4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading symbol(s) |
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Name of each exchange on which registered |
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(NASDAQ Capital Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No
As of May 6, 2024, the registrant had
BIOLASE, INC.
INDEX
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PART I. |
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FINANCIAL INFORMATION |
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Item 1. |
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2 |
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2 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
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3 |
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4 |
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6 |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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24 |
Item 3. |
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33 |
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Item 4. |
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33 |
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PART II |
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OTHER INFORMATION |
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Item 1. |
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34 |
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Item 1A. |
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34 |
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Item 2. |
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36 |
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Item 3. |
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36 |
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Item 4. |
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36 |
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Item 5. |
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36 |
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Item 6. |
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37 |
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39 |
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1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOLASE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
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March 31, |
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December 31, |
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2024 |
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2023 |
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ASSETS |
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(Unaudited) |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, less allowance of $ |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant, and equipment, net |
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Goodwill |
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Right-of-use assets, leases |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Stock warrant liability |
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Deferred revenue, current portion |
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Current portion of term loans |
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Total current liabilities |
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Deferred revenue |
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Warranty accrual |
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Non-current term loans, net of discount |
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Non-current operating lease liability |
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Other liabilities |
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Total liabilities |
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Mezzanine Equity: |
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Series H Convertible Redeemable Preferred stock, par value $ |
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Series J Convertible Redeemable Preferred stock, par value $ |
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Total mezzanine equity |
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Stockholders' equity (deficit): |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity (deficit) |
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( |
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( |
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Total liabilities, convertible redeemable preferred stock and |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
2
BIOLASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data)
(Unaudited)
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Three Months Ended |
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March 31, |
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2024 |
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2023 |
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Net revenue |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Sales and marketing |
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General and administrative |
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Engineering and development |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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Gain (loss) on foreign currency transactions |
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( |
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Interest expense, net |
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( |
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( |
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Other income (loss), net |
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( |
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Non-operating loss, net |
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( |
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( |
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Loss before income tax provision |
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( |
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( |
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Income tax provision |
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( |
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( |
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Net loss |
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( |
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( |
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Other comprehensive loss items: |
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Foreign currency translation adjustments |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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Net loss |
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$ |
( |
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$ |
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Deemed dividend on convertible preferred stock |
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Net loss attributable to common stockholders |
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$ |
( |
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$ |
( |
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Net loss per share attributable to common stockholders: |
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Basic and Diluted - Note 1 |
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$ |
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$ |
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Shares used in the calculation of net loss per share: |
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Basic and Diluted - Note 1 |
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See accompanying notes to condensed consolidated financial statements.
3
BIOLASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
(Unaudited)
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Mezzanine Equity |
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Stockholders' Equity (Deficit) |
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Series H |
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Series J |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity (Deficit) |
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Balance, December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Sale of common stock units and pre-funded units, net of fees |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of Class A Warrants |
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— |
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— |
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— |
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— |
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— |
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— |
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Paid-in-kind dividend on Series J Convertible Redeemable Preferred Stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of stock from |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of common stock warrants |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Foreign currency |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Balance, March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
( |
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See accompanying notes to condensed consolidated financial statements.
4
BIOLASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
(Unaudited)
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Stockholders' Equity (Deficit) |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Amount |
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Loss |
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Deficit |
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Equity (Deficit) |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Sale of common stock and pre-funded warrants, net of fees |
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— |
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— |
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Issuance of stock from RSUs, net |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Exercise of common stock warrants |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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See accompanying notes to condensed consolidated financial statements.
5
BIOLASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Three Months Ended |
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March 31, |
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2024 |
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2023 |
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Cash Flows from Operating Activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: |
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Depreciation |
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Recoveries of bad debts |
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( |
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Amortization of debt issuance costs |
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Change in fair value of warrants |
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Issuance costs for common stock warrants |
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Stock-based compensation |
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Gain on disposal of fixed assets |
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( |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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Inventory |
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( |
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Prepaid expenses and other current assets |
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( |
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Accounts payable and accrued liabilities |
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( |
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Deferred revenue |
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( |
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( |
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Net cash and cash equivalents used in operating activities |
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( |
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( |
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Cash Flows from Investing Activities: |
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Purchases of property, plant, and equipment |
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( |
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Proceeds from disposal of property, plant, and equipment |
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Net cash and cash equivalents provided by (used in) investing activities |
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( |
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Cash Flows from Financing Activities: |
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Proceeds from the sale of common stock and pre-funded warrants, net of fees |
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Proceeds from the sale of warrants, net of fees |
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Principal payment on loan |
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( |
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Proceeds from the exercise of common stock warrants |
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Net cash and cash equivalents provided by financing activities |
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Effect of exchange rate changes |
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( |
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(Decrease) increase in cash and cash equivalents |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental cash flow disclosure: |
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Cash paid for interest |
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$ |
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$ |
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Cash received for interest |
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$ |
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$ |
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Cash paid (received) for income taxes |
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$ |
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$ |
( |
) |
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Cash paid for operating leases |
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$ |
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$ |
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Non-cash property, plant and equipment additions acquired under inventory |
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$ |
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$ |
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Common stock issued upon cashless warrant exercise |
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$ |
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$ |
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Non-cash right-of-use assets obtained in exchange for lease obligation |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The Company
BIOLASE, Inc. (“BIOLASE” and, together with its consolidated subsidiaries, the “Company”) is a leading provider of advanced laser systems for the dental industry. The Company develops, manufactures, markets, and sells laser systems that provide significant benefits for dental practitioners and their patients. The Company’s proprietary systems allow dentists, periodontists, endodontists, pediatric dentists, oral surgeons, and other dental specialists to perform a broad range of minimally invasive dental procedures, including cosmetic, restorative, and complex surgical applications. The Company’s laser systems are designed to provide clinically superior results for many types of dental procedures compared to those achieved with drills, scalpels, and other conventional instruments. Potential patient benefits include less pain, fewer shots, faster healing, decreased fear and anxiety, and fewer appointments. Potential practitioner benefits include improved patient care and the ability to perform a higher volume and wider variety of procedures and generate more patient referrals.
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of BIOLASE and its wholly-owned subsidiaries and have been prepared on a basis consistent with the December 31, 2023 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments and the elimination of all material intercompany transactions and balances, necessary to fairly present the information set forth therein. The unaudited condensed consolidated financial statements do not include all the footnotes, presentations, and disclosures normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements.
The unaudited condensed consolidated results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results for the full year. The December 31, 2023 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2023 included in included in BIOLASE’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 21, 2024 (the “2023 Form 10-K”).
Reverse Stock Split
At a special meeting of BIOLASE stockholders held on July 20, 2023 (the "special meeting"), BIOLASE stockholders approved an amendment to BIOLASE’s Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), to effect
Except as the context otherwise requires, all common stock share numbers, share price amounts (including exercise prices, conversion prices, and closing market prices), shares issued upon the conversion of preferred shares, and shares issued upon the exercise of warrants contained in the unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted to reflect the 2023 Reverse Stock Split.
Liquidity and Management’s Plans - Going Concern
The Company incurred losses from operations and used cash in operating activities for the three months ended March 31, 2024 and for the years ended December 31, 2023, 2022, and 2021. The Company’s recurring losses, level of cash used in operations, and potential need for additional capital, along with uncertainties surrounding the Company’s ability to raise additional capital, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
As of March 31, 2024, the Company had working capital of approximately $
7
primarily due to a net loss of $
Additional capital requirements may depend on many factors, including, among other things, the rate at which the Company’s business grows, demands for working capital, manufacturing capacity, and any acquisitions that the Company may pursue. The Company expects that it will be required to raise capital through either equity or debt offerings. The Company cannot provide assurance that it will be able to successfully enter into any such equity or debt financings in the future or that the required capital would be available on acceptable terms, if at all, or that any such financing activity would not be dilutive to its stockholders.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect amounts reported in the condensed consolidated financial statements and the accompanying notes. Significant estimates in these condensed consolidated financial statements include allowances on accounts receivable, inventory, and deferred taxes, as well as estimates for accrued warranty expenses, goodwill and the ability of goodwill to be realized, revenue deferrals, effects of stock-based compensation and warrants, contingent liabilities, the provision or benefit for income taxes, and preferred stock. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ materially from those estimates.
Critical Accounting Policies
Information with respect to the Company’s critical accounting policies, which management believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management, is discussed in the Company’s 2023 audited financial statements included in the 2023 Form 10-K. Management believes that there have been no significant changes during the three months ended March 31, 2024 in the Company’s critical accounting policies from those disclosed in the Company’s 2023 audited financial statements included in the 2023 Form 10-K.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market (or, if none exists, the most advantageous market) for the specific asset or liability at the measurement date (referred to as the “exit price”). The fair value is based on assumptions that market participants would use, including a consideration of non-performance risk. Under the accounting guidance for fair value hierarchy, there are three levels of measurement inputs. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable, either directly or indirectly. Level 3 inputs are unobservable due to little or no corroborating market data.
The Company’s financial instruments, consisting of cash, cash equivalents, accounts receivable, accounts payable, accrued liabilities, warrants, and the SWK Loan (as defined below) as discussed in Note 9 – Debt, approximate fair value because of the relative short maturity of these items and the market interest rates the Company could obtain.
