defects could result in significant warranty obligations, increasing costs and harming brand reputation[151][153] - Product liability claims could be costly and damage the company's reputation, with insurance potentially insufficient to cover all liabilities[154] - Reliance on single or limited source suppliers, if supply is interrupted or quality is substandard, could lead to manufacturing delays and sales interruptions[157][158] - International sales face risks such as tariffs, exchange rate fluctuations, differing legal standards, inadequate intellectual property protection, and difficulties in regulatory approvals[159][161] - Information technology systems could be breached, leading to data leaks, business interruptions, legal liabilities, and reputational damage[163][164] - Revenue and operating results are affected by seasonality, typically lower in the first quarter and higher in the fourth quarter, causing quarterly fluctuations[167] - Litigation can be time-consuming and costly, diverting management's attention and potentially leading to damages or unfavorable equitable relief[170] - Concentration of primary manufacturing facilities in Corona, California, means natural disasters or other disruptions could cause prolonged business interruptions[172] - Loss of key management personnel or inability to attract and retain qualified talent could impact the execution of growth strategies[174] - Failure to comply with covenants in credit agreements could lead to accelerated debt maturity, with no guarantee of alternative financing[177][178] - Restrictive covenants in credit agreements may limit the company's operational and financial flexibility and could lead to asset foreclosure[179][182] - Departure of certain key personnel without timely replacement could trigger a "key person event" under debt agreements, leading to immediate debt maturity[184] - Failure to comply with reporting obligations under the Exchange Act and Sarbanes-Oxley Act, or to maintain adequate internal controls over financial reporting, could harm investor confidence[185][187][190] Risks Related to Our Intellectual Property Inadequate intellectual property protection could lead to market share loss, while third-party infringement claims could result in significant liabilities and costs - Failure of the company's owned or licensed patents or other intellectual property to adequately protect its technology could lead to market share loss to competitors and impact profitability[192][193] - Third-party claims of intellectual property infringement by the company could result in liabilities and costs, potentially requiring product redesigns or cessation of sales for certain products[194][195] Risks Related to Our Regulatory Environment Changes in government regulations or failure to obtain necessary approvals could significantly impact business, including strict FDA and international requirements - Changes in government regulations or inability to obtain necessary government approvals could have a significant adverse impact on the business, including stringent requirements from the FDA and international regulatory bodies[196][197][199] - Changes in healthcare regulations could affect product demand and business operations, such as the Affordable Care Act and budget cuts potentially impacting reimbursement levels[200] - The company may be subject to federal and state healthcare laws (including fraud and abuse and health information privacy and security laws), with non-compliance potentially leading to substantial fines and criminal penalties[201] - The company may face liabilities under the Foreign Corrupt Practices Act (FCPA), and any violations could have a significant adverse impact on the business[202] - Product sales or launches could be delayed or canceled due to FDA regulatory requirements for laser products and dental devices, leading to decreased sales or profitability[204][205] - Products may still face recalls and other regulatory actions even after obtaining FDA clearance or approval, adversely affecting business, financial condition, and operating results[207] Risks Related to Our Stock Failure to meet Nasdaq listing requirements, stock price volatility, and future equity issuances pose significant risks to shareholders - Failure to meet Nasdaq continued listing requirements could lead to common stock delisting, negatively impacting stock price and financing capabilities[209][210][211] - The company's stock price has been and will continue to be volatile, influenced by operating results, new product launches, competition, regulatory changes, financing needs, and analyst reports[212] - Future equity sales, exercise of warrants and options, and equity awards could result in significant dilution for existing shareholders[214][215][216][217] - The company does not intend to pay dividends, and shareholder return on investment relies solely on stock price appreciation[219][220] - If securities or industry analysts do not publish research reports or publish inaccurate/unfavorable reports, the company's stock price and trading volume could decline[221][222] Unresolved Staff Comments As of the filing date of this report, the company has no unresolved staff comments - The company has no unresolved staff comments[224] Properties As of