BIOLASE(US:BIOL)2024-03-21 20:47Business Overview BIOLASE provides advanced dental laser systems for minimally invasive procedures, operating in a competitive, regulated global market Company Profile and Market Position BIOLASE leads in dental laser systems, with 61% of sales from lasers and a $50 billion market opportunity - BIOLASE is a leading provider of advanced laser systems for the dental industry, offering Waterlase (all-tissue) and diode (soft-tissue) systems for minimally invasive dental procedures233260522 Revenue Breakdown by Category (2023) | Category | % of Total Sales | | :------------------------ | :--------------- | | Lasers | 61% | | Consumables, Accessories, Services | 39% | - The global dental equipment market is estimated at $10.6 billion (2022) and projected to grow at a CAGR of 6.2% through 2030, with dental laser equipment as the fastest-growing segment. BIOLASE estimates a market opportunity over $50 billion249 Key Financial Highlights (2021-2023) | Metric | 2023 ($M) | 2022 ($M) | 2021 ($M) | | :------------ | :-------- | :-------- | :-------- | | Net Revenues | 49.2 | 48.5 | 39.2 | | Net Losses | (20.6) | (28.6) | (16.2) | | Total Assets | 35.1 | 38.2 | N/A | Industry Background and Market Opportunity The dental industry faces challenges with patient anxiety and traditional instruments, creating a significant market for all-tissue dental laser systems - An estimated one-third of the worldwide population avoids dentists due to 'dental anxiety or fear,' leading to under-diagnosed and under-treated conditions262 - Traditional dental instruments (high-speed drills, scalpels, electrosurge systems) are associated with pain, bleeding, post-operative swelling, and discomfort, often requiring anesthesia and longer recovery times250251292 - There is a large market opportunity for all-tissue dental laser systems that offer superior clinical outcomes, reduce the need for anesthesia, and minimize trauma and discomfort268 Products and Solutions BIOLASE offers Waterlase all-tissue and diode soft-tissue laser systems, OEM products, and related consumables for minimally invasive dental and medical applications - Waterlase all-tissue laser systems (iPlus, Express, MDX) use a patented combination of water and laser energy, are FDA cleared for over 80 clinical indications, and can perform procedures with reduced heat, vibration, bleeding, or pressure, often eliminating the need for anesthesia260265294 - Diode soft-tissue laser systems (Epic X, Epic Hygiene, Epic Q, Epic 10) perform soft tissue, hygiene, cosmetic procedures (including teeth whitening), and provide temporary pain relief. The Epic Hygiene is FDA 510(k) cleared for Laser Bacterial Reduction239253 - BIOLASE has an exclusive OEM agreement for the EdgePro, a microfluidic irrigation device for root canals, developed in partnership with EdgeEndo266 - The company also manufactures and sells consumable products and accessories, including disposable laser tips, flexible fibers, hand pieces, teeth whitening gel kits, and a new fractional handpiece accessory for skin resurfacing247267295 Benefits of Laser Solutions BIOLASE's laser systems offer improved clinical outcomes, expanded procedures, and reduced aerosols for professionals, while patients experience less pain, faster healing, and decreased anxiety - Benefits for dental professionals include improved clinical outcomes, expanded range of procedures (e.g., surgical and cosmetic), greater case acceptance, and 98% less aerosols compared to traditional handpieces240269270298299 - Patient benefits include less pain, fewer shots, faster healing, decreased fear and anxiety, and fewer appointments, often without the need for anesthesia, leading to reduced trauma and quicker recovery233273302303522 Business Strategy BIOLASE's strategy focuses on increasing awareness, strengthening education, improving product quality, expanding sales, innovating, and protecting intellectual property - Key strategic elements include increasing awareness and education in laser dentistry (20 webinars, 147 seminars, 41 tradeshows in 2023), strengthening customer training and clinical education (new training facility, Laser Smiles dental office), and improving product quality274275276304 - The company plans to strengthen sales and distribution capabilities by expanding its field sales force and distributor network, targeting group practices, GPOs, and government channels306 - Innovation and leveraging existing technologies into adjacent medical applications (ophthalmology, otolaryngology, orthopedics, podiatry, pain management, aesthetics/dermatology, veterinary, consumer products) and generating revenue through OEM partnerships are also key strategies278309353 - Protecting intellectual property rights by expanding its patent portfolio and strategically enforcing them worldwide is a core focus307 Manufacturing and Supply Chain BIOLASE manufactures laser systems in-house but relies on single-source suppliers for key components, posing risks to production and costs - All laser systems are manufactured, assembled, and tested in-house at a 26,000 square foot facility in Corona, California, which is ISO 13485 certified and FDA-registered311 - The company relies on third-party suppliers for