Quarterly report pursuant to Section 13 or 15(d)

Redeemable Preferred Stock and Stockholders' Equity

v3.22.2
Redeemable Preferred Stock and Stockholders' Equity
6 Months Ended
Jun. 30, 2022
Temporary Equity And Equity [Abstract]  
Redeemable Preferred Stock and Stockholders' Equity

NOTE 4—REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

BIOLASE's board of directors (the "Board"), without further stockholder authorization, may authorize the issuance from time to time of up to 1,000,000 shares of the Company’s preferred stock.

Preferred Stock

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"), of BIOLASE common stock outstanding as of 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 of BIOLASE stockholders (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.

Series F Convertible Preferred Stock

On July 23, 2020, the Company consummated the sale of an aggregate of 18,000 shares of Series F Preferred Stock, par value $0.001 per share ("Series F Preferred Stock"), and 1,800,000 warrants (the “July 2020 Warrants”), with each warrant exercisable for one share of BIOLASE common stock, through a registered rights offering the Company completed on July 22, 2020 (the “Rights Offering”). Each share of Series F Preferred Stock was convertible at the Company’s option at any time on or after July 22, 2021 or at the option of the holder at any time, into the number of shares of BIOLASE common stock determined by dividing the $1,000 stated value per share of the Series F Preferred Stock by a conversion price of $10.00 per share. Each share of Series F Preferred Stock was convertible into 100 shares of common stock, and each July 2020 Warrant entitled the holder thereof to purchase one share BIOLASE common stock at an exercise price of $10.00 per share.

In accordance with applicable accounting standards, the $18.0 million gross proceeds from the Rights Offering were allocated to the Series F Preferred Stock and the July 2020 Warrants in the amount of $2.7 million and $15.3 million, respectively. The allocation was based on the fair value of the July 2020 Warrants of $15.3 million as of the commitment date, with the residual proceeds of $2.7 million allocated to the Series F Preferred Stock.

The Series F Preferred Stock contained a beneficial conversion feature which resulted in a deemed dividend to preferred stockholders of approximately $2.7 million, upon immediate accretion. Additionally, the July 2020 Warrants were recognized as a discount to the Series F Preferred Stock. Upon conversion, including the conversion described below, this discount was accreted and also recognized as a deemed dividend to preferred stockholders in the amount of $0.2 million, $0.5 million and $14.7 million for the three months ended March 31, 2022 and the years ended December 31, 2021 and 2020, respectively.

The remaining shares of Series F Preferred Stock were converted into shares of BIOLASE common stock in the first quarter of 2022 with none outstanding as of June 30, 2022. Approximately 251 shares of Series F Preferred Stock remained outstanding as of December 31, 2021. On March 3, 2022, the Series F Preferred Stock was eliminated.

Stock-Based Compensation

2002 Stock Incentive Plan

The 2002 Stock Incentive Plan (as amended effective as of May 26, 2004, November 15, 2005, May 16, 2007, May 5, 2011, June 6, 2013, October 30, 2014, April 27, 2015, and May 6, 2017, the “2002 Plan”) was replaced by the 2018 Plan (as defined below) with respect to future equity awards. Persons eligible to receive awards under the 2002 Plan included officers, employees, directors of the Company, and consultants to the Company. As of June 30, 2022, a total of 124,400 shares have been authorized for issuance under the 2002 Plan, of which approximately 41,000 shares of BIOLASE common stock have been issued pursuant to options that were exercised and restricted stock units ("RSUs") that were vested, approximately 24,000 shares of common stock have been reserved for options that are outstanding, and no shares of common stock remain available for future grants.

2018 Stock Incentive Plan

At the 2018 annual meeting of stockholders, the Company’s stockholders approved the 2018 Long-Term Incentive Plan (as amended effective as of September 21, 2018, May 15, 2019, May 13, 2020, 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.