December 31, 2020, the company owned or leased approximately 28,000 square feet globally, including its headquarters and manufacturing facility - As of December 31, 2020, the company owned or leased approximately 28,000 square feet of space globally[225] - The company's headquarters are located in Foothill Ranch, California, leasing approximately 11,000 square feet with a lease term until December 31, 2025[225] - The manufacturing facility is located in Corona, California, leasing approximately 13,000 square feet with a lease term until June 30, 2025[225] - The company believes its existing facilities are sufficient for current business operations and that suitable additional space can be obtained if needed[226] Legal Proceedings The company is involved in various claims and litigation, including past patent infringement lawsuits with CAO Group, Inc., which were settled in 2019 - The company is involved in various claims, lawsuits, and regulatory proceedings related to its operations from time to time, and accrues reserves for potential losses[227] - CAO Group, Inc. filed patent infringement lawsuits against BIOLASE in 2012 and 2018, alleging infringement by its ezlase and diode dental lasers[228][518][519] - On January 25, 2019, BIOLASE reached a confidential settlement agreement with CAO, where CAO withdrew all lawsuits and granted BIOLASE a non-exclusive, royalty-free, fully paid, worldwide license to the licensed patents[228][520] - Under the settlement, the company paid CAO $500,000 in cash and issued 500,000 shares of restricted common stock, with a commitment to pay the difference (if positive) between $1.0 million and the stock value by December 31, 2021[520] Mine Safety Disclosures Mine safety disclosures are not applicable to this report - Mine safety disclosures are not applicable[228] PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "BIOL," with 93 registered shareholders as of March 25, 2021, and no plans for cash dividends due to credit agreement restrictions - The company's common stock trades on the Nasdaq Capital Market under the ticker symbol “BIOL”[229] - As of March 25, 2021, the company's common stock closed at $0.96 per share, with 93 registered shareholders[229] - The company does not intend to pay cash dividends in the foreseeable future, retaining future earnings for business expansion, and is restricted by the SWK credit agreement[230] - The company has a 2018 Long-Term Incentive Plan designed to attract and retain talent crucial for its long-term growth and success[231][232] Equity Compensation Plan Information as of December 31, 2020 | Plan Category | Number of Securities to be Issued (Options and RSUs) | Weighted-Average Exercise Price of Options | Number of Securities Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 2,024,000 | $5.63 | 439,000 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 2,024,000 | $5.63 | 439,000 | Selected Financial Data As a smaller reporting company, the company is not required to provide the information requested in this item - As a smaller reporting company, the company is not required to provide the information requested in this item[234] Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and operating results for 2020, 2019, and 2018, highlighting a 40% revenue decline in 2020 due to COVID-19 and ongoing net losses Overview The company is a leading supplier of advanced dental laser systems, offering Waterlase and Diode products, with over 41,200 systems sold globally by 2020 - The company is a leading supplier of advanced laser systems in the dental industry, developing, manufacturing, marketing, and selling laser systems that provide significant benefits to dental practitioners and their patients[237] - The company offers Waterlase (all-tissue) and Diode (soft-tissue) laser system products, with Waterlase being the flagship brand, cleared by the FDA for over 80 clinical indications[238] - As of December 31, 2020, the company had sold over 41,200 laser systems globally across more than 80 countries[238] Recent Developments Recent developments include the adverse impact of COVID-19, credit agreement amendments, equity financing, Nasdaq compliance, and a change in CEO - The COVID-19 pandemic led to global dental clinic closures and canceled trade shows, severely impacting the company's 2020 sales and operating cash flow[240] - On February 24, 2021, the company entered into the Seventh Amendment to the Credit Agreement with SWK Funding, LLC, stipulating minimum gross revenue requirements if liquid assets fall below $15 million[241] - On February 10, 2021, the company issued 14 million shares of common stock through an underwritten public offering, generating approximately $14.4 million in gross proceeds for working capital and general corporate purposes[243] - As of March 25, 2021, the company issued 35.46 million shares of common stock through warrant exercises, generating $15 million in cash proceeds[244] - The company received Nasdaq notification on August 14, 2020, confirming compliance with minimum stockholders' equity requirements, and on February 4, 2021, confirmed compliance with the minimum bid price rule[245] - Todd Norbe resigned as President and CEO on February 22, 2021, and John R. Beaver was appointed as the new President