components, with three key Waterlase components (power suppliers, laser crystals, fiber components) sourced from separate single-source suppliers280 - Dependence on single-source suppliers creates risks of manufacturing delays, re-engineering, significant costs, and sales disruptions if an interruption occurs, though the company actively seeks alternate suppliers280 Marketing and Sales Operations BIOLASE markets globally through education and digital media, with direct sales in the U.S. and distributors internationally, experiencing typical quarterly revenue fluctuations - Marketing efforts focus on driving brand awareness and educating dental practitioners and patients about the clinical benefits of laser solutions, including participation in WCLI and specialized academies313346 - U.S. sales are primarily direct through a field and in-house sales force, while international sales are conducted through distributors, with direct sales in Germany and India286318 Net Revenue by Geographic Location (2021-2023) | Geographic Location | 2023 ($M) | 2022 ($M) | 2021 ($M) | | :------------------ | :-------- | :-------- | :-------- | | United States | 33.883 | 33.876 | 25.384 | | International | 15.281 | 14.586 | 13.804 | | Net Revenue | 49.164| 48.462| 39.188| - International revenue accounted for approximately 31% of net revenue in 2023, 30% in 2022, and 35% in 2021285433 - Revenue typically fluctuates quarterly, with lower first-quarter revenue and stronger fourth-quarter revenue due to dental practitioners' year-end buying patterns and tax incentives2287460 Engineering and Product Development BIOLASE's engineering team focuses on new product platforms, existing product enhancements, and expansion into adjacent medical applications Engineering and Product Development Expenses (2021-2023) | Year | Expense ($M) | | :--- | :----------- | | 2023 | 6.0 | | 2022 | 7.3 | | 2021 | 6.0 | - Activities focus on developing new product platforms, improving existing products (e.g., faster cutting speed, ease of use, less anesthesia), and extending into adjacent medical applications like ophthalmology, otolaryngology, and aesthetics321353 Intellectual Property and Competition BIOLASE protects its Waterlase technology with 241 active patents in a competitive market where product performance, pricing, and IP are key factors - As of December 31, 2023, BIOLASE maintained approximately 241 active and 21 pending U.S. and international patents, predominantly related to Waterlase technology, with existing patents expiring between 2025 and 2042260354 - The market is competitive, with factors like product performance, pricing, IP protection, customer education, and distribution being key. Competitors include other laser companies and traditional tool manufacturers323355 - Traditional tools are generally less expensive, and competitors may develop superior or cheaper products, potentially leading to price reductions, reduced margins, or product obsolescence325356 Government Regulations BIOLASE's products are subject to extensive U.S. and international regulations, including FDA clearance, cGMP, post-market surveillance, and healthcare fraud laws, with non-compliance posing significant risks - Medical devices are subject to FDA regulation, requiring 510(k) premarket clearance or PMA approval, adherence to cGMP/QSR, and post-market surveillance, including adverse event reporting329357358360 - Products sold internationally must comply with local regulations, such as the CE Mark in the European Union, indicating conformance with EU laws and regulations11332367 - The company is subject to various U.S. healthcare fraud and abuse laws (Anti-Kickback Statute, Stark Law, False Claims Act, Physician Payments Sunshine Act) and the Foreign Corrupt Practices Act (FCPA), which prohibit improper payments and require accurate record-keeping339340341371400401402 - Compliance with health information privacy and security laws, including HIPAA and HITECH, is required, especially when acting as a business associate to healthcare providers. Breaches can lead to significant penalties and reputational damage343373374403404405406 - Third-party reimbursement policies for dental and medical treatments vary, and changes in these policies or measures to reduce healthcare costs (e.g., Affordable Care Act, Medicare payment reductions) could adversely impact product utilization and demand13377378379380408409411473501 Human Capital Resources BIOLASE employs 157 individuals globally, prioritizing diversity, an inclusive culture, and performance-based compensation, with key executive officers overseeing operations - As of December 31, 2023, BIOLASE employed 157 full-time employees in five countries, with 142 in the United States381 - The company emphasizes diversity, an inclusive culture, and employee development, with compensation tied to performance and market data. Employee retention data is reviewed monthly by leaders and quarterly by the Board382 Executive Officers as of March 21, 2024 | Name | Age | Position | | :-------------- | :-- | :------------------------------ | | John R. Beaver | 62 | President and Chief Executive Officer | | Jennifer Bright | 52 | Chief Financial Officer | | Steven Sandor | 43 | Chief Operating Officer | Risk