Under the terms of the 2018 Plan, approximately 0.3 million shares of BIOLASE common stock are available for issuance as of June 30, 2022. As of June 30, 2022, a total of 1.5 million shares of common stock have been authorized for issuance under the 2018 Plan, of which approximately 0.9 million shares of the Company’s common stock have been reserved for issuance upon the exercise of outstanding options or stock appreciation rights ("SARS"), and/or settlement of unvested RSUs or phantom awards under the 2018 Plan.

The Company recognized stock-based compensation expense of $0.9 million and $1.1 million for the three and six months ended June 30, 2022, respectively, and $0.4 million and $1.3 million for the three and six months ended June 30, 2021, respectively. As of June 30, 2022 and 2021, the Company had approximately $2.0 million and $0.4 million, respectively, of total unrecognized compensation expense, net of estimated forfeitures, related to unvested share-based compensation arrangements. The Company expects that expense to be recognized over a weighted-average period of 1.2 years. As of June 30, 2022 and December 31, 2021, $0.5 million and $0.0 million of the total stock compensation cost related to performance-based awards was recognized as a liability, respectively.

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

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Cost of revenue

 

$

93

 

 

$

35

 

 

$

113

 

 

$

113

 

Sales and marketing

 

 

213

 

 

 

108

 

 

 

312

 

 

 

229

 

General and administrative

 

 

109

 

 

 

168

 

 

 

151

 

 

 

718

 

Engineering and development

 

 

475

 

 

 

55

 

 

 

524

 

 

 

237

 

Total

 

$

890

 

 

$

366

 

 

$

1,100

 

 

$

1,297

 

 

The fair values of stock options granted in the period were estimated using the Black-Scholes option-pricing model with the following assumptions:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Expected term (years)

 

 

 

 

N/A

 

 

 

 

 

 

6.1

 

Volatility

 

 

%

 

 

%

 

 

%

 

 

110

%

Annual dividend per share

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Risk-free interest rate

 

 

%

 

 

%

 

 

%

 

 

0.69

%

 

A summary of option activity for the six months ended June 30, 2022 is as follows (in thousands, except per share data):

 

 

 

 

 

 

Weighted

 

 

Weighted
Average
Remaining

 

 

 

 

 

 

 

 

 

Average

 

 

Contractual

 

 

Aggregate

 

 

 

Shares

 

 

Exercise
Price

 

 

Term
(Years)

 

 

Intrinsic
Value(1)

 

Options outstanding at December 31, 2021

 

 

70

 

 

$

62.01

 

 

 

7.1

 

 

$

15

 

Forfeited, cancelled, or expired

 

 

(1

)

 

$

80.35

 

 

 

 

 

 

 

Options outstanding at June 30, 2022

 

 

69

 

 

$

61.65

 

 

 

6.6

 

 

$

 

Options exercisable at June 30, 2022

 

 

65

 

 

$

63.54

 

 

 

6.5

 

 

$

 

Vested options expired during the period
   ended June 30, 2022

 

 

 

 

$

 

 

 

 

 

 

 

 

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

 

A summary of unvested stock option activity for the six months ended June 30, 2022 is as follows (in thousands, except per share data):

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average Grant

 

 

 

Shares

 

 

Date Fair Value

 

Unvested options at December 31, 2021

 

 

5

 

 

$

17.31

 

Granted

 

 

 

 

$

 

Vested

 

 

(1

)

 

$

23.91

 

Forfeited or cancelled

 

 

(1

)

 

$

17.03

 

Unvested options at June 30, 2022

 

 

3

 

 

$

15.22

 

 

Fair value disclosures related to grants, exercises and vested options are as follows (in thousands, except per share amounts):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Weighted-average fair value of options granted per share

 

$

 

 

$

 

 

$

 

 

$

1.07

 

Total fair value of stock options vested during the period

 

$

10

 

 

$

365

 

 

$

24

 

 

$

387

 

 

(1)
Excess tax benefits received related to stock option exercises are presented as operating 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 exercise price of the options.

