EDGAR 10-K Filing

Company CIK: 811240
Filing Year: 2023
Filename: 811240_10-K_2023_0000950170-23-010364.json

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ITEM 1. BUSINESS
Item 1.
Business
Information about Our Executive Officers

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ITEM 1A. RISK FACTORS
Item 1A.
Risk Factors

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B.
Unresolved Staff Comments

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ITEM 2. PROPERTIES
Item 2. Properties
As of December 31, 2022, we owned or leased a total of approximately 52,000 square feet of space worldwide. We lease our corporate headquarters, which consists of approximately 12,000 square feet in Lake Forest, California and we expanded to 20,000 square feet in early 2023. Our lease expires on December 31, 2025. We lease our manufacturing facility, which consists of approximately 26,000 square feet in Corona, California. Our lease expires on June 30, 2025. For additional information, see Note 7 - Commitments and Contingencies - Leases in our Consolidated Financial Statements.
We believe that our current facilities are sufficient for the current operations of our business, and we believe that suitable additional space in various applicable local markets is available to accommodate any needs that may arise.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. 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. The Complaint seeks unspecified damages and injunctive relief, as well as costs and attorneys’ fees against
BIOLASE. BIOLASE intends to fully defend itself against PIPStek’s claims, and is currently required to answer or otherwise respond to the Complaint by April 27, 2023.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the NASDAQ Capital Market under the symbol “BIOL.”
As of March 21, 2023, the closing price of our common stock on the NASDAQ Capital Market was $0.33 per share, and the number of stockholders of record was 46. We believe that the number of beneficial owners is substantially greater than the number of record holders because a large portion of our stock is held of record through brokerage firms in “street name.”
Dividend Policy
We intend to retain our available funds from earnings and other sources for future growth and, therefore, do not anticipate paying any cash dividends in the foreseeable future. Additionally we are prohibited from declaring and paying cash dividends under our Credit Agreement with SWK. As a result, we do not anticipate paying any cash dividends in 2023. Our dividend policy may be changed at any time, and from time to time, by our Board. We did not pay or declare any cash dividends in 2022, 2021, or 2020.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions, which could cause actual results to differ materially from management’s expectations. Please see the “Cautionary Statement Regarding Forward-Looking Statements” section immediately preceding Part I, Item 1 of this Form 10-K and the “Risk Factors” section in Part I, Item 1A of this Form 10-K.
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, oral surgeons, and other dental specialists to perform a broad range of minimally invasive dental procedures, including cosmetic, restorative, and complex surgical applications. Our laser systems are designed to provide clinically superior results for many types of dental procedures compared to those achieved with drills, scalpels, and other conventional instruments. Potential patient benefits include less pain, fewer shots, faster healing, decreased fear and anxiety, and fewer appointments. Potential practitioner benefits include improved patient care and the ability to perform a higher volume and wider variety of procedures and generate more patient referrals.
We offer two categories of laser system products: Waterlase (all-tissue) systems and diode (soft-tissue) systems. Our flagship brand, Waterlase, uses a patented combination of water and laser energy and is FDA cleared for over 80 clinical indications to perform most procedures currently performed using drills, scalpels, and other traditional dental instruments for cutting soft and hard tissue. For example, Waterlase safely debrides implants without damaging or significantly affecting surface temperature and is the only effective, safe solution to preserving sick implants. In addition, Waterlase disinfects root canals more efficiently than some traditional chemical methods. We also offer our diode laser systems to perform soft tissue, pain therapy, and cosmetic procedures, including teeth whitening. As of December 31, 2022, we maintained approximately 259 active and 24 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 1982 through December 31, 2022 we have sold over 45,500 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.
Recent Developments
2023 Public Equity Raise
On January 9, 2023, BIOLASE completed a public offering, pursuant to which BIOLASE agreed to issue, (i) in a registered direct offering, 17,167,855 shares of BIOLASE common stock, par value $0.001 per share, and pre-funded warrants to purchase 11,403,571 shares of BIOLASE common stock with an exercise price of $0.001 per share. The combined purchase price for one share of common stock was determined to be $0.35, and the combined purchase price for one Pre-Funded Warrant and one Common Warrant was determined to be $0.34. BIOLASE received aggregate gross proceeds from the transactions of approximately $9.9 million, before deducting fees to the placement agent and other transaction expenses payable by BIOLASE.
Membership Interest Purchase Agreement
On September 22, 2022, BIOLASE entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Med-Fiber LLC (“Med-Fiber”) and Alexei Tchapyjnikov, pursuant to which we acquired all of the issued and outstanding membership interests of Med-Fiber LLC, on the terms and subject to the conditions set forth in the Purchase Agreement, for a purchase price equal to $1,320,000, plus, subject to the satisfaction of certain milestones, additional earn-out consideration in an aggregate amount of up to $880,000. Med-Fiber was engaged in the business of manufacturing and supplying infrared transmitting fiber optics for laser power delivery applications and activities related thereto.
2022 Direct Offering and Private Placement
On June 27, 2022, BIOLASE entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which BIOLASE agreed to issue, (i) in a registered direct offering, 678,745 shares of BIOLASE common stock, par value $0.001 per share, and pre-funded warrants to purchase 726,660 shares of BIOLASE common stock (the “Pre-Funded Warrants”) with an exercise price of $0.001 per share, and (ii) in a concurrent private placement, warrants to purchase 1,405,405 shares of BIOLASE common stock (the “Common Warrants”). The combined purchase price for one share of common stock and one Common Warrant was determined to be $4.625, and the combined purchase price for one Pre-Funded Warrant and one Common Warrant was determined to be $4.624. BIOLASE received aggregate gross proceeds from the transactions of approximately $6.5 million, before deducting fees to the placement agent and other transaction expenses payable by BIOLASE. The 678,745 shares of BIOLASE's common stock, the Pre-Funded Warrants and the shares of BIOLASE common stock issuable upon exercise of the Pre-Funded Warrants were offered by BIOLASE pursuant to a shelf registration statement on Form S-3, which was declared effective on August 23, 2019.