Factors The company faces significant risks across operations, technology, regulatory compliance, and stock market volatility Risks Related to Business and Operations BIOLASE faces substantial doubt about its going concern ability due to recurring losses, requiring additional capital, and is vulnerable to market acceptance, supply chain, and debt covenant risks - Substantial doubt exists about the company's ability to continue as a going concern due to recurring net losses ($20.6M in 2023, $28.6M in 2022, $16.2M in 2021) and negative cash flow from operations33391420442443 - The company is vulnerable to global economic uncertainty and volatility, which could adversely affect its business and financial condition392421 - There is a need to raise additional capital, and failure to secure funds on acceptable terms could hinder business plan execution and lead to curtailment of capital expenditures35422423445 - Slow adoption of laser technologies by dentists and patients, coupled with challenges in training practitioners, could limit market acceptance and market share35395424425447 - Reliance on third-party distributors for a significant portion of sales (31% in 2023) poses risks if they do not commit necessary resources or if agreements are terminated35394446 - Risks include inconsistent clinical results, limitations on the ability to use net operating loss carryforwards ($110M federal, $80M state as of Dec 31, 2023), manufacturing problems, and costly product liability claims3738397426427428429430448449451452453 - Dependence on single-source or limited suppliers for key components (e.g., crystal, fiber, hand pieces for Waterlase) could lead to manufacturing delays and sales disruptions40431432455456 - International operations (31% of net revenue in 2023) are subject to political, economic, health, and currency fluctuation risks40230433434457459 - Revenue and operating results fluctuate due to seasonality, making quarter-to-quarter comparisons unreliable2437460 - Consolidated manufacturing operations in one facility (Corona, CA) are vulnerable to disruptions from natural disasters, labor disputes, or equipment failures43438490 - Litigation can be costly and divert management attention3461 - Loss of key management personnel or inability to attract/retain qualified staff could harm growth strategy4462 - Failure to meet debt covenants in the Credit Agreement with SWK could accelerate payment obligations, limit operating flexibility, and risk foreclosure on assets6439440441463464465491492493 Risks Related to Information Technology and Intellectual Property Security breaches, inadequate IP protection, and non-compliance with SEC reporting or internal controls pose significant financial, legal, and reputational risks - Security breaches of IT systems (e.g., malware, hacking) could lead to data theft, operational delays, cyber extortion, liability for personal information breaches, and reputational damage142436488 - Failure to adequately protect patents and other intellectual property rights could result in loss of market share to competitors or inability to operate profitably845496 - Claims of infringement by third parties could lead to costly litigation, significant liabilities, product redesigns, or the inability to sell certain products945468 - Failure to comply with Exchange Act reporting obligations and Section 404 of the Sarbanes-Oxley Act, or to maintain adequate internal control over financial reporting, could adversely affect business, financial condition, and investor confidence745232466495 Risks Related to Regulatory Environment Extensive government regulations, including FDA clearances, off-label promotion restrictions, product recalls, and healthcare reimbursement changes, pose substantial risks to BIOLASE's business - Changes in government regulation, failure to comply, or inability to obtain/maintain necessary approvals (FDA, international) could materially adversely affect business, financial condition, and results of operations1046498 - New products or significant modifications require additional FDA clearances (510(k) or PMA), which can be costly, time-consuming, and delay commercialization151649470475503 - Promoting products for unapproved or 'off-label' uses is prohibited and can lead to regulatory actions, fines, and reputational damage49476503 - Products are subject to recalls and other regulatory actions after receiving FDA clearance, and failure to comply with FDA's QSR or medical device reporting regulations could result in enforcement actions, product recalls, and business disruption17181950478504505 - Changes to reimbursement rates for procedures using products and measures to reduce healthcare costs may adversely impact business1348473501 - Exposure to liabilities under the FCPA could have a material adverse effect on business, financial condition, and results of operations1448502 - The Inflation Reduction Act's Excise Tax on stock redemptions may reduce cash available to shareholders471 Risks Related to Common Stock The company's common stock faces risks of Nasdaq delisting, high volatility, substantial dilution from future equity sales, and lack of dividends - Failure to meet Nasdaq's continued listing requirements (e.g., minimum $1.00 bid price, $2.5M