EDGAR 10-K Filing

Company CIK: 811240
Filing Year: 2022
Filename: 811240_10-K_2022_0000950170-22-004115.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, 2021, 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. Our lease expires on December 31, 2025. We lease our manufacturing facility, which consists of approximately 11,000 square feet in Corona, California and we expanded to 26,000 square feet in early 2022. 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.

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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 10, 2022, the closing price of our common stock on the NASDAQ Capital Market was $0.34 per share, and the number of stockholders of record was 117. 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 2022. 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 2021, 2020, or 2019.

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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, 2021, we had approximately 301 issued and 38 pending United States and international patents, the majority of which are related to Waterlase technology. From 1982 through December 31, 2021 we have sold over 43,300 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
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 outstanding share of Company common stock, par value $0.001 per share (“Common Stock”), to stockholders of record at 5:00 p.m. Eastern Time on March 25, 2022.
Impact of Coronavirus (COVID-19) on Our Operations
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The novel coronavirus spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States 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 have 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. Our salespeople were unable to call on dental customers during these closures. In addition, most dental shows and workshops scheduled in 2020 were canceled. Operations began to recover in 2021 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 2022 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.
SWK Loan Amendment
On November 18, 2021, we entered into the Eighth Amendment to the Credit Agreement (the “Eighth Amendment”) with SWK Funding, LLC. The Eighth Amendment amends the Credit Agreement by providing for a new maturity date of May 31, 2025, reducing
the effective interest rate by 200 basis points, deleting the definitions of "Key Person" and "Key Person Event," and amending the minimum aggregate revenue and EBITDA requirements at the end of certain periods, to the extent that liquid assets are less than $7.5 million.
Deficiency Letter from NASDAQ
On May 24, 2021, we received a deficiency letter from the NASDAQ Stock Market, LLC ("NASDAQ") notifying the Company that, for the 30 consecutive business days, ending on May 21, 2021, 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 November 22, 2021, to regain compliance with the Minimum Bid Price Rule. On November 23, 2021, we received a written letter from NASDAQ that we were granted an additional 180 calendar days, or until May 23, 2022, to regain compliance with the Minimum Bid Price Rule.
If, at any time before May 23, 2022, 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 compliance with the Minimum Bid Price Rule cannot be demonstrated by May 23, 2022, 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.
The Company continues to monitor the bid price for its common stock and is planning to seek stockholder adoption of a charter amendment to effect a reverse stock split.
Cyber Incident
In December 2021, we experienced a cybersecurity attack that caused a brief network disruption and impacted certain systems. Upon detection, we took immediate steps to address the incident, engaged third-party experts, and notified law enforcement. We have taken actions to strengthen our existing systems and implement additional prevention measures. This incident is expected to be immaterial both financially and operationally to the Company. We will continue to monitor and assess as needed. All liabilities were fully insured, and as of December 31, 2021 we recorded an accrued liability and an insurance receivable within prepaid expenses and other current assets of $0.4 million. In March 2022 we received the cash reimbursement from our insurance provider.
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%, 81% and 81% of net revenue for the years ended December 31, 2021, 2020, and 2019, 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%, 19%, and 19% of net revenue for the years ended December 31, 2021, 2020, and 2019, 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, 2021 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, 2021, 2020, and 2019 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.
Litigation and Other Contingencies. We regularly evaluate our exposure to threatened or pending litigation and other business contingencies. Because of the uncertainties related to the amount of loss from litigation and other business contingencies, the recording of losses relating to such exposures requires significant judgment about the potential range of outcomes. As additional information about current or future litigation or other contingencies becomes available, we assess whether such information warrants the recording of expense relating to contingencies. To be recorded as expense, a loss contingency must be both probable and reasonably estimable. If a loss contingency is significant but is not both probable and estimable, we disclose the matter in the notes to our consolidated financial statements.
Income Taxes. Based upon our operating losses for the years ended December 31, 2021, 2020, and 2019 and the available evidence, management has determined that it is more likely than not that the deferred tax assets as of December 31, 2021 will not be realized in the near term. Consequently, we have established a valuation allowance against our net deferred tax asset totaling $57.7 million and $56.0 million as of December 31, 2021 and 2020, respectively. In this determination, we considered factors such as our earnings history, future projected earnings, and tax planning strategies. If sufficient evidence of our ability to generate sufficient future taxable income tax benefits becomes apparent, we may reduce our valuation allowance, resulting in tax benefits in our statement of operations and in additional paid-in-capital. Management evaluates the potential realization of our deferred tax assets and assesses the need for reducing the valuation allowance periodically.