Reverse Stock Split
On April 28, 2022, BIOLASE’s stockholders approved a proposal at BIOLASE’s 2022 annual meeting of stockholders (the “2022 Annual Meeting”) further amending BIOLASE’s Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), to effect a reverse stock split of BIOLASE common stock, par value $0.001 per share, at a ratio between one-for-two (1:2) and one-for-twenty-five (1:25), without reducing the authorized number of shares of BIOLASE common stock. Following the 2022 Annual Meeting, BIOLASE’s board of directors approved a final split ratio of one-for-twenty-five (1:25). Following such approval, the Company filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the reverse stock split (the "Reverse Stock Split") on April 28, 2022. Except as the context otherwise requires, all common stock share numbers and common stock share price amounts in this annual report have been adjusted to reflect the Reverse Stock Split.
Elimination of Series G Preferred Stock
On March 1, 2022, the Board declared a dividend of one one-thousandth of a share of Series G Preferred Stock, par value $0.001 per share (“Series G Preferred Stock”), for each share of BIOLASE common stock outstanding as of close of market on March 25, 2022 (as calculated on a pre-Reverse Stock Split basis). The certificate of designation for the Series G Preferred Stock provided that all shares of Series G Preferred Stock not present in person or by proxy at the 2022 Annual Meeting immediately prior to the opening of the polls at the 2022 Annual Meeting would be automatically redeemed (the “Initial Redemption”) and that any outstanding shares of Series G Preferred Stock that have not been redeemed pursuant to the Initial Redemption would be redeemed in whole, but not in part, (i) if and when ordered by the Board or (ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation effecting the Reverse Stock Split that was subject to the vote at the 2022 Annual Meeting (the “Subsequent Redemption”). On April 28, 2022, both the Initial Redemption and the Subsequent Redemption occurred. As a result, no shares of Series G Preferred Stock remain outstanding. On June 6, 2022, the Series G Preferred Stock was eliminated.
Ninth and Tenth Amendments to the Credit Agreement
On June 30, 2022, BIOLASE entered into the ninth amendment to the Credit Agreement (the “Ninth Amendment”) with SWK. The Ninth Amendment extended the end of the interest only period of the loan by two quarters, from May 2023 to November 2023, reduced the required minimum consolidated unencumbered liquid assets from $7.5 million to $3.0 million, reduced the minimum consolidated unencumbered liquid assets triggering the minimum aggregate revenue covenant from $7.5 million to $5.0 million and reduced the minimum consolidated unencumbered liquid assets triggering the minimum EBITDA covenant from $7.5 million to $5.0 million. In connection with the Ninth Amendment, with some of the net proceeds from the June 2022 offering and private placement, the Company prepaid $1.0 million of the outstanding loan balance.
On December 30, 2022, BIOLASE entered into the tenth amendment to the Credit Agreement (the "Tenth Amendment") with SWK. The Tenth Amendment reduced the required minimum consolidated unencumbered liquid assets from $3.0 million to $2.5 million and removed the conditional minimum last twelve months aggregate revenue and EBITDA for the twelve month period ending December 31, 2022.
Impact of Coronavirus (COVID-19) on Our Operations
In December 2019, a novel strain of coronavirus was reported and in 2020 the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic, and the United States as well as most other countries declared a national emergency with respect to the coronavirus outbreak. This outbreak severely impacted global economic activity, and many countries and many states in the United States reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. These mandated business closures included dental office closures in Europe and the United States for all but emergency procedures. As these quarantines and restrictions began to be lifted in 2021 and 2022, operations began to return to pre-pandemic levels and although there are signs of recovery from the impact of COVID-19 both domestically and internationally, no assurance can be provided that our sales will return to normal levels during 2023 or at any time thereafter. See Item 1A - “Risk Factors” for additional information regarding the potential impact of the COVID-19 pandemic on our business, results of operations and financial condition.
Deficiency Letter from NASDAQ
On January 11, 2023, we received a deficiency letter from the NASDAQ Stock Market, LLC ("NASDAQ") notifying the Company that, for the 30 consecutive business days, ending on January 10, 2023, the bid price for BIOLASE common stock had closed below the minimum required by NASDAQ listing rule 5550(a)(2) (the "Minimum 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 Minimum Bid Price Rule.
If, at any time before July 10, 2023, the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, NASDAQ will provide written notification that the Company has achieved compliance with the Minimum Bid Price Rule. If we do not regain compliance with the Minimum Bid Price Rule by July 10, 2023, 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, 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 Minimum Bid Price Rule. If we do not regain compliance with the Minimum Bid Price Rule by the July 10, 2023 and are not eligible for an additional compliance period at that time, the Staff will provide written notification to the Company that BIOLASE common stock may be delisted. We intend to monitor the closing bid price of our common stock and may, if appropriate, consider available options to regain compliance with the Minimum Bid Price Rule.
If compliance with the Minimum Bid Price Rule cannot be demonstrated by July 10, 2023, NASDAQ will provide written notification that the Company’s common stock will be delisted. At that time, the Company may appeal NASDAQ’s determination to a hearings panel.
Critical Accounting Policies
The preparation of consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the United States (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. The following is a summary of those accounting policies that we believe are necessary to understand and evaluate our reported financial results.