Concentration of Credit Risk, Interest Rate Risk and Foreign Currency Exchange Rate
Financial instruments which potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents, and trade accounts receivable. The Company maintains its cash and cash equivalents with established commercial banks. At times, balances may exceed federally insured limits. To minimize the risk associated with trade accounts receivable, management performs ongoing credit evaluations of customers’ financial condition and maintains relationships with the Company’s customers that allow management to monitor current changes in business operations so the Company can respond as needed. The Company does not, generally, require customers to provide collateral before it sells them its products. However, the Company has required certain distributors to make prepayments for significant purchases of its products.
Substantially all of the Company’s revenue is denominated in U.S. dollars, including sales to international distributors. Only a small portion of its revenue and expenses is denominated in foreign currencies, principally the Euro and Indian Rupee. The Company’s foreign currency expenditures primarily consist of the cost of maintaining offices, consulting services, and employee-related costs. During the three months ended March 31, 2024 and 2023, respectively, the Company did not enter into any hedging contracts. Future fluctuations in the value of the U.S. dollar may affect the price competitiveness of the Company’s products outside the U.S.
8
Recent Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”).
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s consolidated financial position and results of operations.
Recently Issued Accounting Standards
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures, to require enhanced income tax disclosures to provide information to assess how an entity’s operations and related tax risks, tax planning, and operational opportunities affect its tax rate and prospects for future cash flows. The amendments in this update provide that a business entity disclose (1) a tabular income tax rate reconciliation, using both percentages and amounts, (2) separate disclosure of any individual reconciling items that are equal to or greater than 5% of the amount computed by multiplying the income (loss) from continuing operations before income taxes by the applicable statutory income tax rate, and disaggregation of certain items that are significant and (3) amount of income taxes paid (net of refunds received) disaggregated by federal, state and foreign jurisdictions, including separate disclosure of any individual jurisdictions greater than 5% of total income taxes paid. These amendments are effective for the Company for annual periods in 2025, applied prospectively, with early adoption and retrospective application permitted. The Company intends to adopt the amendments in this update prospectively in 2025. The impact of the adoption of the amendments in this update is not expected to be material to the Company’s consolidated financial position and results of operations, since the amendments require only enhancement of existing income tax disclosures in the footnotes to the Company’s consolidated financial statements.
NOTE 3—REVENUE RECOGNITION
Contracts with Customers
Revenue for sales of products and services is derived from contracts with customers. The products and services promised in customer contracts include delivery of laser systems, imaging systems, and consumables as well as certain ancillary services such as training and extended warranties. Contracts with each customer generally state the terms of the sale, including the description, quantity and price of each product or service. Payment terms are stated in the contract and vary according to the arrangement. Because the customer typically agrees to a stated rate and price in the contract that does not vary over the life of the contract, the Company’s contracts do not contain variable consideration. The Company establishes a provision for estimated warranty expenses.
Performance Obligations
At contract inception, the Company assesses the products and services promised in its contracts with customers. The Company then identifies performance obligations to transfer distinct products or services to the customers. In order to identify performance obligations, the Company considers all of the products or services promised in contracts regardless of whether they are explicitly stated or are implied by customary business practices.
Revenue from products and services transferred to customers at a single point in time accounted for
Revenue from services transferred to customers over time accounted for
Transaction Price Allocation
The transaction price for a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in a contract. The primary method used to estimate standalone selling price is the observable price when the good or service is sold separately in similar circumstances and to similar customers.
9
Significant Judgments
Revenue is recorded for extended warranties over time as the customer benefits from the warranty coverage. This revenue will be recognized equally throughout the contract period as the customer receives benefits from the Company's promise to provide such services. Revenue is recorded for product training when the customer attends a training program or upon the expiration of the obligation, which is generally after six months.
The Company also has contracts that include both the product sales and product training as performance obligations. In those cases, the Company records revenue for product sales at the point in time when the product has been shipped. The customer obtains control of the product when it is shipped, as all shipments are made FOB shipping point, and after the customer selects its shipping method and pays all shipping costs and insurance. The Company has concluded that control is transferred to the customer upon shipment.
Accounts Receivable
Accounts receivable are stated at estimated net realizable value. The allowance for doubtful accounts is based on an analysis of customer accounts and the Company’s historical experience with accounts receivable write-offs.
Contract Liabilities
The Company performs its obligations under a contract with a customer by transferring products and/or services in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable for the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods and/or services, and the Company has not transferred control of the goods and/or services.
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Undelivered elements (training and installation) |
|
$ |
|
|
$ |
|
||
Extended warranty contracts |
|
|
|
|
|
|
||
Total deferred revenue |
|
|
|
|
|
|
||
Less: long-term portion of deferred revenue |
|
|
( |
) |
|
|
( |
) |
Deferred revenue — current |
|
$ |
|
|
$ |
|
||
The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables at March 31, 2024 and December 31, 2023.
The amount of revenue recognized during the three months ended March 31, 2024 and 2023 that was included in the opening contract liability balance related to undelivered elements was $
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors.
The Company’s revenues related to the following geographic areas were as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
United States |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Net revenue |
|
$ |
|
|
$ |
|
||
10
Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenue recognized over time |
|
$ |
|
|
$ |
|
||
Revenue recognized at a point in time |
|
|
|
|
|
|
||
Net revenue |
|
$ |
|
|
$ |
|
||
The Company’s sales by end market were as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
End-customer |
|
$ |
|
|
$ |
|
||
Distributors |
|
|
|
|
|
|
||
Net revenue |
|
$ |
|
|
$ |
|
||
Shipping and Handling Costs and Revenues
Shipping and freight costs are treated as fulfillment costs. For shipments to end-customers, the customer bears the shipping and freight costs and has control of the product upon shipment. For shipments to distributors, the distributor bears the shipping and freight costs, including insurance, tariffs and other import/export costs.
NOTE 4—CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
The Board, without further stockholder authorization, may authorize the issuance from time to time of up to
Preferred Stock
Series J Preferred Stock
On September 13, 2023, the Company consummated the sale of
Each share of Series J Convertible Preferred Stock is convertible at the option of the holder at any time into the number of shares of common stock determined by dividing the $
Gross proceeds from the offering were $
11
Series J Convertible Preferred Stock. Net proceeds allocated to the Series J Convertible Preferred Stock and Series J warrants was $
The Series J Convertible Preferred stock was classified as mezzanine equity on the consolidated balance sheet as they are contingently redeemable prior to the Series J Maturity Date and the conversion from preferred shares to shares of common stock is at the option of the holder at any time before the Series J Maturity Date. The Series J warrants were classified as accrued liabilities on the consolidated balance sheet as the warrants are convertible into preferred shares, which are mandatorily redeemable in cash upon the Series J Maturity Date if they are not converted to shares of common stock before such date.
The Series J Convertible Preferred Stock was issued at a discount with the total redemption value of the Series J Convertible Preferred Shares and PIK Dividends of $
As of March 31, 2024,
The mezzanine classified Series J Convertible Preferred Stock are presented at their maximum redemption value that includes accretion related to the PIK dividends.
Series I Preferred Stock
On June 5, 2023, the Board declared a dividend of one one-thousandth of a share of Series I Preferred Stock, par value $
Series H Preferred Stock
On May 24, 2023, the Company consummated the sale of
Each share of Series H Convertible Preferred Stock is convertible at the option of the holder at any time into the number of shares of common stock determined by dividing the $
12
Gross proceeds from the offering were $
The Series H Convertible Preferred Stock was classified as mezzanine equity on the consolidated balance sheet as they are contingently redeemable prior to the Series H Maturity Date and the conversion from preferred shares to shares of common stock is at the option of the holder at any time before the Series H Maturity Date. The Series H warrants were classified as accrued liabilities on the consolidated balance sheet as the warrants are convertible into preferred shares, which are mandatorily redeemable in cash upon the Series H Maturity Date if they are not converted to shares of common stock before such date.
The Series H Convertible Preferred Stock was issued at a discount with the total redemption value of the Series H Convertible Preferred Shares and PIK Dividends of $
As of March 31, 2024,
The mezzanine classified Series H Convertible Preferred Stock are presented at their maximum redemption value that includes accretion related to the PIK dividends.
Stock-Based Compensation
2002 Stock Incentive Plan
The 2002 Stock Incentive Plan (as amended effective as of May 26, 2004, November 15, 2005, May 16, 2007, May 5, 2011, June 6, 2013, October 30, 2014, April 27, 2015, and May 6, 2017, the “2002 Plan”) was replaced by the 2018 Plan (as defined below) with respect to future equity awards. Persons eligible to receive awards under the 2002 Plan included officers, employees, directors of the Company, and consultants to the Company. As of March 31, 2024, a total of
2018 Stock Incentive Plan
At the 2018 annual meeting of stockholders, the Company’s stockholders approved the 2018 Long-Term Incentive Plan (as amended effective as of September 21, 2018, May 15, 2019, May 13, 2020, June 11, 2021, and April 27, 2023, the “2018 Plan”). The purposes of the 2018 Plan are (i) to align the interests of the Company’s stockholders and recipients of awards under the 2018 Plan by increasing the proprietary interest of such recipients in the Company’s growth and success; (ii) to advance the interests of the Company by attracting and retaining non-employee directors, officers, other employees, consultants, independent contractors, and agents; and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders.