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
$
39,188
100.0
%
$
22,780
100.0
%
$
37,799
100.0
%
Cost of revenue
22,659
57.8
%
16,607
72.9
%
23,511
62.2
%
Gross profit
16,529
42.2
%
6,173
27.1
%
14,288
37.8
%
Operating expenses:
Sales and marketing
15,339
39.1
%
11,242
49.4
%
14,396
38.1
%
General and administrative
11,258
28.7
%
9,772
42.9
%
10,748
28.4
%
Engineering and development
6,048
15.4
%
3,695
16.2
%
4,765
12.6
%
Loss on patent litigation settlement
0.8
%
-
-
%
-
-
%
Total operating expenses
32,960
84.1
%
24,709
108.5
%
29,909
79.1
%
Loss from operations
(16,431
)
(41.9
)
%
(18,536
)
(81.4
)
%
(15,621
)
(41.3
)
%
Non-operating gain (loss), net
0.9
%
1,835
8.1
%
(2,278
)
(6.0
)
%
Loss before income tax provision
(16,093
)
(41.1
)
%
(16,701
)
(73.3
)
%
(17,899
)
(47.4
)
%
Income tax (provision) benefit
(65
)
(0.2
)
%
(128
)
(0.6
)
%
0.1
%
Net loss
$
(16,158
)
(41.2
)
%
$
(16,829
)
(73.9
)
%
$
(17,855
)
(47.2
)
%
The following table summarizes our net revenues by category ($ in thousands):
Years Ended December 31,
Laser systems
$
25,023
63.9
%
$
12,342
54.2
%
$
22,842
60.4
%
Imaging systems
-
-
-
-
1.6
%
Consumables and other
9,456
24.1
%
6,124
26.9
%
7,164
19.0
%
Services
4,709
12.0
%
4,314
18.9
%
7,162
19.0
%
Total products and services
39,188
100.0
%
22,780
100.0
%
37,787
100.0
%
License fees and royalty
-
-
-
-
-
Net revenue
$
39,188
100.0
%
$
22,780
100.0
%
$
37,799
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
$
(16,704
)
$
(34,207
)
$
(17,855
)
Deemed dividend on convertible preferred stock
17,378
-
GAAP net loss
$
(16,158
)
$
(16,829
)
$
(17,855
)
Adjustments:
Interest expense, net
2,224
2,359
2,157
Income tax provision (benefit)
(44
)
Depreciation and amortization
Change in allowance for doubtful accounts
(202
)
1,328
1,695
Loss on patent litigation settlement
-
-
Stock-based and other non-cash compensation
1,662
3,370
2,742
Other (income) expense, net
(3,014
)
(4,215
)
-
Adjusted EBITDA
$
(14,708
)
$
(13,360
)
$
(10,323
)
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 45,000,000 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, 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.
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, and fewer inventory write-offs and reserve adjustments.
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 45,000,000 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.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
Net Revenue. Net revenue for the year ended December 31, 2020 was $22.8 million, a decrease of $15.0 million, or 40%, as compared with net revenue of $37.8 million for the year ended December 31, 2019. Domestic revenues were $16.2 million, or 71% of net revenue, for the year ended December 31, 2020 compared to $22.8 million, or 60% of net revenue, for the year ended December 31, 2019. International revenues for year ended December 31, 2020 were $6.7 million, or 29% of net revenue, compared to $15.0 million, or 40% of net revenue for year ended December 31, 2019.
The decrease in year-over-year net revenue primarily resulted from dental office closures due to the COVID-19 pandemic.
Laser system net revenues decreased by $10.5 million, or 46%, for the year ended December 31, 2020 compared to the same period in 2019. The laser systems revenue decrease was driven by a 29% decrease in domestic revenue and a 56% decrease in international revenue. The decrease in revenue was primarily due to dental office closures related to the COVID-19 pandemic.
Consumables and other net revenue, which includes products such as disposable tips and shipping revenue, decreased $1.0 million, or 15%, for the year ended December 31, 2020, as compared to the same period in 2019. The decrease was driven primarily by dental office closures related to the COVID-19 pandemic during 2020 along with an increase in expense associated with inventory reserves.