Revenue Recognition. 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 product training and support for 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, our contracts do not contain variable consideration. We establish a provision for estimated warranty expense. For further information on warranty, see the discussion under “Warranty Cost” below.
At contract inception, we assess the products and services promised in our contracts with customers. We then identify performance obligations to transfer distinct products or services to the customers. In order to identify performance obligations, we consider all of the products or services promised in the contract 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 88%, 88% and 81% of net revenue for the years ended December 31, 2022, 2021, and 2020, respectively. The majority of the revenue recognized at a point in time is for the sale of laser systems, imaging systems, and consumables. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during the shipping process.
Revenue from services transferred to customers over time accounted for 12%, 12%, and 19% of net revenue for the years ended December 31, 2022, 2021, and 2020, respectively. The majority of our revenue that is recognized over time relates to training and extended warranties.
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, we allocate 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.
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 our promise to provide such services. Revenue is recorded for product training as the customer attends a training program or upon the expiration of the obligation.
We also have contracts that include both the product sales and product training as performance obligations. In those cases, we record 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. We have concluded that control is transferred to the customer upon shipment.
We perform our obligations under a contract with a customer by transferring products and/or services in exchange for consideration from the customer. We invoice our customers as soon as control of an asset is transferred and a receivable due to us is established. We recognize a contract liability when a customer prepays for goods and/or services and we have not transferred control of the goods and/or services.
Accounts receivable are stated at estimated net realizable value. The allowance for doubtful accounts is based on an analysis of customer accounts and our historical experience with accounts receivable write-offs.
Accounting for Stock-Based Payments. Stock-based compensation expense is estimated at the grant date of the award, is based on the fair value of the award and is recognized ratably over the requisite service period of the award. For restricted stock units we estimate the fair value of the award based on the number of awards and the fair value of our common stock on the grant date and apply an estimated forfeiture rate. For stock options, we estimate the fair value of the option award using the Black-Scholes option pricing model. This option-pricing model requires us to make several assumptions regarding the key variables used to calculate the fair value of its stock options. The risk-free interest rate used is based on the U.S. Treasury yield curve in effect for the expected lives of the options at their grant dates. Since July 1, 2005, we have used a dividend yield of zero, as we do not intend to pay cash dividends on our common stock in the foreseeable future. The most critical assumptions used in calculating the fair value of stock options are the expected life of the option and the expected volatility of our common stock. The expected life is calculated in accordance with the simplified method, whereby for service-based awards, the expected life is calculated as a midpoint between the vesting date and expiration date. We use the simplified method, as there is not a sufficient history of share option exercises. We believe the historic volatility of our common stock is a reliable indicator of future volatility, and accordingly, a stock volatility factor based on the historical volatility of our common stock over a lookback period of the expected life is used in approximating the estimated volatility of new stock options. Compensation expense is recognized using the straight-line method for all service-based employee awards and graded amortization for all performance-based awards. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated at the date of grant based on historical experience and future expectations. Forfeitures are estimated at the time of the grant and revised in subsequent periods as actual forfeitures differ from those estimates.
Valuation of Inventory. Inventory is valued at the lower of cost or net realizable value, with cost determined using the first-in, first-out method. We periodically evaluate the carrying value of inventory and maintain an allowance for excess and obsolete inventory to adjust the carrying value as necessary to the lower of cost or net realizable value. We evaluate quantities on hand, physical condition, and technical functionality, as these characteristics may be impacted by anticipated customer demand for current products and new product introductions. Unfavorable changes in estimates of excess and obsolete inventory would result in an increase in cost of revenue and a decrease in gross profit.
Valuation of Long-Lived Assets. Property, plant, and equipment and certain intangibles with finite lives are amortized over their estimated useful lives. Useful lives are based on our estimate of the period that the assets will generate revenue or otherwise productively support our business goals. We monitor events and changes in circumstances that could indicate that the carrying balances of long-lived assets may exceed the undiscounted expected future cash flows from those assets. If such a condition were to exist, we would determine if an impairment loss should be recognized by comparing the carrying amount of the assets to their fair value.
Valuation of Goodwill and Other Intangible Assets. Goodwill and other intangible assets with indefinite lives are not subject to amortization but are evaluated for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. We conducted our annual impairment analysis of our goodwill as of September 30, 2022 and concluded there had been no impairment in goodwill. We closely monitor our stock price and market capitalization and perform such analysis when events or circumstances indicate that there may have been a change to the carrying value of those assets.
Warranty Cost. We provide warranties against defects in materials and workmanship of our laser systems for specified periods of time. For the years ended December 31, 2022, 2021, and 2020 domestic sales of our Waterlase laser systems were covered by our warranty for a period of up to one year and diode systems were covered by our warranty for a period of up to two years from the date of sale by us or the distributor to the end-user. Laser systems sold internationally during the same periods were covered by our warranty for a period of up to 24 months from the date of sale to the international distributor. Estimated warranty expenses are recorded as an accrued liability with a corresponding provision to cost of revenue. This estimate is recognized concurrent with the recognition of revenue on the sale to the distributor or end-user. Warranty expenses expected to be incurred after one year from the time of sale to the distributor are classified as a long-term warranty accrual. Our overall accrual is based on our historical experience and our expectation of future conditions, taking into consideration the location and type of customer and the type of laser, which directly correlate to the materials and components under warranty, the duration of the warranty period, and the logistical costs to service the warranty. Additional factors that may impact our warranty accrual include changes in the quality of materials, leadership and training of the production and services departments, knowledge of the lasers and workmanship, training of customers, and adherence to the warranty policies. Additionally, an increase in warranty claims or in the costs associated with servicing those claims would likely result in an increase in the accrual and a decrease in gross profit. We offer extended warranties on certain imaging products. However, all imaging products are initially covered by the manufacturer’s warranties.