Under the terms of the 2018 Plan, approximately
The Company recognized stock-based compensation expense of $
13
share-based compensation arrangements. The Company expects that expense to be recognized over a weighted-average period of
The following table summarizes the statement of operations classification of compensation expense associated with share-based payments (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cost of revenue |
|
$ |
|
|
$ |
|
||
Sales and marketing |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Engineering and development |
|
|
( |
) |
|
|
|
|
Total |
|
$ |
|
|
$ |
|
||
Stock Option Activity
There were
Restricted Stock Units
A summary of unvested RSU activity for the three months ended March 31, 2024 is as follows (in thousands, except per share amounts):
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average Grant |
|
||
|
|
Shares |
|
|
Date Fair Value |
|
||
Unvested RSUs as of December 31, 2023 |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited or cancelled |
|
|
( |
) |
|
$ |
|
|
Unvested RSUs as of March 31, 2024 |
|
|
|
|
$ |
|
||
Warrants
From time to time, the Company issues warrants to acquire shares of common stock as approved by the Board.
February 2024 Public Offering
On February 15, 2024, the Company completed a public offering (the "February 2024 Offering") and issued (i)
Based on the terms and conditions of the February 2024 public offering, the Company determined that liability classification was appropriate for the Class A and Class B warrants and recognized the gross proceeds from the issuance allocated to the warrants in excess of par of $
14
Pursuant to that certain Securities Purchase Agreement, dated December 6, 2023, by and between the Company and the investor (the “Investor”) named in the signature page thereto (the “December 2023 Purchase Agreement”), the Company agreed, among other things, pursuant to Section 4.12 thereof not to enter into a Variable Rate Transaction (as defined in the December 2023 Purchase Agreement) for a period of one-hundred and eighty (180) days following the closing date of that offering (or June 5, 2024) (the “VRT Prohibition”). In order to induce the Investor to agree to waive the VRT Prohibition to enable the Company to effect the Offering, the Company and the Investor entered into a Consent and Waiver, dated February 12, 2024 (the “Consent and Waiver”), whereby the Company agreed to issue to the Investor a new warrant to purchase up to
Based on the terms and conditions of the Investor Warrant, the Company determined that liability classification was appropriate for the warrants and recognized a liability of $
December 2023 Registered Direct Offering
On December 6, 2023, the Company entered into a Securities Purchase Agreement Purchase Agreement with a single institutional investor Purchaser, pursuant to which the Company issued in a registered direct offering,
Based on the terms and conditions of the December 2023 public offering, the Company determined that equity classification was appropriate for the pre-funded warrants and warrants, and recognized the net proceeds from the issuance of common stock, pre-funded warrants, and warrants in excess of par of $
September 2023 Offering
On September 18, 2023, the Company completed a public offering and issued,
Based on the terms and conditions of the September 2023 public offering, the Company determined that liability classification was appropriate for the warrants and recognized the gross proceeds from the issuance allocated to the warrants in excess of par of $
May 2023 Offering
On May 26, 2023, the Company completed a public offering and issued,
Based on the terms and conditions of the May 2023 public offering, the Company determined that liability classification was appropriate for the warrants and recognized the gross proceeds from the issuance allocated to the warrants in excess of par of $
15
January 2023 Offering
On January 9, 2023, the Company completed a public offering, pursuant to which the Company agreed to issue, in a registered direct offering,
Based on the terms and conditions of the January 2023 public offering, the Company determined that equity classification was appropriate for the pre-funded warrants and recognized the net proceeds from the issuance of common stock and pre-funded warrants in excess of par of $
A summary of the share equivalent of warrant activity for the three months ended March 31, 2024 is as follows (in thousands, except exercise price amounts):
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average |
|
||
|
|
Shares |
|
|
Exercise |
|
||
Warrants outstanding as of December 31, 2023 |
|
|
|
|
$ |
|
||
Granted or Issued |
|
|
|
|
$ |
|
||
Exercised |
|
|
( |
) |
|
$ |
|
|
Warrants outstanding as of March 31, 2024 |
|
|
|
|
$ |
|
||
Warrants exercisable as of March 31, 2024 |
|
|
|
|
$ |
|
||
Vested warrants expired during the period |
|
|
|
|
$ |
|
||
The following tables summarize our stock warrants measured at fair value (level 3) on a recurring basis:
|
|
December 31, |
|
|
|
|
|
|
|
|
Fair Value |
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
Additions |
|
|
Exercises |
|
|
Adjustment |
|
|
2024 |
|
|||||
Series H Warrants |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Series J Warrants |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Class A Warrants |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Class B Warrants |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Investor Warrants |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Total Level 3 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Phantom Awards and Stock Appreciation Rights
In 2021, 2022 and 2023 the Company granted phantom RSUs which were granted in lieu of stock-settled RSUs historically granted for leadership bonuses and non-employee director service. The phantom RSUs had either time-based or performance-based vesting conditions and a cash settlement date in 2024 with the Company's option to settle the award in common stock at the sole discretion of the Board. At inception, these phantom RSUs were included as a component of long-term liability on the consolidated balance sheet and were not considered stock-based compensation due to the cash-settlement feature of the award and the then current limitation on the number of remaining shares authorized for issuance. In 2022, as a result of the Reverse Stock Split, the phantom awards were reclassed to equity and included as a component of additional paid-in-capital in the amount of $
16
As of March 31, 2023, there are approximately
Net Loss Per Share – Basic and Diluted
Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of BIOLASE common stock outstanding for the period. In computing diluted net loss per share, the weighted average number of shares of common stock outstanding is adjusted to reflect the effect of potentially dilutive securities. Net loss is adjusted for any deemed dividends to preferred stockholders to compute net income attributable to common stockholders. The February 2024 Pre-Funded Warrants were included in the calculation of basic and diluted loss per share for the three months ended March 31, 2024 as the underlying warrant shares are issuable for little or no cash consideration. The January 2023 Pre-Funded Warrants were included in the calculation of basic and diluted loss per share for the period ended three months ended March 31, 2023 as the underlying warrant shares are issuable for little or no cash consideration.
Outstanding stock options, restricted stock units, preferred shares, and warrants to purchase approximately
NOTE 5—INVENTORY
Inventory is valued at the lower of cost or net realizable value and is comprised of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work-in-process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventory |
|
$ |
|
|
$ |
|
||
Inventory has been reduced by estimates for excess and obsolete amounts totaling $
NOTE 6—PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, net is comprised of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Building |
|
$ |
|
|
$ |
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Equipment and computers |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Total property, plant, and equipment before depreciation and land |
|
|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property, plant, and equipment, net before land |
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Property, plant, and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense related to property, plant, and equipment totaled $
NOTE 7—INTANGIBLE ASSETS AND GOODWILL
The Company conducted its annual impairment test of goodwill as of September 30, 2023 and determined that there was
17
For intangible assets subject to amortization, the Company performs its impairment test when indicators, such as reductions in demand or significant economic slowdowns, are present. During the fourth quarter ended December 31, 2023, due to the sustained decrease in the stock price of the common stock decreasing the implied fair value of the business, the Company performed a quantitative assessment of impairment over goodwill and determined that there was no impairment to our goodwill. Goodwill was valued using an equally weighted income approach and market approach. The unobservable inputs utilized in determining the fair value of the goodwill, which is categorized as a Level 3 instrument, are the discount rate of
As of March 31, 2024 and December 31, 2023, the Company had goodwill (indefinite life) of $
NOTE 8—ACCRUED LIABILITIES
Accrued liabilities are comprised of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Payroll and benefits |
|
$ |
|
|
$ |
|
||
Warranty accrual, current portion |
|
|
|
|
|
|
||
Operating lease liability |
|
|
|
|
|
|
||
Accrued professional services |
|
|
|
|
|
|
||
Taxes |
|
|
|
|
|
|
||
Accrued insurance premium |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Accrued liabilities |
|
$ |
|
|
$ |
|
||
Changes in the initial product warranty accrual and the expenses incurred under the Company’s initial and extended warranties are included within accrued liabilities and were as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Balance, beginning of period |
|
$ |
|
|
$ |
|
||
Provision for estimated warranty cost |
|
|
|
|
|
|
||
Warranty expenditures |
|
|
( |
) |
|
|
( |
) |
Balance, end of period |
|
|
|
|
|
|
||
Less: long-term portion of warranty accrual |
|
|
|
|
|
|
||
Current portion of warranty accrual |
|
$ |
|
|
$ |
|
||
The Company's Waterlase laser systems sold domestically are covered by a warranty against defects in material and workmanship for a period of up to
In North America and select international locations, the Company sells extended warranty contracts to its laser systems end-users that cover the period after the expiration of the Company's standard warranty coverage for its laser systems. Extended warranty coverage provided under the Company's service contracts varies by the type of system and the level of service desired by the customer. Products or accessories remanufactured, refurbished, or sold by unauthorized parties, voids all warranties in place for such products and exempts the Company from liability issues relating to the use of such products.