stockholders' equity) could result in delisting, negatively impacting stock price and ability to raise capital20225051507509510539 - The market price and trading volume of common stock have been and could continue to be highly volatile, influenced by operating results, market conditions, and company/competitor announcements2352483511539 - Future sales of equity or convertible securities, exercises of outstanding warrants and options, or grants of equity-based awards could result in substantial dilution to stockholders2454511540 - Lack of research or inaccurate/unfavorable research by securities analysts could cause share price and trading volume to decline2555512 - The company does not anticipate paying cash dividends in the foreseeable future, meaning stockholders will benefit only if the stock appreciates in value55541 Unresolved Staff Comments As of the filing date, there are no unresolved comments from the SEC staff Unresolved Staff Comments As of the filing date, there are no unresolved comments from the SEC staff - There are no unresolved staff comments55485 Cybersecurity BIOLASE maintains a cyber risk management program, overseen by management and the Board, incorporating NIST standards Cybersecurity Risk Management BIOLASE maintains a cyber risk management program, overseen by management and third-party providers, designed to identify, assess, manage, mitigate, and respond to cybersecurity threats - BIOLASE maintains a cyber risk management program to identify, assess, manage, mitigate, and respond to cybersecurity threats, leveraging third-party technology and expertise2655513 - The program incorporates NIST Cybersecurity Framework (CSF) standards, including annual third-party risk assessments and development of risk mitigation plans513 - Management, in conjunction with IT and cybersecurity service providers, oversees the program, and the Audit Committee and Board of Directors provide oversight of cybersecurity risks513543 Properties BIOLASE leases approximately 59,000 square feet globally, including corporate headquarters and a manufacturing facility Leased Facilities As of December 31, 2023, BIOLASE owned or leased approximately 59,000 square feet globally, with its main facilities in Lake Forest and Corona, California - As of December 31, 2023, BIOLASE owned or leased approximately 59,000 square feet of space worldwide487 - Leased facilities include a 20,000 sq ft corporate headquarters in Lake Forest, CA (lease expires Dec 31, 2025) and a 26,000 sq ft manufacturing facility in Corona, CA (lease expires June 30, 2025)487 - The company believes its current facilities are sufficient for operations and suitable additional space is available544 Legal Proceedings BIOLASE is involved in various claims and litigation, including a pending patent infringement lawsuit for Waterlase Patent Litigation BIOLASE is involved in various claims and litigation incidental to its business, including a patent infringement lawsuit filed by PIPStek, LLC - BIOLASE is involved in various claims, litigation matters, and regulatory proceedings incidental to its business3515 - A patent infringement lawsuit was filed by PIPStek, LLC in January 2023, alleging BIOLASE's Waterlase dental laser infringes on three patents. BIOLASE denies the allegations and is vigorously defending the case, with trial set for May 12, 202555581 Mine Safety Disclosures The company has no disclosures related to mine safety Mine Safety Disclosures The company has no disclosures related to mine safety - Not applicable32545 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Information on common stock trading, dividend policy, equity compensation, and related stockholder matters is provided Market Information BIOLASE's common stock trades on Nasdaq under 'BIOL', with a closing price of $0.1348 per share as of March 14, 2024 - Common stock is traded on the Nasdaq Capital Market under the symbol 'BIOL'58517 - As of March 14, 2024, the closing price was $0.1348 per share, with 11 stockholders of record57 Dividend Policy BIOLASE does not anticipate paying cash dividends in the foreseeable future, intending to retain funds for growth, and is restricted by its Credit Agreement - BIOLASE does not anticipate paying any cash dividends in the foreseeable future, intending to retain available funds for future growth31546 - The Credit Agreement with SWK prohibits declaring and paying cash dividends, and no cash dividends were paid or declared in 2021, 2022, or 202331809 Recent Sales of Unregistered Securities There were no recent sales of unregistered securities - None3258212 Equity Compensation Plan Information The company operates under the 2018 Long-Term Incentive Plan, with 55,000 units available for issuance at a weighted average exercise price of $1,490.37 as of December 31, 2023 - The 2018 Long-Term Incentive Plan (amended multiple times) replaced the 2002 Plan for future awards, aiming to align interests, attract/retain personnel, and motivate long-term success3334518827 Equity Compensation Plan Summary (as of December 31, 2023) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options and Release of Restricted Stock Units | Weighted