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.
Fair Value of Financial Instruments
Our financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate fair value because of the liquid or short-term nature of these items.
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 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.
Results of Operations
The following table sets forth certain data from our operating results, expressed in thousands and as percentages of revenue:
Years Ended December 31,
Net revenue
$
48,462
100.0
%
$
39,188
100.0
%
$
22,780
100.0
%
Cost of revenue
32,551
67.2
%
22,659
57.8
%
16,607
72.9
%
Gross profit
15,911
32.8
%
16,529
42.2
%
6,173
27.1
%
Operating expenses:
Sales and marketing
21,675
44.7
%
15,339
39.1
%
11,242
49.4
%
General and administrative
12,309
25.4
%
11,258
28.7
%
9,772
42.9
%
Engineering and development
7,265
15.0
%
6,048
15.4
%
3,695
16.2
%
Loss on patent litigation settlement
-
-
%
0.8
%
-
-
%
Total operating expenses
41,249
85.1
%
32,960
84.1
%
24,709
108.5
%
Loss from operations
(25,338
)
(52.3
)
%
(16,431
)
(41.9
)
%
(18,536
)
(81.4
)
%
Non-operating gain (loss), net
(3,187
)
(6.6
)
%
0.9
%
1,835
8.1
%
Loss before income tax provision
(28,525
)
(58.9
)
%
(16,093
)
(41.1
)
%
(16,701
)
(73.3
)
%
Income tax (provision) benefit
(109
)
(0.2
)
%
(65
)
(0.2
)
%
(128
)
(0.6
)
%
Net loss
$
(28,634
)
(59.1
)
%
$
(16,158
)
(41.2
)
%
$
(16,829
)
(73.9
)
%
The following table summarizes our net revenues by category ($ in thousands):
Years Ended December 31,
Laser systems
$
31,443
64.8
%
$
25,023
63.9
%
$
12,342
54.2
%
Consumables and other
11,322
23.4
%
9,456
24.1
%
6,124
26.9
%
Services
5,697
11.8
%
4,709
12.0
%
4,314
18.9
%
Net revenue
$
48,462
100.0
%
$
39,188
100.0
%
$
22,780
100.0
%
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-K 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 and amortization, stock-based compensation, allowance for doubtful accounts, and other (income) expense, net. Management uses adjusted EBITDA in its evaluation of our core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by us may be different from similarly named non-GAAP financial measures used by other companies.
The following table contains a reconciliation of non-GAAP Adjusted EBITDA to GAAP net loss attributable to common stockholders (in thousands):
Years Ended December 31,
GAAP net loss attributable to common stockholders
$
(28,851
)
$
(16,704
)
$
(34,207
)
Deemed dividend on convertible preferred stock
17,378
GAAP net loss
$
(28,634
)
$
(16,158
)
$
(16,829
)
Adjustments:
Interest expense, net
2,749
2,224
2,359
Income tax provision (benefit)
Depreciation and amortization
Change in allowance for doubtful accounts
(202
)
1,328
Loss on patent litigation settlement
-
-
Stock-based and other non-cash compensation
2,303
1,662
3,370
Increase in inventory reserves
2,798
-
-
Gain on debt forgiveness
-
(3,014
)
-
Other (income) expense, net
-
-
(4,215
)
Adjusted EBITDA
$
(20,138
)
$
(14,708
)
$
(13,360
)
Other (income) expense for the year ended December 31, 2022, is comprised of a $2.8 million charge for inventory driven by supply chain issues that we have encountered requiring us to change to new suppliers along with end of life designation for certain products and components, which resulted in higher inventory reserves and warranty expenses.
Other (income) expense for the year ended December 31, 2021 is comprised of a $3.0 million gain on the forgiveness of the loan received under the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").
Other (income) expense for the year ended December 31, 2020, is comprised of a $5.8 million gain on the change in fair value of the 45.0 million warrants sold by the Company on July 23, 2020 through the Rights Offering (the “July 2020 Warrants”) partially offset by the costs to issue the July 2020 Warrants of approximately $1.6 million.
Comparison of Results of Operations
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
Net Revenue. Net revenue for the year ended December 31, 2022 was $48.5 million, an increase of $9.3 million, or 24%, as compared with net revenue of $39.2 million for the year ended December 31, 2021. Domestic revenues were $33.9 million, or 70% of net revenue, for the year ended December 31, 2022 compared to $25.4 million, or 65% of net revenue, for the year ended December 31, 2021. International revenues for year ended December 31, 2022 were $14.6 million, or 30% of net revenue, compared to $13.8 million, or 35% of net revenue for year ended December 31, 2021.
Laser system net revenues increased by $6.4 million, or 26%, for the year ended December 31, 2022 compared to the same period in 2021. Consumables and other net revenue, which includes products such as disposable tips and shipping revenue, increased $1.9 million, or 20%, for the year ended December 31, 2022, as compared to the same period in 2021. Services revenue increased $1.0 million, or 21%, for the year ended December 31, 2022, as compared to the same period in 2021.
The increase in year-over-year net revenue primarily resulted from additional adoption of our lasers in dentistry, an increase in consumable sales and the addition of our OEM product at the start of 2022.
Cost of Revenue. Cost of revenue increased by $9.9 million, or approximately 44%, to $32.6 million, or 67% of net revenue for the year ended December 31, 2022, compared to cost of revenue of $22.7 million, or 58% of net revenue, for the same period in 2021. The increase is primarily due to the increase in sales and higher warranty and inventory reserve charges for the year ended December 31, 2022.