18
NOTE 9—DEBT
The following table presents the details of the principal outstanding and unamortized discount (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
SWK Loan |
|
$ |
|
|
$ |
|
||
EIDL Loan |
|
|
|
|
|
|
||
Discount and debt issuance costs on SWK Loan |
|
|
( |
) |
|
|
( |
) |
Total |
|
|
|
|
|
|
||
Current term loans |
|
|
|
|
|
|
||
Non current term loans, net of discount |
|
$ |
|
|
$ |
|
||
The Company recognized approximately $
The future minimum principal and interest payments as of March 31, 2024 are as follows (in thousands):
|
|
Principal |
|
|
Interest (1) |
|
||
Remainder of 2024 |
|
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
2028 and thereafter |
|
|
|
|
|
|
||
Total future payments |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
(1) Estimated using London Interbank Bank Offered Rate (“LIBOR”) as of March 31, 2024 |
|
|
|
|
|
|
||
Term Loan
On November 9, 2018, the Company entered into a
As of March 31, 2024, the Company was in compliance with the debt covenants of the Credit Agreement.
EIDL Loan
On May 22, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the Small Business Administration (the "SBA") under its Economic Injury Disaster Loan assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the EIDL Loan is $
19
principal and interest, are due monthly beginning in July 2021 and are
NOTE 10—LEASES
The Company enters into operating leases primarily for real estate, office equipment, and fleet vehicles. Lease terms generally range from to
On January 22, 2020, the Company entered into a
On February 4, 2020, the Company also entered into a
Information related to the Company’s right-of-use assets and related liabilities were as follows (in thousands):
|
Three Months Ended |
|
|||||
|
March 31, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Cash paid for operating lease liabilities |
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for new operating |
$ |
|
|
$ |
|
||
Weighted-average remaining lease term |
|
|
|
||||
Weighted-average discount rate |
|
% |
|
|
% |
||
Lease expense consists of payments for real property, office copiers, and IT equipment. The Company recognizes payments for non-lease components such as common area maintenance in the period incurred. As of March 31, 2024,
The Company allocates lease cost amongst lease and non-lease components. The Company excludes short-term leases (those with lease terms of less than
Maturities of lease liabilities as of March 31, 2024 for leases that have commenced are as follows (in thousands):
|
|
March 31, |
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 and thereafter |
|
|
|
|
Total future minimum lease obligations |
|
|
|
|
Less imputed interest |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
|
|
|
|
|
Current operating lease liabilities, included in |
|
$ |
|
|
Non current lease liabilities |
|
|
|
|
Total lease liabilities |
|
$ |
|
|
As of March 31, 2024, right-of-use assets were $
20
Rent expense totaled $
Future minimum rental commitments under lease agreements, as of March 31, 2024, with non-cancelable terms greater than one year for each of the years ending December 31 are as follows (in thousands):
|
|
|
Year Ended |
|
|
|
|
|
December 31, |
|
|
Remainder of 2024 |
|
|
$ |
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 and thereafter |
|
|
|
|
|
Total future minimum lease obligations |
|
|
|
|
|
Less imputed interest |
|
|
|
( |
) |
Total lease liabilities |
|
|
$ |
|
|
NOTE 11—SEGMENT INFORMATION
The Company currently operates in a single business segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. For the three months ended March 31, 2024, sales to customers in the United States accounted for approximately
Net revenue by geographic location based on the location of customers was as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
United States |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Net revenue |
|
$ |
|
|
$ |
|
||
Property, plant, and equipment by geographic location was as follows (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
United States |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
NOTE 12—CONCENTRATIONS
Revenue from the Company’s products are as follows (dollars in thousands):
|
|
Three Months Ended |
|
|||||||||||||
|
|
March 31, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
Laser systems |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Consumables and other |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Services |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Net revenue |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
The Company maintains its cash and cash equivalents in money market investment accounts with established commercial banks. Such cash deposits periodically exceed the Federal Deposit Insurance Corporation insured limit.
21
The Company currently purchases certain key components of its products from single suppliers. Although there are a limited number of manufacturers of these key components, management believes that other suppliers could provide similar key components on comparable terms. A change in suppliers, however, could cause delays in manufacturing and a possible loss of sales, which could adversely affect the Company’s business, results of operations and financial condition.
NOTE 13—INCOME TAXES
The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered, and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Based on the Company’s net losses in prior years, management has determined that a full valuation allowance against the Company’s net deferred tax assets is appropriate.
Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has elected to classify interest and penalties as a component of its income tax provision. With respect to the liability for unrecognized tax benefits, including related estimates of penalties and interest, the Company did
During the three months ended March 31, 2024, the Company recorded an income tax provision of $
NOTE 14—SUBSEQUENT EVENTS
Nasdaq Deficiency
On April 15, 2024, the Company received a staff determination letter (the “Staff Letter”) from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC notifying the Company that, unless the Company timely requests a hearing before a Nasdaq Hearings Panel (the “Panel”), its securities could be subject to suspension from trading on The Nasdaq Capital Market for failure to meet the $
The Staff Letter advised that this determination supersedes the previous letter, dated March 4, 2024, received by the Company from the Staff regarding the Company’s failure to meet the $
22
days from January 19 through March 1, 2024, as required by Listing Rule 5550(a)(2). The March 4, 2024, letter was issued by the Staff in error.
Annual Meeting of Stockholders
On May 2, 2024, the Company held its 2024 Annual Meeting of Stockholders. Ten proposals were submitted to stockholders for a vote, whereby only proposal number 7 was not approved. Proposal number 7 would have amended the 2018 Plan to increase the number of shares of the Company's common stock available for issuance under the 2018 Plan by an additional
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and our audited consolidated financial statements and related notes included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on March 21, 2024 (the “2023 Form 10-K”).
In addition to historical information, this discussion and analysis contains “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that involve risks, uncertainties, and assumptions, which could cause actual results to differ materially from management's expectations. Such forward-looking statements include statements, predictions, or expectations regarding expected investment activities, future liquidity, potential collaborations, market opportunities, plans with respect to products and services, future demand for improved dental care and dental laser equipment, seasonality and the reasons therefor, operating and other expenses, anticipated cash needs, our strategy and any other statement that is not historical fact. Forward-looking statements are identified by the use of words such as “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “continue,” “expect,” “believe,” “anticipate,” “estimate,” “predict,” “outlook,” “potential,” “plan,” “seek,” “forecast,” and similar expressions and variations or the negatives of these terms or other comparable terminology.
The forward-looking statements contained in this Form 10-Q are based on the expectations, estimates, projections, beliefs, and assumptions of our management based on information available to management as of the date on which this Form 10-Q was filed with the SEC, or as of the date on which the information incorporated by reference was filed with the SEC, as applicable, all of which are subject to change. Forward-looking statements are subject to risks, uncertainties, and other factors that are difficult to predict and could cause actual results to differ materially from those stated or implied by our forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to:
24
Further information about factors that could materially affect the Company, including our results of operations and financial condition, is contained under “Risk Factors” in Item 1A in the 2023 Form 10-K and Item 1A of Part II of this Form 10-Q. Except as required by law, we undertake no obligation to revise or update any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise.
Overview
BIOLASE, Inc. (“BIOLASE” and, together with its consolidated subsidiaries, the “Company,” “we,” “our” or “us”) is a leading provider of advanced laser systems for the dental industry. We develop, manufacture, market, and sell laser systems that provide significant benefits for dental practitioners and their patients. Our proprietary systems allow dentists, periodontists, endodontists, pediatric dentists, oral surgeons, and other dental specialists to perform a broad range of minimally invasive dental procedures, including cosmetic, restorative, and complex surgical applications. Our laser systems are designed to provide clinically superior results for many types of dental procedures compared to those achieved with drills, scalpels, and other conventional instruments. Potential patient benefits include less pain, fewer shots, faster healing, decreased fear and anxiety, and fewer appointments. Potential practitioner benefits include improved patient care and the ability to perform a higher volume, and wider variety of procedures.
We offer two categories of laser system products: Waterlase (all-tissue) systems and diode (soft-tissue) systems. Our flagship brand, the Waterlase, uses a patented combination of water and laser energy and is FDA cleared for over 80 clinical indications to perform most procedures currently performed using drills, scalpels, and other traditional dental instruments for cutting soft and hard tissue. For example, Waterlase safely debrides implants without damaging or significantly affecting surface temperature and is an
25
effective, safe solution for preserving sick implants. In addition, Waterlase disinfects root canals more efficiently than some traditional chemical methods. We offer our diode laser systems to perform soft tissue, pain therapy, and cosmetic procedures, including teeth whitening. As of December 31, 2023, we maintained approximately 241 active and 21 pending United States and international patents, with the majority relating to our Waterlase technology. Our patent portfolio is regularly evaluated, and we strategically prioritize our core patents to ensure optimal intellectual property coverage while minimizing annual maintenance fees. From 1998 through December 31, 2023, we have sold over 47,700 laser systems in over 80 countries around the world, and we believe that Waterlase iPlus is the world’s best-selling all-tissue dental laser. Since 1998, we have been the global leading innovator, manufacturer, and marketer of dental laser systems.