Cost of Revenue. Cost of revenue decreased by $6.9 million, or approximately 29%, to $16.6 million, or 73% of net revenue for the year ended December 31, 2020, compared to cost of revenue of $23.5 million, or 62% of net revenue, for the same period in 2019. The decrease in cost of revenue for the year ended December 31, 2020 as compared to the same period in 2019 is primarily due to the decline is sales for the year ended December 31, 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, 2020 was $6.2 million, or 27% of net revenue, a decrease of $8.1 million, or 57%, as compared with gross profit of $14.3 million, or 38% of net revenue, for the same period in 2019. The decrease in gross profit is commensurate with the decline in sales, while the decrease in gross profit percentage was primarily due to unfavorable dilution of fixed expenses and inventory write-offs.
Operating Expenses. Operating expenses for the year ended December 31, 2020 were $24.7 million, or 109% of net revenue, a decrease of $5.2 million, or 17%, as compared with $29.9 million, or 79% of net revenue, for the same period in 2019. See the following expense categories for further explanations.
Sales and Marketing Expense. Sales and marketing expense for the year ended December 31, 2020 decreased by $3.2 million, or 22%, to $11.2 million, or 49% of net revenue, as compared with $14.4 million, or 38% of net revenue, during the year ended December 31, 2019. The decrease for the year ended December 31, 2020 was primarily a result of decreases in payroll and consulting-related expense of $0.9 million primarily due to lower sales commissions from lower revenue $0.5 million and travel and entertainment expenses of $2.2 million.
General and Administrative Expense. General and administrative expense for the year ended December 31, 2020 decreased by $1.0 million, or 9%, to $9.8 million, or 43% of net revenue, as compared with $10.7 million, or 28% of net revenue, for the same period in 2019. The decrease in general and administrative expense was primarily due to decreases in payroll and consulting-related expense of $0.5 million, a decrease in the provision for doubtful accounts of $0.4 million, and a decrease in other expenses including bank fees of $0.3 million, partially offset by an increase in stock based compensation expense of $0.4 million, as compared to the same period in 2019.
Engineering and Development Expense. Engineering and development expense for the year ended December 31, 2020 decreased by $1.1 million, or 22%, to $3.7 million, or 16% of net revenue, as compared with $4.8 million, or 13% of net revenue, for the same period in 2019. The decrease was primarily related to decreased payroll and consulting-related expense of $0.8 million, and operating supplies expense and other of $0.3 million as compared to the same period in 2019. We expect to continue our investment in engineering and development activity.
Non-Operating Income (Loss)
Gain (Loss) on Foreign Currency Transactions. We recognized a loss of $21 thousand on foreign currency transactions for the year ended December 31, 2020 compared to a $0.1 million loss for the same period in 2019, due to exchange rate fluctuations primarily between the U.S. dollar and the Euro.
Interest Expense, Net. Net interest expense increased by $0.2 million to $2.4 million for the year ended December 31, 2020 compared to $2.2 million of net interest expense for the same period in 2019. During 2019, the increase in interest expense was the result of the interest relating to the additional $2.5 million of principal amount drawn from the $12.5 million loan under the five-year secured Credit Agreement entered into with SWK on November 9, 2018 (“SWK Loan”).
Other (Income) Expense, Net. Other (Income) Expense for the year ended December 31, 2020, is comprised of a $5.8 million gain on the change in fair value to the 45,000,000 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 $0.1 million for the year ended December 31, 2020, an increase of $0.2 million as compared with our benefit for income taxes of $44 thousand for the same period in 2019. The increase in our provision for 2020 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 $16.8 million for the year ended December 31, 2020 compared to a net loss of $17.9 million for the same period in 2019.
Liquidity and Capital Resources
The Company has reported losses from operations of $16.4 million, $18.5 million, and $15.6 million for the years ended December 31, 2021, 2020, and 2019, respectively, and has not generated positive net cash from operations for the same periods.
At December 31, 2021, we had $30.0 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 increase in our cash and cash equivalents by $12.4 million from December 31, 2020 was primarily due to cash provided by financing activities of $30.0 million, partially offset by cash used in operating activities of $16.7 million and cash used in investing activities of $0.7 million. The $16.7 million of net cash used in operating activities in 2021 was primarily driven by our net loss of $16.2 million during the year.