Average Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | | :-------------------------------- | :------------------------------------------------------------------------------------------------- | :------------------------------------- | :------------------------------------------------------------------------------------------- | | Equity Compensation Plan Approved by Stockholders | 55,000 | $1,490.37 | 49,000 | | Equity Compensation Plan Not Approved by Stockholders | — | — | — | | Total | 55,000 | $1,490.37 | 49,000 | Issuer Purchases of Equity Securities There were no issuer purchases of equity securities during the reported period - None58547 Reserved This item is reserved and contains no information Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes BIOLASE's financial condition, operating results, liquidity, and capital resources Overview This section provides an overview of BIOLASE as a leading provider of advanced laser systems for the dental industry, highlighting the benefits of its proprietary systems for both dental practitioners and patients - BIOLASE is a leading provider of advanced laser systems for the dental industry, developing, manufacturing, marketing, and selling laser systems that offer significant benefits for dental practitioners and patients522 - The company's proprietary systems enable minimally invasive dental procedures, leading to clinically superior results, less pain, faster healing, and improved patient and practitioner satisfaction522 Recent Developments BIOLASE has undertaken several financing activities and addressed Nasdaq listing compliance issues, including public offerings, debt amendments, and a reverse stock split - Completed a February 2024 public offering, raising approximately $7.0 million gross proceeds through units of common stock, Class A warrants, Class B warrants, and pre-funded units523888 - Completed a December 2023 registered direct offering and concurrent private placement, issuing common stock, pre-funded warrants, and warrants, raising approximately $1.4 million gross proceeds524836 - Entered into the Eleventh Amendment to the Credit Agreement in November 2023, reducing principal amortization payments and adjusting minimum consolidated unencumbered liquid assets requirements525786 - Issued Series J Convertible Redeemable Preferred Stock and warrants in September 2023, raising $4.5 million gross proceeds, and Series H Convertible Redeemable Preferred Stock and warrants in May 2023, raising $4.6 million gross proceeds528569587834835 - Effected a one-for-one hundred (1:100) reverse stock split in July 2023 to regain Nasdaq bid price compliance21529655 - Received Nasdaq deficiency letters for minimum bid price (January 2023, March 2024) and stockholders' equity (November 2023). Compliance for stockholders' equity was regained in February 2024, but a new bid price deficiency was issued in March 20242022505095266364865889 Critical Accounting Estimates Financial statement preparation requires significant estimates for revenue recognition, inventory, long-lived assets, goodwill, stock-based payments, and warranty costs - Key accounting estimates include allowances on accounts receivable, inventory, and deferred taxes, as well as estimates for accrued warranty expenses, goodwill, revenue deferrals, stock-based compensation, and contingent liabilities532646 - Revenue from product sales (laser systems and consumables) is recognized at a single point in time (89% of net revenue in 2023), typically upon shipment, while service revenue (training and extended warranties) is recognized over time (11% of net revenue in 2023)69533534695697720 - Inventory is valued at the lower of cost or net realizable value, with an allowance for excess and obsolete inventory. Write-downs for excess and obsolete inventory were $0.7 million in 2023, $2.8 million in 2022, and $0.3 million in 202171686713738 - Goodwill and other intangible assets with indefinite lives are evaluated for impairment annually. Long-lived assets are reviewed for impairment when indicators are present4999658659689716717 - Stock-based compensation expense is estimated at the grant date using the Black-Scholes option pricing model and recognized over the service period. Total compensation cost was $1.2 million in 2023, $2.3 million in 2022, and $1.7 million in 2021535729730 - Warranty costs are accrued as an estimated liability concurrent with revenue recognition, based on historical experience and future conditions. The warranty accrual balance was $1.9 million at the end of 2023536704728 Results of Operations In 2023, net revenue increased by 1% to $49.2 million, gross profit improved to 34%, and net loss decreased to $20.6 million, while 2022 saw 24% revenue growth but a lower gross profit percentage and higher net loss Net Revenue by Category (2021-2023) | Category | 2023 ($M) | 2022 ($M) | 2021 ($M) | | :------------------------ | :-------- | :-------- | :-------- | | Laser systems | 30.043 | 31.443 | 25.023 | | Consumables and other | 13.596 | 11.322 | 9.456 | | Services | 5.525 | 5.697 | 4.709 | | Total Net Revenue | 49.164| 48.462| 39.188| Key Financial Performance (2021-2023) | Metric | 2023 ($M) | 2022 ($M) | 2021 ($M) | | :------------------------ | :-------- | :-------- | :-------- | | Net Revenue | 49.164 | 48.462 | 39.188 | | Cost