We also manufacture and sell consumable products and accessories for our laser systems. Our Waterlase and diode systems use disposable laser tips of differing sizes and shapes depending on the procedure being performed. We also market flexible fibers and hand pieces that dental practitioners replace at some point after initially purchasing laser systems. For our Epic line of diode laser systems, we sell teeth whitening gel kits. During the quarter ended March 31, 2024, the sale of lasers accounted for approximately 51% of our total sales, and consumables, accessories, and services accounted for approximately 49% of our total sales.
We currently operate in a single reportable business segment. We had net revenues of $10.1 million and $10.5 million for the three months ended March 31, 2024 and 2023, respectively, and we had net losses of $6.5 million and $5.8 million for the same periods, respectively. We had total assets of $34.4 million as of March 31, 2024 and $35.1 million as of December 31, 2023.
Business and Outlook
Our Waterlase systems precisely cut hard tissue, bone, and soft tissue with minimal or no damage to surrounding tissue and dental structures. Our diode systems, which include the Epic system, are designed to complement our Waterlase systems, and are used only in soft tissue procedures, pain therapy, hygiene, and cosmetic applications, including teeth whitening. The diode systems, together with our Waterlase systems, offer practitioners a broad product line with a range of features and price points.
We also manufacture and sell consumable products and accessories for our laser systems. Our Waterlase and diode systems use disposable laser tips of differing sizes and shapes depending on the procedure being performed. We also market flexible fibers and hand pieces that dental practitioners replace at some point after initially purchasing laser systems. For our Epic systems, we sell teeth whitening gel kits.
Due to the limitations associated with traditional and alternative dental instruments, we believe there is a large market opportunity for all-tissue dental laser systems that provide superior clinical outcomes, reduce the need to use anesthesia, help reduce trauma, pain, and discomfort associated with dental procedures, and increase patient acceptance for treatment protocols.
Our strategy is to increase awareness and demand for (i) our products among dental practitioners by educating dental practitioners and patients about the clinical benefits of our product suite and (ii) our laser systems among patients by educating patients about the clinical benefits of the Waterlase and diode systems. An important goal of ours is to increase consumables revenue by selling more single-use accessories used by dental practitioners when performing procedures using our dental laser systems. In the short term, we are striving for operating excellence through lean enterprise initiatives, with a specific focus on our sales strategy and cash flow management, coupled with optimizing our engineering capabilities to develop innovative new products.
We also seek to create value through innovation and leveraging existing technologies into adjacent medical applications. We plan to expand our product line and clinical applications by developing enhancements and transformational innovations, including new clinical solutions for dental applications and for other adjacent medical applications. In particular, we believe that our existing technologies can provide significant improvements over existing standards of care in fields including ophthalmology, otolaryngology, orthopedics, podiatry, pain management, aesthetics/dermatology, veterinary, and consumer products. We plan to continue to explore potential collaborations to apply our proprietary laser technologies with expanded FDA-cleared indications to other medical applications in the future.
The Company experienced revenue decline of 3% for the three months ended March 31, 2024, compared to the same period in 2023. The Company is currently forecasting revenue for fiscal year 2024 to be above fiscal year 2023, as the Company's strategy described above continues to generate sales to new customers and additional consumable sales to existing customers.
Recent Developments
February 2024 Public Offering
26
On February 15, 2024, the Company completed a public offering (the "Offering") and issued (i) 7,795,000 units (the "Units"), with each Unit consisting of (A) one share of the Company’s common stock, par value $0.001 per share (the "Common Stock"), (B) one Class A warrant to purchase one share of Common Stock (the "Class A Common Warrants"), each exercisable from time to time for one share of Common Stock at an exercise price of $0.66 per share, and (C) one Class B warrant to purchase one share of Common Stock (the "Class B Common Warrants"), each exercisable from time to time for one share of Common Stock at an exercise price of $0.748 per share and (ii) 8,205,000 pre-funded units (the "Pre-Funded Units"), with each Pre-Funded Unit consisting of (A) one pre-funded warrant (the "Pre-Funded Warrants"), each such Pre-Funded Warrant being exercisable from time to time for one share of Common Stock at an exercise price of $0.001 per share, (B) one Class A Common Warrant, and (C) one Class B Common Warrant. The Units were sold at the public offering price of $0.44 per Unit and the Pre-Funded Units were sold at the public offering price of $0.439 per Pre-Funded Unit. The Company received gross proceeds of approximately $7.0 million, before deducting placement agent fees, estimated offering expenses, and before the exercise of warrants.
Pursuant to that certain Securities Purchase Agreement, dated December 6, 2023, by and between the Company and the investor (the “Investor”) named in the signature page thereto (the “December 2023 Purchase Agreement”), the Company agreed, among other things, pursuant to Section 4.12 thereof not to enter into a Variable Rate Transaction (as defined in the December 2023 Purchase Agreement) for a period of one-hundred and eighty (180) days following the closing date of that offering (or June 5, 2024) (the “VRT Prohibition”). In order to induce the Investor to agree to waive the VRT Prohibition to enable the Company to effect the Offering, the Company and the Investor entered into a Consent and Waiver, dated February 12, 2024 (the “Consent and Waiver”), whereby the Company agreed to issue to the Investor a new warrant to purchase up to 2,221,880 shares of Common Stock (the “Investor Warrant”), which Investor Warrant is in a form substantially identical to the Class B Warrants that is described above. The Investor Warrants became exercisable commencing on the effective date of stockholder approval on May 2, 2024 for the issuance of the shares of Common Stock issuable upon exercise of the Investor Warrants and will expire on the fifth anniversary of such stockholder approval date.
In addition, on December 8, 2023, pursuant to the December 2023 Purchase Agreement, the Investor was issued a warrant to purchase up to 2,221,880 shares of Common Stock (the “December 2023 Warrants”) that provide for adjustment of the exercise price, if the Company or any of its subsidiaries, as applicable, sell or grant any right to reprice, or otherwise dispose of or issue any shares of its Common Stock or common stock equivalents, at an effective price per share that is less than the exercise price then in effect (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”). The Offering is a Dilutive Issuance, therefore, the exercise price of the December 2023 Warrants were reduced to equal the Base Share Price, which is equal to $0.2256 per share. The December 2023 Warrants were issued in a private placement pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder; however, the Company is obligated to register these warrants on a resale registration statement, which registration statement was declared effective on April 2, 2024. The December 2023 Warrants became exercisable commencing on the effective date of stockholder approval on May 2, 2024 for the issuance of the shares of Common Stock issuable upon exercise of the December 2023 Warrants.
Critical Accounting Policies
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and revenues and expenses reported during the period. Information with respect to our critical accounting policies that we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the 2023 Form 10-K. There have been no significant changes during the three months ended March 31, 2024 in our critical accounting policies from those disclosed in Item 7 of the 2023 Form 10-K.
27
Results of Operations
The following table sets forth certain data from our unaudited operating results, expressed in thousands and as percentages of net revenue:
|
|
Three Months Ended |
||||||||||
|
|
March 31, |
||||||||||
|
|
2024 |
|
2023 |
||||||||
Net revenue |
|
$ |
10,131 |
|
100.0 |
% |
|
$ |
10,467 |
|
100.0 |
% |
Cost of revenue |
|
|
6,795 |
|
67.1 |
% |
|
|
7,130 |
|
68.1 |
% |
Gross profit |
|
|
3,336 |
|
32.9 |
% |
|
|
3,337 |
|
31.9 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
3,383 |
|
33.4 |
% |
|
|
4,622 |
|
44.1 |
% |
General and administrative |
|
|
3,196 |
|
31.5 |
% |
|
|
2,459 |
|
23.5 |
% |
Engineering and development |
|
|
1,283 |
|
12.7 |
% |
|
|
1,547 |
|
14.8 |
% |
Total operating expenses |
|
|
7,862 |
|
77.6 |
% |
|
|
8,628 |
|
82.4 |
% |
Loss from operations |
|
|
(4,526) |
|
(44.7) |
% |
|
|
(5,291) |
|
(50.5) |
% |
Non-operating loss, net |
|
|
(1,940) |
|
(19.1) |
% |
|
|
(557) |
|
(5.4) |
% |
Loss before income tax provision |
|
|
(6,466) |
|
(63.8) |
% |
|
|
(5,848) |
|
(55.9) |
% |
Income tax provision |
|
|
(19) |
|
(0.2) |
% |
|
|
(1) |
|
0.0 |
% |
Net loss |
|
$ |
(6,485) |
|
(64.0) |
% |
|
$ |
(5,849) |
|
(55.9) |
% |
Non-GAAP Disclosure
In addition to the financial information prepared in conformity with GAAP, we provide certain historical non-GAAP financial information. Management believes that these non-GAAP financial measures assist investors in making comparisons of period-to-period operating results and that, in some respects, are indicative of our ongoing core performance.
Management believes that the presentation of this non-GAAP financial information provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments, and amortization methods, which provides a more complete understanding of our financial performance, competitive position, and prospects for the future. However, the non-GAAP financial measures presented in this Form 10-Q have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by us may be different from similarly named non-GAAP financial measures used by other companies.
Adjusted EBITDA
Management uses Adjusted EBITDA in its evaluation of our core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Adjusted EBITDA is defined as net loss before interest, taxes, depreciation, stock-based and other non-cash compensation, severance expense, change in allowance for doubtful accounts, increase in inventory reserves, stock warrant issuance costs, and loss on warrants. Management uses Adjusted EBITDA in its evaluation of our core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by us may be different from similarly named non-GAAP financial measures used by other companies.
