BIOLASE(BIOL) - 2024 Q1 - Quarterly Report

FORM 10-Q Filing Information This section provides key administrative details regarding the company's quarterly report filing on Form 10-Q for the period ended March 31, 2024 - Filing is a Quarterly Report on Form 10-Q for the period ended March 31, 2024[3] - BIOLASE, INC. is registered in Delaware with Commission File Number 001-36385[4][40] - The registrant is a Non-accelerated filer and a Smaller reporting company, and is not a shell company[10] - As of May 6, 2024, there were 33,394,979 shares of common stock outstanding[10] INDEX This section outlines the overall structure of the report, dividing it into financial and other information parts - The report is structured into Part I (Financial Information) and Part II (Other Information)[6] - Part I includes Financial Statements, Management's Discussion and Analysis, Market Risk Disclosures, and Controls and Procedures[6] - Part II covers Legal Proceedings, Risk Factors, Sales of Equity Securities, Defaults, Mine Safety, Other Information, and Exhibits[6] PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for BIOLASE, INC., including the balance sheets, statements of operations and comprehensive loss, statements of convertible redeemable preferred stock and stockholders' equity (deficit), and statements of cash flows, along with accompanying notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :----- | :------------- | :---------------- | | Cash and cash equivalents | $6,393 | $6,566 | | Accounts receivable, net | $5,687 | $5,483 | | Inventory | $11,273 | $11,433 | | Total current assets | $25,005 | $24,863 | | Total assets | $34,353 | $35,101 | | Total current liabilities | $21,427 | $19,663 | | Total liabilities | $34,084 | $33,145 | | Total stockholders' equity (deficit) | $(1,934) | $(247) | Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's revenues, expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----- | :-------------------------------- | :-------------------------------- | | Net revenue | $10,131 | $10,467 | | Cost of revenue | $6,795 | $7,130 | | Gross profit | $3,336 | $3,337 | | Total operating expenses | $7,862 | $8,628 | | Loss from operations | $(4,526) | $(5,291) | | Net loss | $(6,485) | $(5,849) | | Basic and Diluted Net loss per share | $(0.36) | $(17.83) | Condensed Consolidated Statements of Convertible Redeemable Preferred Stock and Stockholders' Equity (Deficit) This section tracks changes in the company's preferred stock and equity accounts over time - Total mezzanine equity remained at $2,203 thousand as of March 31, 2024, consistent with December 31, 2023[42] - Total stockholders' equity (deficit) decreased from $(247) thousand as of December 31, 2023, to $(1,934) thousand as of March 31, 2024, primarily due to a net loss of $6,485 thousand[42][45] - Additional paid-in capital increased by $4,854 thousand, driven by the sale of common stock units and prefunded units ($2,776 thousand), exercise of Class A Warrants ($1,976 thousand), and stock-based compensation ($102 thousand)[45] Condensed Consolidated Statements of Cash Flows This section reports the cash generated and used by the company's operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------- | :-------------------------------- | :-------------------------------- | | Operating Activities | $(5,938) | $(5,658) | | Investing Activities | $197 | $(587) | | Financing Activities | $5,647 | $8,517 | | Effect of exchange rate changes | $(79) | $79 | | Net change in cash and cash equivalents | $(173) | $2,351 | | Cash and cash equivalents, end of period | $6,393 | $6,532 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering business description, accounting policies, revenue recognition, equity, inventory, property, goodwill, liabilities, debt, leases, segment information, concentrations, income taxes, and subsequent events Note 1: Description of Business and Basis of Presentation This note describes the company's business and the foundational principles used in preparing the financial statements - BIOLASE, Inc. is a leading provider of advanced laser systems for the dental industry, offering minimally invasive procedures with benefits for both patients and practitioners[22] - The Company's recurring losses and cash usage in operations raise substantial doubt about its ability to continue as a going concern, and the financial statements do not include adjustments for this uncertainty[26][52] - All common stock share numbers and prices have been retroactively adjusted to reflect the 2023 Reverse Stock Split[25] Note 2: Summary of Significant Accounting Policies This note outlines the key accounting principles and estimates applied in the financial reporting - The preparation of financial statements requires significant estimates, including allowances for receivables, inventory, deferred taxes, warranty