of Revenue | 32.440 | 32.551 | 22.659 | | Gross Profit | 16.724 | 15.911 | 16.529 | | Gross Profit % of Revenue | 34.0% | 32.8% | 42.2% | | Total Operating Expenses | 34.661 | 41.249 | 32.960 | | Loss from Operations | (17.937) | (25.338) | (16.431) |\ | Net Loss | (20.632) | (28.634) | (16.158) | - Net revenue increased by 1% in 2023 (YoY), primarily due to a 20% increase in consumables and other revenue, offsetting a 4% decrease in laser system revenue7475105 - Gross profit as a percentage of revenue slightly improved to 34% in 2023 from 33% in 2022, despite higher warranty expenses and material costs, due to lower inventory reserve charges106 - Operating expenses decreased by 16% in 2023 (YoY), driven by lower sales and marketing (15% decrease), general and administrative (17% decrease), and engineering and development (17% decrease) expenses7677107108 - Net loss improved to $20.6 million in 2023 from $28.6 million in 202280118 - Net revenue increased by 24% in 2022 (YoY), primarily from increased laser adoption, consumable sales, and OEM product launch8182112 - Gross profit as a percentage of revenue decreased to 33% in 2022 from 42% in 2021, impacted by a $2.7 million inventory charge and lower margin OEM products83113 - Operating expenses increased by 25% in 2022 (YoY), mainly due to higher sales and marketing (41% increase) and engineering and development (20% increase) expenses84114115116 Non-GAAP Disclosure BIOLASE provides Adjusted EBITDA as a non-GAAP measure to enhance transparency and facilitate comparisons of operating results, excluding non-cash and non-recurring items - Management uses Adjusted EBITDA to evaluate core results of operations and trends, believing it provides greater transparency and a more complete understanding of financial performance119120124125 - Adjusted EBITDA is defined as net loss before interest, taxes, depreciation, stock-based compensation, severance expense, change in allowance for doubtful accounts, increase in inventory reserves, and other (income) expense, net120 Adjusted EBITDA (2021-2023) | Metric | 2023 ($M) | 2022 ($M) | 2021 ($M) | | :------------------------------------------ | :-------- | :-------- | :-------- | | GAAP net loss attributable to common stockholders | (37.619) | (28.851) | (16.704) | | Deemed dividend on convertible preferred stock | 16.987 | 217 | 546 | | GAAP net loss | (20.632) | (28.634) | (16.158) | | Adjustments: | | | | | Interest expense, net | 2.361 | 2.749 | 2.224 | | Income tax provision | 31 | 109 | 65 | | Depreciation | 2.798 | 497 | 400 | | Severance expense | 236 | — | — | | Change in allowance for doubtful accounts | 533 | 40 | (202) | | Loss on patent litigation settlement | — | — | 315 | | Stock-based and other non-cash compensation | 1.232 | 2.303 | 1.662 | | Increase in inventory reserve and disposals | 715 | 2.798 | — | | Gain on debt forgiveness | — | — | (3.014) | | Other income, net | (48) | — | — | | Adjusted EBITDA | (12.774)| (20.138)| (14.708)| Liquidity and Capital Resources BIOLASE faces substantial doubt about its going concern ability due to recurring losses and negative cash flows, necessitating additional capital or significant operational improvements - Recurring losses from operations ($17.9M in 2023, $25.3M in 2022, $16.4M in 2021) and negative cash flows from operations for the past three years raise substantial doubt about the company's ability to continue as a going concern92142679680 - As of December 31, 2023, cash and cash equivalents were $6.6 million (up $2.4 million from 2022) and working capital was $5.2 million93126650 - Cash provided by financing activities was $17.4 million in 2023, primarily from public offerings, partially offset by $14.1 million used in operating activities93134650 - The company needs to raise additional capital or increase sales and reduce expenses to continue operations beyond the next 12 months129143651681 Consolidated Cash Flows Summary (2021-2023) | Cash Flow Activity | 2023 ($M) | 2022 ($M) | 2021 ($M) | | :-------------------------------- | :-------- | :-------- | :-------- | | Operating activities | (14.091) | (26.761) | (16.710) | | Investing activities | (1.129) | (3.727) | (707) | | Financing activities | 17.434 | 4.603 | 29.954 | | Effect of exchange rates on cash | 171 | (109) | (238) | | Net change in cash and cash equivalents | 2.385 | (25.994) | 12.299 | Contractual Obligations BIOLASE's contractual obligations primarily include operating leases, a term loan with SWK, an EIDL Loan, and purchase commitments, totaling $32.08 million as of December 31, 2023 - Operating lease obligations for real property, office copiers, and IT equipment, with future minimum rent payments of approximately $1.9 million as of December 31, 2023138155159616617618619 - The SWK Loan has an outstanding principal of $13.1 million (as of Nov 15, 2023) with a maturity date of May 31, 2025, and requires compliance with financial covenants, including maintaining minimum unencumbered liquid assets156779784786 - The company has a $150,000 EIDL Loan from the SBA, with payments starting in November 2022 and extending through July 2050157753778 - Purchase commitments with suppliers totaled $12.6 million as of December 31, 2023, primarily expected to be