28
The following table contains a reconciliation of non-GAAP Adjusted EBITDA to GAAP net loss attributable to common stockholders (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
GAAP net loss attributable to common stockholders |
|
$ |
(6,485 |
) |
|
$ |
(5,849 |
) |
Deemed dividend on convertible preferred stock |
|
|
— |
|
|
|
— |
|
GAAP net loss |
|
$ |
(6,485 |
) |
|
$ |
(5,849 |
) |
Adjustments: |
|
|
|
|
|
|
||
Interest expense, net |
|
|
622 |
|
|
|
577 |
|
Income tax provision |
|
|
19 |
|
|
|
1 |
|
Depreciation |
|
|
660 |
|
|
|
149 |
|
Severance expense |
|
|
182 |
|
|
|
— |
|
Change in allowance for doubtful accounts |
|
|
(27 |
) |
|
|
(17 |
) |
Stock-based and other non-cash compensation |
|
|
113 |
|
|
|
691 |
|
Stock warrant issuance costs |
|
|
830 |
|
|
|
— |
|
Loss on warrants |
|
|
556 |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
(3,530 |
) |
|
$ |
(4,448 |
) |
Comparison of Results of Operations
Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023
Net Revenue: The following table summarizes our unaudited net revenue by category, including each category’s percentage of our total revenue, for the three months ended March 31, 2024 and 2023, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
March 31, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
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 |
% |
Net revenue |
|
$ |
10,131 |
|
|
|
100.0 |
% |
|
$ |
10,467 |
|
|
|
100.0 |
% |
|
$ |
(336 |
) |
|
|
(3.2 |
)% |
The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the three months ended March 31, 2024 and 2023, as well as the amount of change and percentage of change in each geographic revenue category (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
March 31, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
||||||||||||
United States |
|
$ |
6,690 |
|
|
|
66.0 |
% |
|
$ |
6,758 |
|
|
|
64.6 |
% |
|
$ |
(68 |
) |
|
|
(1.0 |
)% |
International |
|
|
3,441 |
|
|
|
34.0 |
% |
|
|
3,709 |
|
|
|
35.4 |
% |
|
|
(268 |
) |
|
|
(7.2 |
)% |
Net revenue |
|
$ |
10,131 |
|
|
|
100.0 |
% |
|
$ |
10,467 |
|
|
|
100.0 |
% |
|
$ |
(336 |
) |
|
|
(3.2 |
)% |
Typically, we experience fluctuations in revenue from quarter to quarter due to seasonality. Revenue in the first quarter typically is lower than average, and revenue in the fourth quarter typically is higher than average, due to the buying patterns of dental practitioners. We believe that this trend exists because a significant number of dentists purchase their capital equipment towards the end of the calendar year in order to maximize their practice earnings while seeking to minimize their taxes. They often use certain tax incentives, such as accelerated depreciation methods for purchasing capital equipment, as part of their year-end tax planning. In addition, revenue in the third quarter may be affected by vacation patterns which can cause revenue to be flat or lower than in the second quarter of the year. Our historical seasonal fluctuations may also be impacted by sales promotions used by large dental distributors that encourage end-of-quarter and end-of-year buying in our industry.
Net revenue decreased by $0.3 million, or 3%, during the three months ended March 31, 2024 as compared to the same period in 2023 primarily due to a decrease in Waterlase sales from the impact of the current macro-economic environment causing extended sales cycles, which includes increased interest rates, partially offset by an increase in consumables and other revenue from improved utilization of installed laser systems. Net revenue was $10.1 million during the three months ended March 31, 2024 compared to $10.5 million for the same period in 2023.
29
Cost of Revenue and Gross Profit: The following table summarizes our unaudited cost of revenue and gross profit for the three months ended March 31, 2024 and 2023, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
March 31, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
||||||||||||
Net revenue |
|
$ |
10,131 |
|
|
|
100.0 |
% |
|
$ |
10,467 |
|
|
|
100.0 |
% |
|
$ |
(336 |
) |
|
|
(3.2 |
)% |
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 |
)% |
Gross profit as a percentage of net revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. Gross profit for the three months ended March 31, 2024, was $3.3 million, or 33% of net revenue, which was consistent with a gross profit of $3.3 million, or 32% of net revenue, for the same period in 2023. The 1% increase in gross profit as a percentage of revenue is primarily due to lower warranty expenses for the three months ended March 31, 2024, partially offset by severance expenses that did not occur in the three months ended March 31, 2023.
Operating Expenses: The following table summarizes our unaudited operating expenses (including as a percentage of net revenue) for the three months ended March 31, 2024 and 2023, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
March 31, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
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 |
)% |
Sales and Marketing Expense. Sales and marketing expenses during the three months ended March 31, 2024 decreased by $1.2 million, or 27%, as compared to the same period in 2023. This decrease is primarily due to $0.7 million decrease in compensation costs from the impact of our cost savings initiatives implemented over the last year, a $0.5 million decrease in travel and tradeshow related expenses, and a $0.2 million decrease in advertising costs, partially offset by $0.2 million increase in depreciation expenses.
General and Administrative Expense. General and administrative expenses during the three months ended March 31, 2024 increased by $0.7 million, or 30%, compared to the same period in 2023. This increase is primarily due to a $0.3 million increase in legal, audit and consulting fees and a $0.3 million increase in accruals for a new annual performance award program that was implemented in the three months ended March 31, 2024.
Engineering and Development Expense. Engineering and development expenses during the three months ended March 31, 2024 decreased by $0.3 million, or 17%, compared to the same period in 2023. This decrease is primarily due to fewer engineering projects for 2024, as compared to 2023, resulting in a $0.1 million decrease in legal and consulting fees and $0.2 million decrease in miscellaneous other costs.
Non-Operating Income (Loss)
Loss on Foreign Currency Transactions. We realized an approximately $96 thousand loss on foreign currency transactions during the three months ended March 31, 2024 compared to an approximately $20 thousand gain on foreign currency transactions during the three months ended March 31, 2023, primarily due to exchange rate fluctuations between the U.S. dollar and Euro, as well as other foreign currencies.
Interest Expense, Net. Interest expense was $0.6 million during the three months ended March 31, 2024 which was consistent with the three months ended March 31, 2023.
Other Income (Expense), Net. Other Expense for the three months ended March 31, 2024 was $1.2 million and relates to $0.8 million of issuance costs from the February 2024 public offering that were allocated to the Class A Common Warrants, Class B Common Warrants, and Investor warrants and immediately expensed due to the liability classification of the warrants, as well as $0.6 million of losses on the revaluation of these stock warrants as well as the Series J and H warrants during the period. These losses were partially offset by $0.2 million of gains recorded upon the sale of property, plant, and equipment.
30
Income Tax Provision. We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our provision for income taxes for the three months ended March 31, 2024 was consistent with the same period in 2023. For additional information regarding income taxes, see Part I, Item I, Note 13 – Income Taxes.
Net Loss. For the reasons stated above, our net loss totaled approximately $6.5 million for the three months ended March 31, 2024 compared to a net loss of $5.8 million for the three months ended March 31, 2023.
Liquidity and Capital Resources - Going Concern
As of March 31, 2024, we had approximately $6.4 million in cash and cash equivalents compared to $6.6 million as of December 31, 2023. Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. The decrease in cash and cash equivalents from December 31, 2023 was primarily due to a net loss of $6.5 million and principal payments on our term loan of $0.2 million, partially offset by net proceeds of $5.8 million from the February 2024 public offering and $0.2 million in proceeds from the disposal of property, plant, and equipment.
The following table summarizes our change in cash, cash equivalents and restricted cash (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net cash flows used in operating activities |
|
$ |
(5,938 |
) |
|
$ |
(5,658 |
) |
Net cash flows provided by (used in) investing activities |
|
|
197 |
|
|
|
(587 |
) |
Net cash flows provided by financing activities |
|
|
5,647 |
|
|
|
8,517 |
|
Effect of exchange rate changes |
|
|
(79 |
) |
|
|
79 |
|
Net change in cash and cash equivalents |
|
$ |
(173 |
) |
|
$ |
2,351 |
|
Operating Activities
Net cash used in operating activities consists of our net loss, adjusted for our non-cash charges, plus or minus working capital changes. Cash used in operating activities for the three months ended March 31, 2024 totaled $5.9 million and was primarily comprised of our net loss of $6.5 million.
Investing Activities
Cash provided by investing activities for the three months ended March 31, 2024 totaled $0.2 million and was comprised of the proceeds from the disposal of property, plant, and equipment.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2024 totaled $5.6 million and was derived from the net proceeds from the February 2024 public offering.
Effect of Exchange Rate
The $79 thousand effect of exchange rate on cash for the three months ended March 31, 2024 was due to recognized loss on foreign currency transactions, primarily driven by changes in the Euro during the period.
Future Liquidity Needs
As of March 31, 2024, we had working capital of approximately $3.6 million. Our principal sources of liquidity as of March 31, 2024 consisted of approximately $6.4 million in cash and cash equivalents and $5.7 million of net accounts receivable.