At December 31, 2021, we had $35.5 million in working capital. Our principal sources of liquidity consisted of $30.0 million in cash and cash equivalents and $4.2 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.
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 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 intend 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.
Revolving Credit Facility
The information set forth in Note 6 - Debt - Lines of Credit - Pacific Mercantile Bank is hereby incorporated herein by reference.
Paycheck Protection Program Loan
The information set forth in Note 6 - Debt - Paycheck Protection Program 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
$
(16,710
)
$
(12,795
)
$
(12,746
)
Investing activities
(707
)
(96
)
(207
)
Financing activities
29,954
24,349
10,721
Effect of exchange rates on cash
(238
)
(23
)
Net change in cash and cash equivalents
$
12,299
$
11,775
$
(2,255
)
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.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
Net cash used in operating activities consisted of our net loss, adjusted for our non-cash charges, plus or minus working capital changes. Cash used in operating activities for the year ended December 31, 2020 totaled $12.8 million and was primarily comprised of our net loss of $16.8 million and a gain on the change in fair value of the July 2020 Warrants of $5.9 million, partially offset by non-cash adjustments for depreciation and amortization expenses of $0.5 million, stock-based compensation expenses of $3.4 million, our provision for bad debt of $1.3 million, inventory disposals of $1.3 million, issuance costs for the July 2020 Warrants of $1.6 million, and a net increase in our operating assets and liabilities. The net increase in our operating assets and liabilities was primarily due to a $4.3 million decrease in accounts receivable primarily due to the impact of the COVID-19 pandemic on our revenues, partially offset by a decrease in accounts payable and accrued liabilities of $2.1 million.
Cash used in investing activities for the year ended December 31, 2020 was minimal and primarily driven by our capital expenditures related to the relocation of our headquarters and manufacturing facility.
Net cash provided by financing activities for the year ended December 31, 2020 was $24.3 million primarily due to the funds borrowed on the PPP Loan and the sale of common stock from our registered direct private placement and sale of preferred stock. See Note 6 - Debt and Note 8 - Redeemable Preferred Stock and Stockholders’ Equity for additional information.
The $0.3 million effect of exchange rate on cash for the year ended December 31, 2020 was due to a recognized gain on foreign currency transactions, primarily driven by changes in the Euro during the year ended December 31, 2019.
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 $1.1 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. Future minimum rent payments under this lease are approximately $1.6 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 November 18, 2021 for total outstanding principal of $14.3 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, 2021. 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, 2021.
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
$
$
1,233
$
$
-
$
2,332
Purchase obligations
18,309
-
-
18,870
Loan interest (1)
1,494
2,610
1,864
6,051
Loan principal
-
4,900
9,404
14,450
Total
$
20,413
$
9,304
$
11,757
$
$
41,703
(1)estimated using LIBOR rates as at December 31, 2021
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(A)(4)(ii).

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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 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 has concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2021.
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, 2021.
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, 2021 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 2022 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 and May 13, 2020, 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. Although the increase of 24,700,000 in the number of shares of BIOLASE common stock available for issuance under the 2018 Plan was approved by the stockholders on June 11, 2021, the proposal to amend BIOLASE's certificate of incorporation to increase the number of authorized shares of BIOLASE common stock was not approved by stockholders at the meeting. Therefore, the shares available for issuance under the 2018 Plan only increased by the number of remaining shares authorized for issuance.
Under the terms of the 2018 Plan, approximately 36,921,000 shares of BIOLASE common stock are available for issuance; however, because the increase in the number of authorized shares under the certificate of incorporation was not approved by stockholders at the 2021 annual meeting, only approximately 2.5 million shares are available for future grants as of the date of this filing.
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, 2021 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 (1)
Equity Compensation Plan Approved
by Stockholders
2,784,000
$
2.60
24,664,000
Equity Compensation Plan Not Approved
by Stockholders
-
-
-
Total
2,784,000
$
2.60
24,664,000
(1)Only 2,496,200 shares can be issued under the 2018 Plan until our certificate of incorporation is amended to provide additional authorized shares of common stock.

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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, 2021 and 2020
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Redeemable Preferred Stock and Stockholders’ Equity for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019
Notes to Consolidated Financial Statements
(2)Financial Statement Schedule:
Schedule II - Consolidated Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2021, 2020, and 2019
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.