expenses, goodwill, and revenue deferrals[28] - No significant changes in critical accounting policies were reported for the three months ended March 31, 2024, compared to the 2023 Form 10-K[29] - The Company intends to adopt ASU No. 2023-09 (Improvements to Income Tax Disclosures) prospectively in 2025, with no material impact expected on financial position or results[33] Note 3: Revenue Recognition This note details how and when the company recognizes revenue from its various products and services - Revenue from products and services transferred at a single point in time accounted for 85% of net revenue for Q1 2024 (vs. 89% in Q1 2023), primarily from laser systems and consumables[35] - Revenue recognized over time (product training and extended warranties) increased to 15% of net revenue for Q1 2024 (vs. 11% in Q1 2023)[90] Net Revenue by Geographic Region (in thousands) | Geographic Region | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------- | :-------------------------------- | :-------------------------------- | | United States | $6,690 | $6,758 | | International | $3,441 | $3,709 | | Total Net Revenue | $10,131 | $10,467 | Note 4: Convertible Redeemable Preferred Stock and Stockholders' Equity (Deficit) This note provides details on the company's preferred stock, equity, and related transactions, including warrants - The Company has Series H and Series J Convertible Redeemable Preferred Stock classified as mezzanine equity, with mandatory redemption dates in May 2025 and September 2024, respectively[70][101][97][102] - Stock-based compensation expense was $0.1 million for Q1 2024, down from $0.7 million in Q1 2023, with $0.2 million unrecognized compensation expense remaining[80][106] Warrant Activity (in thousands, except exercise price) | Metric | Shares | Weighted Average Exercise Price | | :----- | :----- | :------------------------------ | | Warrants outstanding as of Dec 31, 2023 | 4,323 | $11.88 | | Granted or Issued | 42,427 | $0.57 | | Exercised | (22,736) | $— | | Warrants outstanding as of Mar 31, 2024 | 24,014 | $2.68 | Note 5: Inventory This note breaks down the company's inventory into raw materials, work-in-process, and finished goods Inventory Breakdown (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :------- | :------------- | :---------------- | | Raw materials | $6,139 | $6,168 | | Work-in-process | $1,466 | $1,299 | | Finished goods | $3,668 | $3,966 | | Total Inventory | $11,273 | $11,433 | Note 6: Property, Plant, and Equipment This note details the company's tangible long-term assets, including depreciation Property, Plant, and Equipment, Net (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :------- | :------------- | :---------------- | | Total property, plant, and equipment | $16,653 | $16,695 | | Less: Accumulated depreciation | $(11,963) | $(11,330) | | Total property, plant, and equipment, net | $4,690 | $5,365 | | Land | $156 | $160 | | Property, plant, and equipment, net | $4,846 | $5,525 | Note 7: Intangible Assets and Goodwill This note provides information on the company's intangible assets and goodwill, including impairment assessments - Goodwill remained at $2.9 million as of March 31, 2024, with no impairment identified in the annual test as of September 30, 2023, or subsequent quantitative assessment in Q4 2023[120][121][168] - All intangible assets subject to amortization have been fully amortized, resulting in no amortization expense for Q1 2024 and Q1 2023[168] Note 8: Accrued Liabilities This note itemizes the company's accrued expenses, such as payroll, warranty, and professional services Accrued Liabilities Breakdown (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :------- | :------------- | :---------------- | | Payroll and benefits | $3,282 | $3,343 | | Warranty accrual, current portion | $1,293 | $1,321 | | Operating lease liability | $904 | $888 | | Accrued professional services | $731 | $422 | | Total Accrued Liabilities | $7,589 | $7,518 | Note 9: Debt This note details the company's various debt obligations, including term loans and related costs Debt Details (in thousands) | Debt Type | March 31, 2024 | December 31, 2023 | | :-------- | :------------- | :---------------- | | SWK Loan | $14,395 | $14,560 | | EIDL Loan | $150 | $150 | | Discount and debt issuance costs | $(538) | $(663) | | Total Debt | $14,007 | $14,047 | | Current term loans | $2,800 | $2,265 | | Non-current term loans, net of discount | $11,207 | $11,782 | Note 10: Leases This note outlines the company's lease arrangements, including right-of-use assets and lease liabilities - As of March 31, 2024, right-of-use assets were $1.3 million and total lease liabilities were $1.4 million[153][178] - The weighted-average remaining lease term is 1.6 years, with a weighted-average discount rate of 12.3%[177] - Rent expense totaled $0.3 million for both Q1 