The Company will need to raise additional capital in the future. Additional capital requirements may depend on many factors, including, among other things, the rate at which the Company’s business grows, demands for working capital, manufacturing capacity, and any acquisitions that the Company may pursue. The Company expects that it will be required to raise capital through either equity or debt offerings. The Company cannot provide assurance that it will be able to successfully enter into any such equity or debt financings in the future or that the required capital will be available on acceptable terms, if at all, or that any such financing activity will not be dilutive to its stockholders.
31
The Company has historically experienced losses from operations and has used cash and cash equivalents in operating activities. To be able to discharge our liabilities and commitments in the normal course of business, we must increase sales of our products, control or potentially reduce expenses, and establish profitable operations in order to generate cash from operations or obtain additional funds when needed.
The Company’s recurring losses, level of cash used in operations, and potential need for additional capital, along with uncertainties surrounding the Company’s ability to raise additional capital, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Despite the February 2024 public offering, in order for the Company to continue operations beyond the next 12 months and be able to discharge its liabilities and commitments in the normal course of business, it must either raise additional capital or increase sales of our products, control or potentially reduce expenses, and establish profitable operations in order to generate cash from operations or obtain additional funds when needed.
We will endeavor to improve our financial condition and ultimately improve our financial results by increasing revenues through expansion of our product offerings, continuing to expand and develop our field sales force and distributor relationships both domestically and internationally, forming strategic arrangements within the dental and medical industries, educating dental and medical patients as to the benefits of our advanced medical technologies, and reducing expenses; however, there is no assurance that will be able to improve our financial condition.
Term Loan
The information set forth in Part I, Item 1, Note 9 – Debt – Term Loan is hereby incorporated herein by reference.
EIDL Loan
The information set forth in Part I, Item 1, Note 9 – Debt – EIDL Loan is hereby incorporated herein by reference.
February 2024 Public Offering
On February 15, 2024, the Company completed a public offering and issued (i) 7,795,000 units, with each Unit consisting of (A) one share of the Company’s Common Stock, (B) one Class A Common Warrant to purchase one share of Common Stock, each exercisable from time to time for one share of Common Stock at an exercise price of $0.66 per share, and (C) one Class B Common Warrant to purchase one share of Common Stock, each exercisable from time to time for one share of Common Stock at an exercise price of $0.748 per share and (ii) 8,205,000 pre-funded units, with each Pre-Funded Unit consisting of (A) one pre-funded warrant, each such Pre-Funded Warrant being exercisable from time to time for one share of Common Stock at an exercise price of $0.001 per share, (B) one Class A Common Warrant, and (C) one Class B Common Warrant. The Units were sold at the public offering price of $0.44 per Unit and the Pre-Funded Units were sold at the public offering price of $0.439 per Pre-Funded Unit. The Company received gross proceeds of approximately $7.0 million, before deducting placement agent fees, estimated offering expenses, and before the exercise of warrants.
Recent Accounting Pronouncements
For a description of recently issued and adopted accounting pronouncements, including the respective dates of adoption and expected effects on our results of operations and financial condition, please refer to Part I, Item 1, Note 2 – Summary of Significant Accounting Policies, which is incorporated herein by this reference.
Additional Information
BIOLASE®, ZipTip®, ezlase®, eztips®, ComfortPulse®, Waterlase®, Waterlase Dentistry®, Waterlase Express®, iLase®, iPlus®, Epic®, Epic Pro®, WCLI®, World Clinical Laser Institute®, Waterlase MD®, Waterlase Dentistry®, and EZLase® are registered trademarks of BIOLASE, and Pedolase™ is a trademark of BIOLASE. All other product and company names are registered trademarks or trademarks of their respective owners.
32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has evaluated, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
As discussed in our Annual Report on Form 10-K, we identified a material weakness in our internal control over financial reporting as we have determined that our controls were not operating effectively to assess the proper presentation of net loss per share attributable to common stockholders for the three and six months ended June 30, 2023 and the three and nine months ended September 30, 2023. This material weakness was the result of insufficient accounting assessment for unique and complex transactions outside of the business's normal operations.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles for the period ended December 31, 2023 and management believes that the financial statements included in the Annual Report on Form 10-K present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.
Changes in Internal Controls over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except for the remediation of the material weakness identified in prior period as discussed blow.
To remediate the aforementioned material weakness, management has implemented additional controls to ensure that financial statement presentation, specifically in relation to net loss per share attributable to common stockholders, for unique and complex transactions are sufficiently investigated and documented at the time of inception, and technical experts are engaged for advisement.
33
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in legal proceedings and regulatory proceedings arising out of our operations. We establish reserves for specific liabilities in connection with legal actions that we deem to be probable and estimable. The ability to predict the ultimate outcome of such matters involves judgments, estimates, and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates.
On January 4, 2023, Plaintiff PIPStek, LLC (a wholly-owned subsidiary of Sonendo, Inc.) filed a lawsuit against BIOLASE, Inc. in the Federal District Court for the District of Delaware, alleging that BIOLASE’s Waterlase dental laser product infringes two PIPStek patents. A third patent was subsequently added to the case. The Complaint seeks unspecified damages and injunctive relief, as well as costs and attorneys’ fees against BIOLASE. BIOLASE has answered denying all of PIPStek’s allegations and also asserting that the asserted patents are invalid and not infringed. BIOLASE intends to continue to vigorously and fully defend itself against PIPStek’s claims. The parties have exchanged preliminary contentions. Trial in this matter is currently set for May 12, 2025.
ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of the 2023 Form 10-K. The risks and uncertainties described in the 2023 Form 10-K and set forth below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition, or results of operations.
Due to our accumulated deficit, recurring and negative cash flow from operations for the year ended December 31, 2023 and quarter ended March 31, 2024 there is substantial doubt about our ability to continue as a going concern.
Our audited consolidated financial statements for the year ended December 31, 2023 were prepared on a going concern basis in accordance with generally accepted accounting principles in the United States. The going concern basis assumes that we will continue in operation for the next 12 months and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business. Thus, our consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Our recurring losses, negative cash flow, need for additional capital, and the uncertainties surrounding our ability to raise such capital raise substantial doubt about our ability to continue as a going concern. For us to continue operations beyond the next 12 months and be able to discharge our liabilities and commitments in the normal course of business, we must sell our products directly to end-users and through distributors, establish profitable operations through increased sales, decrease expenses, generate cash from operations or raise additional funds when needed. Our goal is to improve our financial condition and ultimately improve our financial results by increasing revenues through expanding awareness of the benefits of our dental lasers among dental specialists and general practitioners and reducing expenses. However, if we are unable to do so on a timely basis, we will be required to seek additional capital. In that event, we would seek additional funds through various financing sources, including the sale of our equity and debt securities, however, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If we are unable to raise additional capital, increase sales or reduce expenses, we will be unable to continue to fund our operations, develop our products, realize value from our assets, and discharge our liabilities in the normal course of business. If we become unable to continue as a going concern, we could have to liquidate our assets, and potentially realize significantly less than the values at which they are carried on our financial statements, and stockholders could lose all or part of their investment in our common stock. The Report of Independent Registered Public Accounting Firm from Macias Gini & O’Connell LLP contains an explanatory paragraph regarding our ability to continue as a going concern. In addition, the notes to our financial statements included in this Quarterly Report on Form 10-Q states that our recurring losses, level of cash used in operations, and potential need for additional capital, along with uncertainties surrounding our ability to raise additional capital, raise substantial doubt about our ability to continue as a going concern.
We have experienced net losses for each of the quarter ended March 31, 2024 and the past three years, and we could experience additional losses and have difficulty achieving profitability in the future.
We had an accumulated deficit of $323.3 million as of March 31, 2024 and an accumulated deficit of $316.8 million as of December 31, 2023. We recorded net losses of $20.6 million and $28.6 million for the years ended December 31, 2023 and 2022, respectively, and net losses of $6.5 million and $5.8 million for the three months ended March 31, 2024 and 2023, respectively. In order to achieve profitability, we must increase net revenue through new sales and control our costs. Failure to increase our net revenue and decrease our costs could cause our stock price to decline and could have a material adverse effect on our business, financial condition, and results of operations.
Failure to meet Nasdaq’s continued listing requirements could result in the delisting of our common stock, negatively impact the price of our common stock and negatively impact our ability to raise additional capital.
34
On January 11, 2023, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying us that, for the last 30 consecutive business days, ending on January 10, 2023, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq rules, we were provided an initial period of 180 calendar days, or until July 10, 2023, to regain compliance with the Bid Price Rule.
On June 8, 2023, we were notified by the Staff of Nasdaq that we did not meet the minimum closing bid price requirement of $1.00 for continued listing, as set forth in the Bid Price Rule, as the Staff had determined that as of June 8, 2023, the Company’s securities had a closing bid price of $0.10 or less for ten consecutive trading days, from May 24, 2023 through June 7, 2023. As such, the Staff had determined to delist the Company’s common stock from the Nasdaq Capital Market and to suspend trading of the common stock at the opening of business on June 20, 2023, and file a Form 25-NSE with the SEC. We timely requested a hearing to appeal this determination, which stayed the suspension of our common stock pending the decision from a Nasdaq Hearings Panel (the “Panel”).