Gross Profit. Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. Gross profit for the year ended December 31, 2022 was $15.9 million, or 33% of net revenue, a decrease of $0.6 million, or 4%, as compared with gross profit of $16.5 million, or 42% of net revenue, for the same period in 2021. The decrease in gross profit as a percentage of revenue reflects the impact of a $2.7 million charge for inventory. This inventory charge was driven
by the supply chain issues that we have encountered requiring us to change to new suppliers along with end of life designation for certain products and components, which resulted in higher inventory reserves and warranty expenses. In addition, lower margin OEM products were launched at the beginning of 2022 and an Employee Retention Credit under the CARES Act of $0.7 million was received during the year ended December 31, 2021 that did not occur in 2022. The decrease was partially offset by the impact of the increase in sales and the favorable absorption of fixed expenses.
Operating Expenses. Operating expenses for the year ended December 31, 2022 were $41.2 million, or 85% of net revenue, an increase of $8.3 million, or 25%, as compared with $33.0 million, or 84% of net revenue, for the same period in 2021. See the following expense categories for further explanations.
Sales and Marketing Expense. Sales and marketing expense for the year ended December 31, 2022 increased by $6.3 million, or 41%, to $21.7 million, or 45% of net revenue, as compared with $15.3 million, or 39% of net revenue, for the same period in 2021. This increase is primarily due to $2.9 million from compensation expense due to no open territories, or no territories without a sales representative in 2022, and commissions and bonus incentives for achieving sales targets, $1.9 million in higher travel and trade show related expenses, $0.7 million in higher supply costs and other expenses, $0.2 million in additional advertising expenses, and $0.6 million from an Employee Retention Credit under the CARES Act received during the year ended December 31, 2021 that did not occur in 2022.
General and Administrative Expense. General and administrative expense for the year ended December 31, 2022 increased by $1.1 million, or 9%, to $12.3 million, or 25% of net revenue, as compared with $11.3 million, or 29% of net revenue, for the same period in 2021. This increase is primarily from $0.8 million in compensation expense for achieving sales targets and filling open positions, $0.5 million for the production of the “Talk Dental To Me” docuseries, and $0.2 million in a higher allowance for doubtful accounts. The increase in general and administrative expenses was partially offset by $0.4 million in severance expense that did not occur in 2022, and $0.2 million from an Employee Retention Credit under the CARES Act received during the year ended December 31, 2021 that did not occur in 2022.
Engineering and Development Expense. Engineering and development expense for the year ended December 31, 2022 increased by $1.2 million, or 20%, to $7.3 million, or 15% of net revenue, as compared with $6.0 million, or 15% of net revenue, for the same period in 2021. This increase is primarily due to $0.7 million from compensation expenses driven by more engineering projects for 2022 as compared to 2021, $0.5 million in other various expense, and $0.2 million for the impact of an Employee Retention Credit under the CARES Act received during the year ended December 31, 2021 that did not occur in 2022. This increase in engineering and development expenses was partially offset by $0.2 million decrease in other expenses.
Loss on Patent Litigation Settlement. Loss on patent litigation settlement for the year ended December 31, 2021 was $0.3 million due to the change in fair value of the remaining accrued liability.
Non-Operating Income (Loss)
Loss on Foreign Currency Transactions. We recognized a loss of $0.4 million on foreign currency transactions for the year ended December 31, 2022 compared to a $0.5 million loss for the same period in 2021, due to exchange rate fluctuations primarily between the U.S. dollar and the Euro.
Interest Expense, Net. Net interest expense increased to $2.7 million for the year ended December 31, 2022 compared to $2.2 million of net interest expense for the same period in 2021. The increase was due to the impact of higher variable interest rates applied to outstanding Term Loan balances during the year ended December 31,2022 compared to the same period in 2021 and an accrual for exit fees to be paid in May 2025 upon maturity of the Term Loan, partially offset by lower interest expense associated with reduced Term Loan balances during the year ended December 31, 2022 compared to the same period in 2021.
Gain on debt forgiveness. Gain on debt forgiveness was $3.0 million for the year ended December 31, 2021 due to the approval of the Company's request for forgiveness of the loan received under the Paycheck Protection Program under the CARES Act (the "PPP Loan").
Other Income, Net. There was no Other Income (Expense) for the years ended December 31, 2022 and 2021.
(Provision) benefit for Income Taxes. Our provision for income taxes was a provision of $109 thousand for the year ended December 31, 2022, an increase of $44 thousand as compared with our provision for income taxes of $65 thousand for the same period in 2021. The increase in our provision is primarily due to an increase to our current income taxes in our European subsidiary.
Net Loss. For the reasons stated above, our net loss was $28.6 million for the year ended December 31, 2022 compared to a net loss of $16.2 million for the same period in 2021.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Net Revenue. Net revenue for the year ended December 31, 2021 was $39.2 million, an increase of $16.4 million, or 72%, as compared with net revenue of $22.8 million for the year ended December 31, 2020. Domestic revenues were $25.4 million, or 65% of net revenue, for the year ended December 31, 2021 compared to $16.2 million, or 71% of net revenue, for the year ended December 31, 2020. International revenues for year ended December 31, 2021 were $13.8 million, or 35% of net revenue, compared to $6.6 million, or 29% of net revenue for year ended December 31, 2020.
Laser system net revenues increased by $12.7 million, or 103%, for the year ended December 31, 2021 compared to the same period in 2020. Consumables and other net revenue, which includes products such as disposable tips and shipping revenue, increased $3.3 million, or 54%, for the year ended December 31, 2021, as compared to the same period in 2020. Services revenue increased $0.4 million, or 9%, for the year ended December 31, 2021, as compared to the same period in 2020.