2024 and Q1 2023[179] Note 11: Segment Information This note clarifies that the company operates as a single business segment and provides revenue by geographic location - The Company operates in a single business segment and does not segregate its business for internal reporting[181] Net Revenue by Geographic Location (in thousands) | Geographic Location | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------ | :-------------------------------- | :-------------------------------- | | United States | $6,690 (66%) | $6,758 (65%) | | International | $3,441 (34%) | $3,709 (35%) | | Total Net Revenue | $10,131 (100%) | $10,467 (100%) | Note 12: Concentrations This note identifies significant concentrations of risk related to cash, customers, and suppliers - The Company maintains cash and cash equivalents in money market accounts with commercial banks, which periodically exceed federally insured limits[184] - No individual customer represented more than 10% of revenue for Q1 2024 or Q1 2023, and no individual customer represented more than 10% of accounts receivable as of March 31, 2024[155][156] - The Company relies on single suppliers for certain key components, but believes alternative suppliers are available, though a change could cause manufacturing delays[185] Note 13: Income Taxes This note details the company's income tax provision, effective tax rate, and deferred tax assets - The Company recorded an income tax provision of $19 thousand for Q1 2024 (0.3% effective tax rate) and $1 thousand for Q1 2023 (0.0% effective tax rate)[187] - The effective tax rate differs from the statutory rate of 21% primarily due to valuation allowances against net deferred tax assets and current liabilities from estimated state and foreign income tax liabilities[187] - No liability for unrecognized tax benefits was recorded for Q1 2024 or Q1 2023, and no material changes are expected in the next 12 months[158] Note 14: Subsequent Events This note discloses significant events that occurred after the balance sheet date, including Nasdaq compliance issues - On April 15, 2024, the Company received a Nasdaq staff determination letter regarding non-compliance with the $1.00 minimum bid price requirement, superseding a previous erroneous letter[159][160][215][256] - The Company requested a hearing with the Nasdaq Hearings Panel in June 2024, which automatically stayed any delisting action, and the Panel has authority to grant an extension until October 14, 2024[159][279] - Stockholders did not approve a proposal to increase shares available under the 2018 Stock Incentive Plan by 7.5 million shares at the May 2, 2024 Annual Meeting[161][189] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on BIOLASE's financial condition and results of operations for the three months ended March 31, 2024, discussing business overview, financial performance, liquidity, and future outlook, including non-GAAP measures Overview This section provides a general description of BIOLASE's business, products, and strategic objectives - 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 procedures[192][194] - The company holds approximately 241 active and 21 pending U.S. and international patents, primarily related to Waterlase technology, and has sold over 47,700 laser systems globally since 1998[218] - The company aims to increase awareness and demand for its products, grow consumables revenue, and achieve operating excellence through lean initiatives, sales strategy, cash flow management, and innovation[195] Recent Developments This section highlights significant events and transactions that occurred recently, impacting the company's financial position - On February 15, 2024, the Company completed a public offering, issuing units of common stock and Class A/B warrants, and pre-funded units with pre-funded warrants and Class A/B warrants, raising approximately $7.0 million in gross proceeds[132][223] - The February 2024 offering triggered anti-dilution provisions, reducing the exercise price of December 2023 Warrants to $0.2256 per share[224] Critical Accounting Policies This section discusses the accounting policies that require significant judgment and estimates in financial reporting - The financial statements are prepared using GAAP, requiring estimates and assumptions that affect reported amounts[225] - No significant changes in critical accounting policies occurred during the three months ended March 31, 2024, from those disclosed in the 2023 Form 10-K[225] Results of Operations This section analyzes the Company's operating results for the three months ended March 31, 2024, compared to the same period in 2023, covering net revenue, cost of revenue, gross profit, operating expenses, non-operating income/loss, and net loss Net Revenue This section analyzes the company's revenue performance by product and service categories Net