and CEO on February 23, 2021[246] Critical Accounting Policies Key accounting policies cover revenue recognition, equity compensation, inventory valuation, long-term asset valuation, warranty costs, litigation, and income taxes - Revenue recognition: Product sales revenue is recognized when control is transferred, while service revenue (e.g., training and extended warranties) is recognized over the service period or as obligations are fulfilled[249][251][252][254] - Equity compensation: Equity compensation expense is estimated at fair value on the grant date and recognized proportionally over the service period, using the Black-Scholes model for option fair value estimation[258] - Inventory valuation: Inventory is valued at the lower of cost or net realizable value, with cost determined using the first-in, first-out method, and regularly assessed for excess and obsolescence[259] - Long-lived asset valuation: Property, plant, and equipment, along with finite-lived intangible assets, are amortized over their estimated useful lives and monitored for impairment indicators[260] - Goodwill and other intangible asset valuation: Goodwill and indefinite-lived intangible assets are not amortized but are tested for impairment annually or when impairment indicators arise[261] - Warranty costs: Laser system warranty expenses are recorded as an accrued liability and included in cost of revenue, estimated based on historical experience and future expectations[262] - Litigation and other contingencies: Threatened or pending litigation and other business contingencies are assessed, with provisions recorded when losses are probable and reasonably estimable[263] - Income taxes: Based on operating losses, the company has fully provided a valuation allowance against deferred tax assets, which may be reduced in the future if sufficient evidence of realizability emerges[264] Fair Value of Financial Instruments The fair value of the company's financial instruments, due to their liquidity or short-term nature, approximates their carrying value - Fair value is defined as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market[266] - The company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, capital lease obligations, and accrued liabilities, have fair values approximating their carrying values due to their liquidity or short-term nature[265][385] Results of Operations The company experienced a significant revenue decline in 2020 due to COVID-19, alongside reduced operating expenses and continued net losses Summary of Operating Results (Thousands of USD) 2018-2020 | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Revenue | $22,780 | $37,799 | $46,155 | | Cost of Sales | $16,607 | $23,511 | $29,260 | | Gross Profit | $6,173 | $14,288 | $16,895 | | Selling and Marketing Expenses | $11,242 | $14,396 | $18,121 | | General and Administrative Expenses | $9,772 | $10,748 | $11,771 | | Engineering and Development Expenses | $3,695 | $4,765 | $5,203 | | Operating Loss | $(18,536) | $(15,621) | $(20,885) | | Net Loss | $(16,829) | $(17,855) | $(21,516) | Net Revenue by Product Category (Thousands of USD) 2018-2020 | Product Category | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Laser Systems | $12,342 | $22,842 | $29,733 | | Imaging Systems | — | $619 | $1,694 | | Consumables and Other | $6,124 | $7,164 | $8,287 | | Services | $4,314 | $7,162 | $6,429 | | Total Products and Services | $22,780 | $37,787 | $46,143 | | License Fees and Royalties | — | $12 | $12 | | Net Revenue | $22,780 | $37,799 | $46,155 | - Management uses Adjusted EBITDA to assess core operating performance and trends, excluding interest, taxes, depreciation and amortization, stock-based compensation, bad debt provision, and other (income) expense, net[272] Reconciliation of Adjusted EBITDA to GAAP Net Loss (Thousands of USD) 2018-2020 | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | GAAP Net Loss Attributable to Common Stockholders | $(34,207) | $(17,855) | $(21,516) | | Deemed Dividend (Convertible Preferred Stock) | $17,378 | — | — | | GAAP Net Loss | $(16,829) | $(17,855) | $(21,516) | | Adjustments: | | | | | Interest Expense, Net | $2,359 | $2,157 | $510 | | Provision (Benefit) for Income Taxes | $128 | $(44) | $63 | | Depreciation and Amortization | $499 | $982 | $945 | | Change in Allowance for Doubtful Accounts | $1,328 | $1,695 | $469 | | Disposal of Internally Developed Software | — | — | $1,185 | | Patent Litigation Settlement Loss | — | — | $1,500 | | Stock-based Compensation and Other Non-cash Compensation | $3,370 | $2,742 | $2,768 | | Other (Income) Expense, Net | $(4,215) | — | — | | Adjusted EBITDA | $(13,360) | $(10,323) | $(14,076) | - 2020 net revenue decreased by 40% to $22.8 million year-over-year, primarily due to the impact of the COVID-19 pandemic leading to dental clinic closures[274][275] - 2020 gross profit was $6.2 million, representing 27% of net revenue, a 57% year-over-year decrease, mainly due to lower sales, fixed cost dilution, and inventory write-downs[279] - 2020 operating expenses decreased by 17% to $24.7 million year-over-year, primarily driven by reductions in selling and marketing expenses (down 22%) and general and administrative expenses (down 9%)[280][281][282] - 2019 net revenue decreased by 18% to $37.8 million year-over-year, mainly due to US sales territory vacancies and sales team restructuring[288][289] - 2019 gross profit was $14.3 million, representing 38% of net revenue, a 15% year-over-year decrease, though gross margin improved due to ongoing cost reduction efforts[293] Liquidity and Capital Resources The company has experienced continuous operating losses and negative cash flow, necessitating additional financing to sustain operations - The company incurred operating losses and did not generate positive operating cash flow in 2020, 2019, and 2018[303][389] - As of December 31, 2020, the company had $17.9 million in cash and cash equivalents (including restricted cash) and $23.9 million in working capital[304][305][390] - The company obtained approximately $24 million in gross proceeds from equity offerings in 2020, approximately $14.4 million in gross proceeds from an equity offering in February 2021, and $15 million in cash from warrant exercises[307][390] - The company must increase product sales, control expenses, and achieve profitability, or obtain additional funding, to continue operations beyond the next 12 months[308][391] - The company entered into a $12.5 million five-year secured credit agreement (SWK Loan) with SWK Funding, LLC, increased to $15 million in 2019, with principal repayments beginning in 2021[327][489][493] - The company entered into a revolving credit facility agreement (PMB Loan) with Pacific Mercantile Bank for up to $3 million for working capital, with no outstanding balance as of December 31, 2020[328][466][473] - In April 2020, the company received a $2.98 million Paycheck Protection Program (PPP) loan for payroll and operating expenses, and has applied for forgiveness[328][484][485] - In May 2020, the company received a $150,000 Economic Injury Disaster Loan (EIDL) for working capital[330][488] - In June 2020, the company completed a registered direct offering, selling 10.8 million shares of common stock and 10.8 million warrants, generating approximately $6.9 million in gross proceeds[311][312] - In July 2020, the company completed an underwritten public offering, selling 18,000 shares of Series F convertible preferred stock and 45 million warrants, generating approximately $15.8 million in net proceeds[314] - The company's financial instruments' credit risk is primarily concentrated in cash and cash equivalents and accounts receivable, mitigated through continuous credit assessment and customer relationship management[316][386] - Accounts receivable are presented at estimated net realizable value, with an allowance for doubtful accounts based on customer account analysis and historical experience[317][417] Consolidated Cash Flows The company experienced significant net cash outflows from operating activities in 2020, offset by substantial inflows from financing activities, primarily equity and loan proceeds Consolidated Statements of Cash Flows (Thousands of USD) 2018-2020 | Source of Cash Flow | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $(12,795) | $(12,746) | $(14,147) | | Net Cash from Investing Activities | $(96) | $(207) | $(522) | | Net Cash from Financing Activities | $24,349 | $10,721 | $11,235 | | Effect of Exchange Rate Changes | $317 | $(23) | $(106) | | Net Change in Cash and Cash Equivalents | $11,775 | $(2,255) | $(3,540) | - Net cash outflow from operating activities was $12.8 million in 2020, primarily driven by a net loss of $16.8 million and a $5.9 million gain from changes in fair value of warrants, partially offset by non-cash adjustments (e.g., depreciation, stock-based compensation, bad debt provision) and a net increase in operating assets and liabilities[320] - Cash outflow from investing activities was minimal in 2020, primarily for capital expenditures related to headquarters and manufacturing facility relocation[321] - Net cash inflow from financing activities was $24.3 million in 2020, mainly from PPP loans and the sale of common and preferred stock[322] Contractual Obligations The company has significant contractual obligations including operating leases, purchase commitments, and debt repayments, primarily the SWK loan - The company leases its primary facilities, including its corporate headquarters (lease term until December 31, 2025) and manufacturing facility (lease term until June 30, 2025)[324][325][326][509] - SWK Loan principal repayments will commence in 2021, at approximately $0.7 million quarterly, until the loan matures in November 2023[327] - The PMB Loan matures on October 29, 2021, with no outstanding drawdowns as of December 31, 2020[328] - The PPP loan principal is $2.98 million, and the EIDL loan principal is $150,000[328][330] - As of December 31, 2020, the company had $11.4 million in purchase commitments, primarily expected to be completed within one year[331][515] Contractual Obligation Cash Requirements (Thousands of USD) as of December 31, 2020 | Obligation Type | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating Lease Obligations | $549 | $1,747 | $489 | — | $2,785 | | Purchase Obligations | $11,148 | $246 | — | — | $11,394 | | SWK Loan Interest | $1,795 | $5,046 | $81 | — | $6,922 | | SWK Loan Principal | — | $17,286 | $143 | — | $17,429 | | Total | $13,492 | $24,325 | $713 | — | $38,530 | Recent Accounting Pronouncements The company is evaluating the impact of new accounting standards on convertible debt and credit losses, while another is not expected to have a significant effect - The company is evaluating the impact of ASU 2020-06 (on convertible debt instruments and convertible preferred stock) and ASU 2016-13 (on financial instruments credit losses) on its consolidated financial statements[443][445] - ASU 2019-12 (on simplifying income tax accounting) is not expected to have a significant impact on the company's consolidated financial position and operating results[442] Off-Balance Sheet Arrangements The company has no off-balance sheet arrangements as defined by Regulation S-K Item 303(A)(4)(ii) - The company has no off-balance sheet arrangements as defined by Regulation S-K Item 303(A)(4)(ii)[333] Financial Statements The required financial statements, including the independent registered public accounting firm's report, are presented in Part IV, Item 15 of this Form 10-K, starting on page F-1 - All financial statements, including the independent registered public accounting firm's report, are presented in Part IV, Item 15 of this Form 10-K, starting on page F-1[333] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company experienced no changes in accountants nor any disagreements with them regarding accounting and financial disclosure during this reporting period - The company experienced no changes in accountants nor any disagreements with them regarding accounting and financial disclosure[334] Controls and Procedures Management assessed the effectiveness of disclosure controls and internal controls over financial reporting as effective as of December 31, 2020, with no significant changes during the period - As of December 31, 2020, the company's disclosure controls and procedures were assessed by management as effective[334] - The company's management assessed and concluded that its internal controls over financial reporting were effective as of December 31, 2020[335] - No significant changes in internal controls over financial reporting occurred during this reporting period[337] Other Information The company has no other information to disclose for this reporting period - The company has no other information to disclose[337] PART III Directors, Executive Officers and Corporate Governance Information on executive officers is in Part I, Business Overview, while director election details are incorporated by reference from the 2021 Annual Meeting Proxy Statement - Information regarding the company's executive officers is included in Part I, "Business Overview" of this Form 10-K[339] - Information regarding the election of directors is incorporated by reference from the company's 2021 Annual Meeting Proxy Statement[339] - The company has adopted a Code of Business Conduct and Ethics applicable to all employees, officers, and directors, available on its website[340] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's proxy statement - Information regarding executive compensation and director compensation is incorporated by reference from the company's proxy statement[341] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of certain beneficial owners and management is incorporated by reference from the proxy statement, with equity compensation details in Item 5 - Information regarding the security ownership of certain beneficial owners and management is incorporated by reference from the company's proxy statement[342] - Equity compensation plan information is included in Item 5 of this Form 10-K[342] Certain Relationships and Related Transactions, and Director Independence Information on director elections, certain relationships, and related transactions is incorporated by reference from the company's proxy statement - Information regarding the election of directors and certain relationships and related transactions is incorporated by reference from the company's proxy statement[343] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's proxy statement - Information regarding principal accountant fees and services is incorporated by reference from the company's proxy statement[344] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, including consolidated financial statements and an extensive exhibit index - This section lists the financial statements, schedules, and exhibits filed as part of the annual report on Form 10-K[346][348] - Financial statements include consolidated balance sheets as of December 31, 2020 and 2019, consolidated statements of operations and comprehensive loss for the years ended December 31, 2020, 2019, and 2018, consolidated statements of redeemable preferred stock and stockholders' equity, consolidated statements of cash flows, and related notes[346] - Schedule II provides consolidated valuation and qualifying accounts and reserves information for the years ended December 31, 2020, 2019, and 2018[347] - The exhibit index details documents such as the company's certificate of incorporation, warrants, credit agreements, and employment agreements, some of which are incorporated by reference[351][352][353][354][355][356] Form 10-K Summary This report does not contain a Form 10-K summary - This report does not contain a Form 10-K summary[350]