NOTE 4—STOCKHOLDERS’ EQUITY

Stock-Based Compensation

The Company currently has one stock-based compensation plan, the 2002 Stock Incentive Plan (as amended effective as of May 26, 2004, November 15, 2005, May 16, 2007, May 5, 2011, June 6, 2013, October 30, 2014, April 27, 2015, and May 6, 2016) (the “2002 Plan”), which will expire on May 5, 2019. Persons eligible to receive awards under the 2002 Plan include officers, employees, and directors of the Company, as well as consultants. As of March 31, 2018, a total of 15.6 million shares of BIOLASE common stock have been authorized for issuance under the 2002 Plan, of which 4.0 million shares of BIOLASE common stock have been issued pursuant to options that were exercised and restricted stock units (“RSUs”) that were settled in common stock, 10.8 million shares of BIOLASE common stock have been reserved for outstanding options and unvested RSUs, and 0.8 million shares of BIOLASE common stock remain available for future grants.

The Company recognized stock-based compensation expense of $0.7 million and $0.4 million, for the three months ended March 31, 2018 and 2017, respectively, based on the grant-date fair value.  Stock-based compensation expense for the three months ended March 31, 2018 and 2017 includes the reversal of $0.0 million and $0.4 million, respectively, resulting from the reassessment of certain performance based equity awards. The net impact of stock-based compensation expense to earnings was $(0.01), and $(0.01) per basic and diluted share for the three months ended March 31, 2018 and 2017, respectively. At March 31, 2018, the Company had approximately $3.3 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements. The Company expects that cost to be recognized over a weighted-average period of 2.0 years.  

The following table summarizes the income statement classification of compensation expense associated with share-based payments (in thousands):

 

 

The stock option fair values, under the 2002 Plan, were estimated using the Black-Scholes option-pricing model with the following assumptions:

 

A summary of option activity under the 2002 Plan for the three months ended March 31, 2018 is as follows (in thousands, except per share data):  

 

(1) The intrinsic value calculation does not include negative values. This can occur when the fair market value on the reporting date is less than the exercise price of the grant.

 

A summary of unvested stock option activity under the 2002 Plan for the three months ended March 31, 2018 is as follows (in thousands, except per share data):

 

 

Cash proceeds, along with fair value disclosures related to grants, exercises, and vested options under the 2002 Plan are as follows for the three months ended March 31 (in thousands, except per share amounts): 

 

 

(1) Excess tax benefits received related to stock option exercises are presented as financing cash inflows. The Company currently does not receive a tax benefit related to the exercise of stock options due to the Company’s net operating losses.

(2) The intrinsic value of stock options exercised is the amount by which the market price of the stock on the date of exercise exceeded the market price of the stock on the date of grant.

Effective January 25, 2018, the Compensation Committee of the BIOLASE board of directors (the “Board”) awarded 1.8 million non-qualified stock options to purchase shares of BIOLASE common stock to certain employees of the Company.  These awards were valued at $0.42 per share, the closing market price of BIOLASE common stock on the grant date, and expire 10 years from the grant date.  The options vest ratably over the 36-month period, commencing on February 25, 2018.

Restricted Stock Units

Effective January 26, 2018, the Board issued 200,000 RSUs to the Company’s President and Chief Executive Officer. This award was valued at $0.40 per share, the closing market price of BIOLASE common stock on the grant date, and will vest upon the achievement of specific annual Company performance criteria.

 

A summary of unvested RSU activity under the 2002 Plan for the three months ended March 31, 2018 is as follows (in thousands, except per share amounts): 

 

Warrants

The Company issues warrants to acquire shares of BIOLASE common stock as approved by the Board.  A summary of warrant activity for the three months ended March 31, 2018 is as follows (in thousands, except exercise price amounts): 

 

On March 6, 2018, in connection with the execution of the Business Financing Agreement, the Company issued to Western Alliance warrants (the “Western Alliance Warrants”) to purchase up that number of shares of BIOLASE common stock equal to $120,000 divided by the applicable exercise price at the time such warrants are exercised.  The Western Alliance Warrants are fully vested and exercisable.  The Western Alliance Warrants may be exercised with a cash payment from Western Alliance, or, in lieu of a cash payment, Western Alliance may convert the warrants into a number of shares, in whole or in part. The initial exercise price of the warrants was $0.47 per share, which was the closing market price of BIOLASE common stock on March 6, 2018.  See Note 9 – Lines of Credit for further discussion.

Net Loss Per Share – Basic and Diluted

Basic net income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted-average number of shares of BIOLASE common stock outstanding for the period. In computing diluted net income (loss) per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities.

 

Outstanding stock options, RSUs and warrants to purchase approximately 18.8 million shares were not included in the calculation of diluted loss per share for the three months ended March 31, 2018, as their effect would have been anti-dilutive.  For the same 2017 period, anti-dilutive outstanding stock options and warrants to purchase 22.9 million shares were not included in the computation of diluted loss per share.