Revenue by Category (in thousands) | Category | Q1 2024 | % of Total | Q1 2023 | % of Total | Change | % Change | | :------- | :------ | :--------- | :------ | :--------- | :----- | :------- | | Laser systems | $5,175 | 51.1% | $6,265 | 59.8% | $(1,090) | (17.4)% | | Consumables and other | $3,469 | 34.2% | $3,033 | 29.0% | $436 | 14.4% | | Services | $1,487 | 14.7% | $1,169 | 11.2% | $318 | 27.2% | | Total Net Revenue | $10,131 | 100.0% | $10,467 | 100.0% | $(336) | (3.2)% | Cost of Revenue and Gross Profit This section examines the costs directly associated with revenue generation and the resulting gross profit margin Cost of Revenue and Gross Profit (in thousands) | Metric | Q1 2024 | % of Net Revenue | Q1 2023 | % of Net Revenue | Change | % Change | | :----- | :------ | :--------------- | :------ | :--------------- | :----- | :------- | | Cost of revenue | $6,795 | 67.1% | $7,130 | 68.1% | $(335) | (4.7)% | | Gross profit | $3,336 | 32.9% | $3,337 | 31.9% | $(1) | (0.0)% | Operating Expenses This section details the company's sales and marketing, general and administrative, and engineering and development expenses Operating Expenses (in thousands) | Expense Category | Q1 2024 | % of Net Revenue | Q1 2023 | % of Net Revenue | Change | % Change | | :--------------- | :------ | :--------------- | :------ | :--------------- | :----- | :------- | | Sales and marketing | $3,383 | 33.4% | $4,622 | 44.2% | $(1,239) | (26.8)% | | General and administrative | $3,196 | 31.5% | $2,459 | 23.4% | $737 | 30.0% | | Engineering and development | $1,283 | 12.7% | $1,547 | 14.8% | $(264) | (17.1)% | | Total Operating Expenses | $7,862 | 77.6% | $8,628 | 82.4% | $(766) | (8.9)% | Non-Operating Income (Loss) This section covers income and expenses not directly related to core operations, such as foreign currency and warrant revaluation - The Company incurred a $96 thousand loss on foreign currency transactions in Q1 2024, compared to a $20 thousand gain in Q1 2023, primarily due to U.S. dollar and Euro exchange rate fluctuations[209] - Other expense for Q1 2024 was $1.2 million, including $0.8 million in issuance costs for warrants and $0.6 million in losses from warrant revaluation, partially offset by $0.2 million in gains from asset disposal[233] - Interest expense remained consistent at $0.6 million for both Q1 2024 and Q1 2023[262] Net Loss and Income Tax Provision This section reports the company's overall net loss and the provision for income taxes for the period - Net loss increased to $6.5 million for Q1 2024, compared to $5.8 million for Q1 2023[263] - Income tax provision was consistent at $19 thousand for Q1 2024 and $1 thousand for Q1 2023, calculated using the discrete year-to-date method[210] Liquidity and Capital Resources - Going Concern This section addresses the Company's liquidity position, cash flow activities, and the substantial doubt about its ability to continue as a going concern, highlighting the need for additional capital or increased sales and expense control Cash and Cash Equivalents This section analyzes the changes in the company's cash and cash equivalents over the reporting period - Cash and cash equivalents decreased from $6.6 million as of December 31, 2023, to $6.4 million as of March 31, 2024[211] - The decrease was primarily due to a $6.5 million net loss and $0.2 million in term loan principal payments, partially offset by $5.8 million net proceeds from the February 2024 public offering and $0.2 million from asset disposal[211] Operating Activities This section details the cash flows generated or used by the company's primary business operations - Net cash used in operating activities totaled $5.9 million for Q1 2024, primarily driven by the $6.5 million net loss[264] Investing Activities This section reports cash flows related to the acquisition and disposal of long-term assets - Net cash provided by investing activities was $0.2 million for Q1 2024, solely from the proceeds of property, plant, and equipment disposal[212] Financing Activities This section outlines cash flows from debt, equity, and other financing transactions - Net cash provided by financing activities was $5.6 million for Q1 2024, primarily from the net proceeds of the February 2024 public offering[236] - The effect of exchange rate changes resulted in a $79 thousand loss on cash for Q1 2024, mainly due to Euro fluctuations[265] Future Liquidity Needs This section discusses the company's anticipated capital requirements and plans to address going concern issues - Substantial doubt exists about the Company's ability to continue as a going concern due to recurring losses and cash usage, necessitating additional capital or increased sales and expense control[267][238] - The Company expects to need to raise capital through equity or debt offerings, but there is no assurance such financing will be available on