completed within one year158622 Expected Cash Requirements for Contractual Obligations (as of December 31, 2023, in thousands) | Obligation | 1 Year ($M) | 2-3 Years ($M) | 4-5 Years ($M) | >5 Years ($M) | Total ($M) | | :---------------------- | :---------- | :------------- | :------------- | :------------ | :--------- | | Operating lease obligations | 1.049 | 0.820 | — | — | 1.869 | | Purchase obligations | 12.615 | 0.004 | — | — | 12.619 | | Loan interest | 1.867 | 0.926 | 0.012 | 0.077 | 2.882 | | Loan principal | 2.265 | 12.295 | 0.006 | 0.144 | 14.710 | | Total | 17.796 | 14.045 | 0.018 | 0.221 | 32.080 | Financial Statements and Supplementary Data This section presents audited financial statements, including the independent auditor's report and detailed notes Report of Independent Registered Public Accounting Firm Macias Gini & O'Connell LLP issued an unqualified opinion on BIOLASE's 2023 financial statements, noting going concern doubt and critical audit matters related to goodwill and preferred stock valuation - Macias Gini & O'Connell LLP issued an unqualified opinion on the 2023 financial statements but included an explanatory paragraph regarding substantial doubt about the company's ability to continue as a going concern224225623625 - Critical audit matters for 2023 included the valuation of goodwill (due to significant estimation in determining fair value) and the fair value measurement of Series H & J Convertible Redeemable Preferred Stock and Warrants (due to complex accounting and limited observable market data)626628630 - BDO USA, P.C. provided an unqualified opinion for the 2021 and 2022 consolidated financial statements, also noting substantial doubt about the company's going concern ability609635 Consolidated Financial Statements This section presents BIOLASE's audited consolidated Balance Sheets, Statements of Operations and Comprehensive Loss, Statements of Convertible Redeemable Preferred Stock and Stockholders' Equity (Deficit), and Statements of Cash Flows for 2021-2023 - Consolidated Balance Sheets as of December 31, 2023 and 2022 are presented104613666 - Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023, 2022, and 2021 are presented105639668 - Consolidated Statements of Convertible Redeemable Preferred Stock and Stockholders' Equity (Deficit) for the years ended December 31, 2023, 2022, and 2021 are presented106615669 - Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021 are presented109643671 Notes to Consolidated Financial Statements The notes provide detailed information on accounting policies, liquidity, goodwill, income taxes, debt, preferred stock, and a revision of prior interim financial statements - The notes detail the basis of presentation, use of estimates, fair value of financial instruments, and concentration of credit risk, interest rate risk, and foreign currency exchange rate645646647648649675676677 - Liquidity and management's plans highlight recurring losses and negative cash flows, raising substantial doubt about the company's ability to continue as a going concern, necessitating additional capital or increased sales/reduced expenses650651679680681 - Details on goodwill and intangible assets, including annual impairment tests and the absence of amortization expense for fully amortized intangible assets742743771 - Income tax information includes current and deferred provisions, a full valuation allowance against net deferred tax assets ($35.8M as of Dec 31, 2023), and net operating loss carryforwards ($110M federal, $80M state) subject to Section 382 limitations745746747748772773774 - Debt details cover the SWK Loan ($13.1M principal, maturity May 2025) and EIDL Loan ($150K), including amendments, covenants, and interest expenses752753777778779786806 - Extensive information on convertible redeemable preferred stock (Series J, Series H, Series I, Series G, Series F) and warrants, detailing issuances, conversions, redemptions, and accounting classifications555568569570571572574575576577578586587588589590591592594595596600601660661690718809810811812813814815817818819821822823825834835836837838839840841842843844845 - Revision of previously issued unaudited interim financial statements for Q2 and Q3 2023 to correct the presentation of accretion of redeemable preferred stock as a deemed dividend, impacting net loss per share attributable to common stockholders166858859860861862882884885886887 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure BIOLASE dismissed BDO USA, P.C. and appointed Macias Gini & O'Connell LLP as its new auditor Dismissal and Appointment of Accountants BIOLASE dismissed BDO USA, P.C. and appointed Macias Gini & O'Connell LLP as its independent registered public accounting firm, with no disagreements on accounting principles or audit scope - On June 21, 2023, BDO USA, P.C. was dismissed as the independent registered public accounting firm184 - Macias Gini & O'Connell LLP (MGO) was engaged as the new independent registered public accounting firm for the fiscal year ending December 31, 2023, effective immediately163186 - There were no disagreements with BDO USA on accounting principles, financial statement disclosure, or auditing scope/procedure, nor any reportable events, except for the going concern