The increase in year-over-year net revenue primarily resulted from the lifting of governmental restrictions from the COVID-19 pandemic and the re-opening of dental offices that had closed in 2020 resulting in increased opportunities for procedures using BIOLASE lasers.
Cost of Revenue. Cost of revenue increased by $6.1 million, or approximately 36%, to $22.7 million, or 58% of net revenue for the year ended December 31, 2021, compared to cost of revenue of $16.6 million, or 73% of net revenue, for the same period in 2020. The increase is primarily due to the increase in sales for the year ended December 31, 2021, partially offset by a $0.7 million Employee Retention Credit under the CARES Act received during the year ended December 31, 2021 that did not occur in 2020.
Gross Profit. Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. Gross profit for the year ended December 31, 2021 was $16.5 million, or 42% of net revenue, an increase of $10.4 million, or 168%, as compared with gross profit of $6.2 million, or 27% of net revenue, for the same period in 2020. The increase in gross profit is commensurate with the increase in sales, the favorable absorption of fixed expenses, higher average selling prices, fewer inventory write-offs and reserve adjustments, and an Employee Retention Credit under the CARES Act received during the year ended December 31, 2021 that did not occur in 2020.
Operating Expenses. Operating expenses for the year ended December 31, 2021 were $33.0 million, or 84% of net revenue, an increase of $8.3 million, or 33%, as compared with $24.7 million, or 108% of net revenue, for the same period in 2020. See the following expense categories for further explanations.
Sales and Marketing Expense. Sales and marketing expense for the year ended December 31, 2021 increased by $4.1 million, or 36%, to $15.3 million, or 39% of net revenue, as compared with $11.2 million, or 49% of net revenue, for the same period in 2020. The increase was primarily due to $1.1 million in compensation expense and bonus incentives for achieving sales targets, $1.1 million in sales commissions, $0.9 million in increased advertising expenses and related consulting costs, and $0.8 million in increased travel and trade show related expenses driven by a normalization in such expenses as compared to 2020. These increases were partially offset by $0.6 million from the effect of Employee Retention Credits under the CARES Act received during the year ended December 31, 2021.
General and Administrative Expense. General and administrative expense for the year ended December 31, 2021 increased by $1.5 million, or 15%, to $11.3 million, or 29% of net revenue, as compared with $9.8 million, or 43% of net revenue, for the same period in 2020. The increase in general and administrative expense was primarily due to $2.1 million related to fees incurred in connection with stockholder meetings held during the year, $0.4 million in severance expense, and $0.3 million in legal and audit fees. These increases were partially offset by a $1.5 million change in the allowance for doubtful accounts.
Engineering and Development Expense. Engineering and development expense for the year ended December 31, 2021 increased by $2.4 million, or 64%, to $6.0 million, or 15% of net revenue, as compared with $3.7 million, or 16% of net revenue, for the same period in 2020. The increase was primarily due to a $0.5 million increase in legal and consulting fees and a $1.3 million increase in payroll expenses driven by an increase in engineering projects for 2021 as compared to 2020. Although our primary focus will be on our sales and marketing efforts in 2022, we expect to continue our investment in engineering and development activity during the period.
Loss on Patent Litigation Settlement. Loss on patent litigation settlement for the year ended December 31, 2021 was $0.3 million due to the change in fair value of the remaining accrued liability.
Non-Operating Income (Loss)
Loss on Foreign Currency Transactions. We recognized a loss of $0.5 million on foreign currency transactions for the year ended December 31, 2021 compared to a $21 thousand loss for the same period in 2020, due to exchange rate fluctuations primarily between the U.S. dollar and the Euro.
Interest Expense, Net. Net interest expense decreased to $2.2 million for the year ended December 31, 2021 compared to $2.4 million of net interest expense for the same period in 2020. The decrease was due to the Eighth Amendment which lowered the interest rate and extended the maturity date.
Gain on debt forgiveness. Gain on debt forgiveness was $3.0 million for the year ended December 31, 2021 due to the approval of the Company's request for forgiveness of the loan received under the Paycheck Protection Program under the CARES Act (the "PPP Loan").
Other Income, Net. There was no Other Income (Expense) for the year ended December 31, 2021. Other Income for the year ended December 31, 2020, is comprised of a $5.8 million gain on the change in fair value to the 45.0 million warrants sold by the Company on July 23, 2020 through the Rights Offering (the “July 2020 Warrants”) partially offset by the costs to issue the July 2020 Warrants of approximately $1.6 million.
(Provision) benefit for Income Taxes. Our provision for income taxes was a provision of $65 thousand for the year ended December 31, 2021, an increase of $63 thousand as compared with our provision for income taxes of $128 thousand for the same period in 2020. The increase in our provision is primarily due to an increase to our current income taxes in our European subsidiary.
Net Loss. For the reasons stated above, our net loss was $16.2 million for the year ended December 31, 2021 compared to a net loss of $16.8 million for the same period in 2020.
Liquidity and Capital Resources
The Company has reported losses from operations of $25.3 million, $16.4 million, and $18.5 million for the years ended December 31, 2022, 2021, and 2020, respectively, and has not generated positive net cash from operations for the same periods.
At December 31, 2022, we had $4.2 million in cash and cash equivalents. Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. The decrease in our cash and cash equivalents by $25.8 million from December 31, 2021 was primarily due to cash used in operating activities of $26.8 million and cash used in investing activities of $3.7 million, partially offset by cash provided by financing activities of $4.6 million. The $26.8 million of net cash used in operating activities in 2022 was primarily driven by our net loss of $28.6 million during the year.