We subsequently requested the Panel grant us a temporary exception to regain compliance with the Bid Price Rule. On July 5, 2023, the Panel granted us an exception until August 11, 2023 to demonstrate bid price compliance subject to us taking the following actions: (i) on July 20, 2023, we obtain stockholder approval for a reverse stock split at a ratio that is sufficient to regain and maintain long term compliance with the Bid Price Rule; (ii) on or before July 31, 2023, we effect a reverse stock split and, thereafter, maintain a $1.00 closing bid price for a minimum of ten consecutive business days; and (iii) on August 11, 2023, we demonstrated compliance with the Bid Price Rule, by evidencing a closing bid price of $1.00 or more per share for a minimum of ten consecutive trading sessions.
On July 20, 2023, we held a special meeting of our stockholders where the stockholders approved an amendment to our Certificate of Incorporation to effect a reverse stock split of our common stock, at a ratio between one-for-two (1:2) and one-for-one hundred (1:100). Immediately after the special meeting, our Board approved the 2023 Reverse Stock Split. On July 26, 2023, we filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the 2023 Reverse Stock Split, which became effective on July 27, 2023.
On August 14, 2023, we received a letter from the Nasdaq Office of General Counsel confirming the decision of the Panel that we demonstrated compliance with the requirements for continued listing on the Nasdaq Capital Market.
On March 4, 2024, we received a deficiency letter from the Staff of Nasdaq (the “March 2024 Deficiency Letter”) notifying us that, for the last 30 consecutive business days, ending on March 1, 2024, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to the Bid Price Rule. The March 2024 Deficiency Letter stated that, in accordance with Nasdaq rules, we were provided an initial period of 180 calendar days, or until September 3, 2024 (the “Compliance Date”), to regain compliance with the Bid Price Rule. Compliance is generally achieved if, at any time before the Compliance Date, the bid price for the Company’s common stock closes at $1.00 or more for a minimum of 10 consecutive business days. However, the Staff may, in its discretion, require a company to satisfy the applicable bid price requirement for a period in excess of 10 consecutive business days, but generally no more than 20 consecutive business days, before determining that it has demonstrated an ability to maintain long-term compliance. The March 2024 Deficiency Letter continued to state that if we do not regain compliance with the Bid Price Rule by the Compliance Date, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would need to provide written notice of our intention to cure the deficiency during the additional compliance period, by effecting a reverse stock split, if necessary, provided that we meet the continued listing requirement for the market value of publicly held shares and all other initial listing standards, with the exception of the bid price requirement.
On April 15, 2024, we received a letter from the Staff of the Nasdaq (the “April 2024 Determination Letter”) notifying us that such April 2024 Determination Letter superseded the March 2024 Deficiency Letter. The March 2024 Deficiency Letter was issued by the Staff in error.
The April 2024 Determination Letter reiterated that we failed to meet the $1.00 minimum closing bid price requirement for 30 consecutive business days from January 19 through March 1, 2024, as required by Listing Rule 5550(a)(2), and that we are not eligible for an automatic compliance period because the Panel decision relating to us, dated August 14, 2023, subjected us to a Mandatory Panel Monitor for a period of one year pursuant to Listing Rule 5815(d)(4)(B).
Based on the foregoing, we timely requested a hearing before the Panel and were granted a hearing date in June 2024. The hearing request automatically stayed any suspension or delisting action pending the hearing and the expiration of any additional extension period granted by the Panel following the hearing. The April 2024 Determination Letter stated that the Company would be asked to provide a plan to the Panel to regain compliance. Accordingly, the Company is currently preparing to present a plan to the Panel that includes a discussion of the events that it believes will enable it to regain compliance in the allotted time frame, which would include a commitment to effect a reverse stock split, if necessary. Pursuant to the Listing Rules, the Panel has the authority to
35
grant us a further extension not to exceed October 14, 2024[EPJ1] . The April 2024 Determination Letter further stated that pursuant to Listing Rule 5810(c)(3)(A)(iv) no further automatic compliance period would be provided to us because over the prior two-year period we had effected reverse stock splits with a cumulative ratio of 250 shares or more to one.
In addition, on November 14, 2023, we received a deficiency letter from the Staff notifying us that, based on our stockholders’ equity of $332,000 as of September 30, 2023, as reported in the our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023, we were no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain stockholders’ equity of at least $2.5 million. We were provided until December 29, 2023 to provide Nasdaq with a specific plan to achieve and sustain compliance with the foregoing listing requirement, which plan was provided to Nasdaq on December 22, 2023. Nasdaq subsequently requested that we submit a plan with greater detail, which we submitted to Nasdaq on January 22, 2024. On February 13, 2024, the Staff provided notice to us that it had granted the Company an extension to regain compliance with Nasdaq Listing Rule 5550(b)(1), conditioned upon us undertaking and closing no later than March 31, 2024 the February 2024 Offering, which we subsequently consummated on February 15, 2024, and publicly disclose evidence of compliance with the minimum stockholders’ equity requirement. In the event we fail to evidence compliance with the stockholders’ equity rule upon the filing of our Form 10-Q for the period ending March 31, 2024 with the SEC and Nasdaq, we may be subject to delisting. Inasmuch as this Quarterly Report on Form 10-Q does not evidence compliance with the Nasdaq Listing Rule 5550(b)(1), we anticipate receiving another deficiency letter from the Staff upon the filing of this Quarterly Report on Form 10-Q.stating that our securities will be delisted. At that time, we may appeal the Staff’s determination to a Hearings Panel; however, we have already requested and been granted a hearing before the Panel that is currently scheduled for June 2024.
We intend to attempt to take actions to restore our compliance with Nasdaq’s listing requirements and intend to present a plan for compliance at the Panel hearing that is scheduled for June 2024; however, we can provide no assurance that we will be to achieve compliance or that Nasdaq will grant us any additional time to restore compliance especially in light of the fact that we were under review of a Monitor and have several current and prior noncompliance issues. Any perception that we may not regain compliance or a delisting of our common stock by Nasdaq could adversely affect our ability to attract new investors, decrease the liquidity of the outstanding shares of our common stock, reduce the price at which such shares trade and increase the transaction costs inherent in trading such shares with overall negative effects for our stockholder. In addition, delisting of our common stock from Nasdaq could deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, and might deter certain institutions and persons from investing in our common stock.
In the event of a delisting, we would take actions to restore our compliance with the Nasdaq listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq listing requirements.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
36
ITEM 6. EXHIBITS
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Incorporated by Reference |
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Exhibit |
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Description |
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Filed Herewith |
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Form |
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Period Ending/Date of Report |
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Exhibit |
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Filing Date |
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1.1 |
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8-K |
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02/12/2024 |
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1.1 |
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02/15/2024 |
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3.1.1 |
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S-1, Amendment |
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12/23/2005 |
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3.1 |
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12/23/2005 |
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3.1.2 |
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8-K |
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05/10/2012 |
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3.1 |
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05/16/2012 |
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3.1.3 |
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8-A/A |
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11/04/2014 |
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3.1.3 |
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11/04/2014 |
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3.1.4 |
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S-3 |
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07/21/2017 |
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3.4 |
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07/21/2017 |
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3.1.5 |
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8-K |
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05/10/2018 |
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3.1 |
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05/11/2018 |
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3.1.6 |
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8-K |
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05/28/2020 |
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3.1 |
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06/01/2020 |
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3.1.7 |
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8-K |
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04/28/2022 |
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3.1 |
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05/02/2022 |
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3.1.8 |
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8-K |
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07/20/2023 |
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3.1 |
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07/26/2023 |
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3.1.9 |
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Certificate of Designation of Series H Convertible Redeemable Preferred Stock |
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8-K |
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05/24/2023 |
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3.1 |
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05/26/2023 |
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3.1.10 |
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8-K |
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06/05/2023 |
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3.1 |
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06/06/2023 |
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3.1.11 |
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Certificate of Designation of Series J Convertible Redeemable Preferred Stock |
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8-K |
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09/13/2023 |
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3.1 |
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09/18/2023 |
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3.2 |
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Eighth Amended and Restated Bylaws of the Registrant adopted on March 1, 2022 |
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8-K |
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03/01/2022 |
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3.1 |
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03/03/2022 |
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4.1 |
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8-K |
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02/12/2024 |
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4.1 |
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02/15/2024 |
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4.2 |
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8-K |
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02/12/2024 |
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4.2 |
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02/15/2024 |
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4.3 |
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8-K |
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02/12/2024 |
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4.3 |
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02/15/2024 |
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4.4 |
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8-K |
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02/12/2024 |
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4.4 |
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02/15/2024 |
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4.5 |
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8-K |
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02/12/2024 |
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4.5 |
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02/15/2024 |
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10.1 |
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8-K |
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02/12/2024 |
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10.1 |
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02/15/2024 |
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10.2 |
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8-K |
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02/12/2024 |
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10.2 |
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02/15/2024 |
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31.1 |
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X |
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31.2 |
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X |
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32.1 |
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* |
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32.2 |
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* |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* Furnished herewith
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BIOLASE, INC. |
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(Registrant) |
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May 13, 2024 |
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By: |
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/s/ JOHN R. BEAVER |
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Date |
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John R. Beaver |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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May 13, 2024 |
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By: |
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/s/ JENNIFER BRIGHT |
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Date |
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Jennifer Bright |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
39