explanatory paragraph in BDO USA's reports161162183185 Controls and Procedures Management concluded disclosure controls were effective, except for a material weakness in net loss per share calculation Disclosure Controls and Internal Control Over Financial Reporting As of December 31, 2023, BIOLASE's disclosure controls were effective, except for a material weakness in net loss per share calculation, which required interim financial statement revisions - As of December 31, 2023, disclosure controls and procedures were deemed effective, except for a material weakness related to the calculation of net loss per share attributable to common stockholders141164187 - This material weakness stemmed from an error in presenting accretion of redeemable preferred stock as an adjustment to net loss attributable to common stockholders, requiring revision of previously furnished interim financial statements for Q2 and Q3 2023141166188 - Remediation plans include enhancing processes, providing better access to accounting literature, and increasing communication among personnel and third-party professionals167 - No other changes in internal control over financial reporting materially affected or are reasonably likely to materially affect internal control during the quarter ended December 31, 2023189 Other Information No director or officer adopted or terminated Rule 10b5-1 trading arrangements, and indemnification agreements were executed Trading Arrangements and Indemnification Agreements No director or officer adopted or terminated Rule 10b5-1 trading arrangements during Q4 2023, and indemnification agreements were entered into with the CFO and COO - No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended December 31, 2023191 - On March 21, 2024, indemnification agreements were entered into with Jennifer Bright (CFO) and Steven Sandor (COO)192 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company Foreign Jurisdictions Disclosure This item is not applicable to the company - Not applicable193 PART III This part incorporates by reference information on directors, executive compensation, security ownership, and related matters Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance, including the Code of Business Conduct and Ethics, is incorporated by reference from the definitive proxy statement for the 2024 annual meeting of stockholders - Information on executive officers is included in Part I, Item 1 of this Form 10-K195 - Information on the election of directors is incorporated by reference from the 2024 Proxy Statement173195 - The BIOLASE, Inc. Code of Business Conduct and Ethics applies to all employees, officers, and directors and is available on the investor relations website170 Executive Compensation Information regarding executive compensation and director compensation is incorporated by reference from the definitive proxy statement for the 2024 annual meeting of stockholders - Information on Executive Compensation and 2023 Director Compensation is incorporated by reference from the Proxy Statement171196 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership of certain beneficial owners and management, as well as equity compensation plan information, is incorporated by reference from the definitive proxy statement for the 2024 annual meeting of stockholders and Item 5 of this Form 10-K, respectively - Information on Security Ownership of Certain Beneficial Owners and Management is incorporated by reference from the Proxy Statement172196 - Information on Equity Compensation Plan Information is incorporated by reference from Item 5 of this Form 10-K172 Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the definitive proxy statement for the 2024 annual meeting of stockholders - Information on Certain Relationships and Related Transactions and Director Independence is incorporated by reference from the Proxy Statement173196 Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the definitive proxy statement for the 2024 annual meeting of stockholders - Information on Principal Accountant Fees and Services is incorporated by reference from the Proxy Statement174196 PART IV This part includes exhibits, financial statement schedules, and a summary of the Form 10-K Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of this Form 10-K, including auditor reports, consolidated financial statements, and a comprehensive exhibit index - The following financial statements are filed as part of this Form 10-K: Reports of Independent Registered Public Accounting Firms (Macias Gini & O'Connell, LLP and BDO USA, P.C.), Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Loss, Consolidated Statements of Convertible Redeemable Preferred Stock and Stockholders' Equity (Deficit), Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements176222 - Schedule II – Consolidated Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2023, 2022, and 2021 is included176222891 - A comprehensive exhibit index lists various documents, including placement agency agreements, certificates of incorporation, bylaws, warrants, incentive plans, lease agreements, indemnification agreements, and certifications198200215217 Form 10-K Summary This item is not applicable and contains no information - None212