At December 31, 2022, we had $11.2 million in working capital. Our principal sources of liquidity consisted of $4.2 million in cash and cash equivalents and $5.8 million of net accounts receivable.
The Company may 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. From time to time, the Company could be required, or may otherwise attempt, to raise capital through either equity or debt offerings. The Company cannot provide assurance that it will be 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.
Our recurring losses, level of cash used in operations, potential need for additional capital, and the uncertainties surrounding our ability to raise additional capital, raises substantial doubt about our 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.
In order 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 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.
Term Loan
The information set forth in Note 6 - Debt - Term Loan is hereby incorporated herein by reference.
EIDL Loan
The information set forth in Note 6 - Debt - EIDL Loan is hereby incorporated herein by reference.
Public Offering of Common Shares and Private Placement of Unregistered Preferred Shares
The information set forth in Note 8 - Redeemable Preferred Stock and Stockholders’ Equity - Public Offering of Common Shares and Private Placement of Unregistered Preferred Shares is hereby incorporated herein by reference.
Concentration of Credit Risk
Financial instruments, which potentially expose us to a concentration of credit risk, consist principally of cash and cash equivalents, restricted cash, and trade accounts receivable. We maintain our cash and cash equivalents and restricted cash with established commercial banks. At times, balances may exceed federally insured limits. To minimize the risk associated with trade accounts receivable, we perform ongoing credit evaluations of customers’ financial condition and maintain relationships with our customers that allow us to monitor changes in business operations so we can respond as needed. We do not, generally, require customers to provide collateral before we sell them our products. However, we have required certain distributors to make prepayments for significant purchases of our products.
Receivables and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in the existing accounts receivable. We determine the allowance based on a quarterly specific account review of past due balances. All other balances are reviewed on a pooled basis by age of receivable. Account balances are charged off against the allowance when it is probable the receivable will not be recovered. We do not have any off-balance-sheet credit exposure related to our customers.
Consolidated Cash Flows
The following table summarizes our statements of cash flows (in thousands):
Years Ended December 31,
Net cash (used in) provided by:
Operating activities
$
(26,761
)
$
(16,710
)
$
(12,795
)
Investing activities
(3,727
)
(707
)
(96
)
Financing activities
4,603
29,954
24,349
Effect of exchange rates on cash
(109
)
(238
)
Net change in cash and cash equivalents
$
(25,994
)
$
12,299
$
11,775
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
Net cash used in operating activities for the year ended December 31, 2022 totaled $26.8 million and was primarily comprised of our net loss of $28.6 million, and an increase in operating assets of $8.5 million, partially offset by an increase in operating liabilities of $3.5 million, non-cash adjustments for stock-based compensation of $2.3 million, a $2.8 million write-off of inventory, amortization of debt issuance costs of $1.2 million, and depreciation and amortization expenses of $0.5 million. The net increase in our operating assets was primarily due to a $5.8 million increase in inventory as we have increased inventory levels to try to mitigate the impact of supply disruptions from potential product shortages and delivery delays, a $1.1 million increase in prepaid expenses and other current assets, and a $1.6 million increase in accounts receivable, partially offset by a $3.5 million increase in accounts payable and accrued liabilities.
Net cash used in investing activities for the year ended December 31, 2022 was $3.7 million and was primarily driven by our capital expenditures. We expect cash flows used in investing activities to decrease somewhat in 2023 due to the completion of our new training facility.
Net cash provided by financing activities for the year ended December 31, 2022 was $4.6 million primarily comprised of $5.6 million of net proceeds from the June 2022 direct offering and private placement, partially offset by a $1.0 million payment on the SWK Loan.
The $0.1 million effect of exchange rate on cash for the year ended December 31, 2022 was due to a recognized gain on foreign currency transactions, primarily driven by changes in the Euro during the year.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Net cash used in operating activities for the year ended December 31, 2021 totaled $16.7 million and was primarily comprised of our net loss of $16.2 million, and gain on the PPP Loan forgiveness of $3.0 million, partially offset by non-cash adjustments for stock-based compensation of $1.7 million, depreciation and amortization expenses of $0.4 million, and amortization of debt issuance costs of $0.4 million.
Net cash used in investing activities for the year ended December 31, 2021 was $0.7 million and was primarily driven by our capital expenditures. We expect cash flows from investing activities to increase somewhat in 2022 due to the completion of our new training facility.
Net cash provided by financing activities for the year ended December 31, 2021 was $30.0 million primarily due to the sale of common stock from our equity offering in February 2021 for net proceeds of $13.3 million and $16.6 million from the exercise of common stock warrants.
The $0.2 million effect of exchange rate on cash for the year ended December 31, 2021 was due to a recognized gain on foreign currency transactions, primarily driven by changes in the Euro during the year.
Contractual Obligations
Leases
On January 22, 2020, the Company entered into a five-year real property lease agreement for an approximately 11,000 square foot facility in Corona, California where it moved its manufacturing operations. The lease commenced on July 1, 2020. On December 10, 2021, the Company entered into an additional three and a half year lease at this location to expand the leased space by an additional 15,000 square feet to meet growing manufacturing needs. The additional lease commenced on February 1, 2022. Future minimum rent payments under these leases are approximately $0.8 million.
On February 4, 2020, the Company also entered into a sixty-six month real property lease agreement for office space of approximately 12,000 square feet of office space in Lake Forest, California. The lease commenced on July 1, 2020. On May 26, 2022, the Company entered into an additional lease at this location to expand the leased space by an additional 8,000 square feet for an additional training facility and model dental office. The additional lease commenced on March 9, 2023. Future minimum rent payments under these leases are approximately $1.8 million.