acceptable terms or without dilution[266] - Management plans to improve financial condition by expanding product offerings, strengthening sales and distributor relationships, forming strategic arrangements, educating patients, and reducing expenses[239] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable to the Company for the reporting period - This section is not applicable to the Company[245] Item 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures and reports on the remediation of a previously identified material weakness in internal control over financial reporting Disclosure Controls and Procedures This section reports on the effectiveness of the company's controls designed to ensure timely and accurate financial disclosures - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2024[269] Changes in Internal Controls over Financial Reporting This section discusses any material changes or remediation efforts related to the company's internal controls over financial reporting - A material weakness in internal control over financial reporting, related to the proper presentation of net loss per share for complex transactions, was identified in prior periods[247][270] - Management implemented additional controls, including thorough investigation and documentation of unique transactions and engagement of technical experts, to remediate the material weakness[271] - No other changes in internal control over financial reporting materially affected or are reasonably likely to materially affect internal control during the period[249] PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits Item 1. Legal Proceedings This section discloses a patent infringement lawsuit filed against BIOLASE by PIPStek, LLC, concerning its Waterlase dental laser product - PIPStek, LLC filed a lawsuit against BIOLASE on January 4, 2023, alleging patent infringement by the Waterlase dental laser product[272] - The lawsuit seeks unspecified damages and injunctive relief, with BIOLASE denying allegations and asserting patent invalidity and non-infringement[272] - The trial for this matter is currently scheduled for May 12, 2025[272] Item 1A. Risk Factors This section updates and reiterates significant risks faced by BIOLASE, including substantial doubt about its ability to continue as a going concern, recurring financial losses, and ongoing challenges with Nasdaq listing compliance Going Concern and Financial Performance This section highlights the financial risks associated with the company's ability to continue operations and achieve profitability - Substantial doubt exists about the Company's ability to continue as a going concern due to recurring losses and negative cash flow from operations[251][274] - The Company reported an accumulated deficit of $323.3 million as of March 31, 2024, and net losses of $6.5 million for Q1 2024, following losses in prior years[275] - Achieving profitability requires increasing net revenue and controlling costs; failure to do so could adversely affect the business and stock price[275] Nasdaq Listing Compliance This section details the risks related to the company's ability to maintain its listing on the Nasdaq stock exchange - The Company received a Nasdaq staff determination letter on April 15, 2024, for failing to meet the $1.00 minimum bid price requirement, and is not eligible for an automatic compliance period due to a prior mandatory panel monitor[159][256][287] - The Company has requested a hearing with the Nasdaq Hearings Panel in June 2024, which has the authority to grant an extension until October 14, 2024[159][279] - The Company also anticipates another deficiency letter for non-compliance with the minimum stockholders' equity requirement ($2.5 million), as its Q1 2024 report does not evidence compliance[288] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds were reported[289] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities to report for the period - No defaults upon senior securities were reported[289] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[289] Item 5. Other Information This section states that there is no other information to report for the period - No other information was reported[289] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including various agreements, certificates of incorporation, warrants, and certifications - Key exhibits include the Placement Agency Agreement, Restated Certificate of Incorporation amendments, Certificates of Designation for Preferred Stock, various warrant forms, and certifications by the CEO and CFO[282][283][284] SIGNATURES This section contains the official signatures of the company's principal executive and financial officers, certifying the report - The report is signed by John R. Beaver, President and Chief Executive Officer, and Jennifer Bright, Chief Financial Officer, on May 13, 2024[293]