SWK Loan
On November 9, 2018, we entered into the Credit Agreement with SWK, which provides us with the SWK Loan, a variable-rate term loan. The Credit Agreement has been amended multiple times with the most recent being effective December 30, 2022 for total outstanding principal of $13.3 million and exit fees of $1.4 million. Refer to Note 6 - Debt for further details.
EIDL Loan
On May 22, 2020, the Company executed the standard loan documents required for securing a loan from the United States Small Business Administration under its Economic Injury Disaster Loan (the "EIDL Loan") assistance program in light of the impact of the COVID-19 pandemic on our business. The principal amount of the EIDL Loan is $150,000, with proceeds to be used for working capital purposes. The information set forth in Note 6 - Debt - EIDL Loan is hereby incorporated herein by reference.
Purchase Obligations
Purchase obligations relate to purchase orders with suppliers that we expect to complete primarily during the year ended December 31, 2022. In conformity with current GAAP, purchase obligations that have not met the recognition criteria are not reported in the consolidated balance sheet as of December 31, 2022.
The following table presents our expected cash requirements for contractual obligations outstanding for the years ended as indicated below (in thousands):
Less Than
1 to 3
3 to 5
More Than
1 Year
Years
Years
5 years
Total
Operating lease obligations
$
$
1,406
$
-
$
-
$
2,239
Purchase obligations
28,165
-
-
29,079
Loan interest (1)
1,863
2,335
4,296
Loan principal
13,950
14,800
Total
$
31,561
$
18,605
$
$
$
50,414
(1)estimated using LIBOR rates as of December 31, 2022

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Finan cial Statements and Supplementary Data
All financial statements required by this Item 8, including the report of the independent registered public accounting firm, are listed in Part IV, Item 15 of this Form 10-K, are set forth beginning on Page of this Form 10-K, and are hereby incorporated herein by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management has evaluated, with the participation of our President and Chief Executive Officer and 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 report. Based on that evaluation, our President and Chief Executive Officer and Chief Financial Officer has concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2022.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission entitled “Internal Control - Integrated Framework (2013)” (the “COSO Framework”). Based on that evaluation, the Company’s management concluded that its internal control over financial reporting was effective as of December 31, 2022.
This Form 10-K does not include an attestation report from BDO USA, LLP regarding internal control over financial reporting. Management’s report was not subject to attestation by BDO USA, LLP pursuant to the SEC rules that permit the Company to provide only management’s report in this Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the Company’s quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding our executive officers is included in Part I of this Form 10-K under “Item 1. Business - Information about Our Executive Officers.” In addition, the information set forth under the caption “Election of Directors” to be included in the proxy statement for the Company’s 2023 annual meeting of stockholders (the “Proxy Statement”) is incorporated by reference herein.
The BIOLASE, Inc. Code of Business Conduct and Ethics applies to all of our employees, officers, and directors, including our President and Chief Executive Officer. The Code of Business Conduct can be found on our website at the following address: media.corporate-ir.net/media_files/nsd/blti/corpgov/CodeofConductandEthics.pdf.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information set forth under the captions “Executive Compensation” and “Director Compensation” to be included in the Proxy Statement is incorporated by reference herein.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” to be included in the Proxy Statement and the information set forth under the caption “Equity Compensation Plan Information” in Item 5 of this Form 10-K are incorporated by reference herein.
Equity Compensation Plan Information
At our annual meeting of stockholders held on May 9, 2018, the Company’s stockholders approved the BIOLASE, Inc. 2018 Long-Term Incentive Plan (as amended on September 21, 2018, May 15, 2019, May 13, 2020, and June 11, 2021, 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. The 2018 Plan replaced the BIOLASE, Inc. 2002 Stock Incentive Plan, (as amended, the “2002 Plan”), with respect to future awards.
The 2018 Plan was amended in 2018, 2019, 2020, and 2021 to increase the shares available for issuance. Under the terms of the 2018 Plan, approximately 1,476,844 shares of BIOLASE common stock are available for issuance.
The 2002 Plan and the 2018 Plan are designed to attract and retain the services of individuals essential to the Company’s long-term growth and success. The following table summarizes information as of December 31, 2022 with respect to the shares of our common stock that may be issued upon exercise of options, warrants or rights under the 2002 Plan and the 2018 Plan.
Plan Category
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options and Release of
Restricted Stock Units
Weighted Average
Exercise Price of
Outstanding
Options
Number of
Securities
Remaining Available
for Future Issuance
Under Equity
Compensation
Plans
Equity Compensation Plan Approved
by Stockholders
994,000
$
15.36
55,000
Equity Compensation Plan Not Approved
by Stockholders
-
-
-
Total
994,000
$
15.36
55,000

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information set forth under the captions “Election of Directors” and “Certain Relationships and Related Transactions” to be included in the Proxy Statement is incorporated by reference herein.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
The information set forth under the caption “Principal Accountant Fees and Services” to be included in the Proxy Statement is incorporated by reference herein.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K beginning on the pages referenced below:
(1)Financial Statements:
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 243)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Redeemable Preferred Stock and Stockholders’ Equity for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020
Notes to Consolidated Financial Statements
(2)Financial Statement Schedule:
Schedule II - Consolidated Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2022, 2021, and 2020
S- 1
All other schedules have been omitted as they are not applicable, not required or the information is included in the consolidated financial statements or the notes thereto.
(3)Exhibits:
The exhibits filed as a part of this Annual Report on Form 10-K are listed in the accompanying Exhibit Index on page 53.