Restricted Stock Units

A summary of unvested RSU activity for the six months ended June 30, 2022 is as follows (in thousands, except per share amounts):

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average Grant

 

 

 

Shares

 

 

Date Fair Value

 

Unvested RSUs at December 31, 2021

 

 

94

 

 

$

15.64

 

Granted

 

 

299

 

 

$

4.19

 

Vested

 

 

(4

)

 

$

27.10

 

Forfeited or cancelled

 

 

(5

)

 

$

16.63

 

Unvested RSUs at June 30, 2022

 

 

384

 

 

$

6.59

 

 

Warrants

The Company issues warrants to acquire shares of BIOLASE common stock as approved by the Board.

June 2022 Direct Offering and Private Placement

On June 27, 2022, the Company entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which the Company agreed to issue to the Purchasers (as defined therein), (i) in a registered direct offering, 678,745 shares of BIOLASE common stock, and pre-funded warrants to purchase 726,660 shares of BIOLASE common stock (the “June 2022 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 (each a "Common Warrant" and together with the June 2022 Pre-Funded Warrants, the “June 2022 Warrants”). The combined purchase price for one share of BIOLASE common stock and one Common Warrant was $4.625, and the combined purchase price for one Pre-Funded Warrant and one Common Warrant was $4.624. In the offering and concurrent private placement, the Company received aggregate gross proceeds of approximately $6.5 million before deducting fees to the placement agent and other transaction expenses.

Based on the terms and conditions of the June 2022 Warrants, the Company determined that equity classification was appropriate and recognized the net proceeds in excess of par of $5.8 million in Additional Paid-In Capital.

July 2020 Rights Offering

On July 23, 2020, the Company consummated the Rights Offering issuing (i) 18,000 shares of Series F Preferred Stock and (ii) 45,000,000 July 2020 Warrants with an exercise price of $10.00 per share of BIOLASE common stock. The initial fair value of the July 2020 Warrants was estimated to be at $8.50 per share of BIOLASE common stock using the Black-Scholes pricing model with an expected term of 5 years, market price of $11.00 per share, which is the last closing price of BIOLASE common stock prior to the transaction date, volatility of 109.8%, a risk free rate of 0.27% and an expected dividend yield of 0. Based on the terms and conditions of the July 2020 Warrants, the Company initially determined that liability classification was appropriate and recognized the fair value of the July 2020 Warrants as a liability. Based on the fair value of the July 2020 Warrants, the Company allocated approximately $2.7 million to the Series F Preferred Stock and $15.3 million to the July 2020 Warrants before issuance costs. Issuance costs of $1.6 million relating to the July 2020 Warrants were recognized as an expense and were recorded in Other (income) expense, net in the consolidated statement of operations for the year ended December 31, 2020.

On September 28, 2020, the warrant agreement with respect to the July 2020 Warrants was amended. The amended terms of the July 2020 Warrants meet the requirements for the July 2020 Warrants’ classification as equity. The fair value upon the amendment was estimated to be $5.25 per share of BIOLASE common stock using the Black-Scholes pricing model with an expected term of 5 years, a market price of $7.00 per share of BIOLASE common stock, which was the last closing price of BIOLASE common stock prior to the amendment date, volatility of 109.5%, a risk free rate of 0.26% and an expected dividend yield of 0. On the effective date of the amendment to the warrant agreement, the Company remeasured the fair value of the July 2020 Warrants as described above, reclassified the value of $9.5 million to equity, and recognized the change in fair value as a gain of approximately $5.8 million in the consolidated statement of operations in Other (income) expense, net for the year ended December 31, 2020.

June 2020 Registered Direct Offering and Private Placement

On June 8, 2020, the Company entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which the Company agreed to issue to the Purchasers in a registered direct offering and concurrent private placement, 10,800,000 shares of BIOLASE common stock, and warrants to purchase 10,800,000 shares of BIOLASE common stock (the “ June 2020 Warrants”) with an exercise price of $0.515 per share. The June 2020 Warrants are exercisable commencing on the date of their issuance and will expire on June 10, 2025. The combined purchase price for one share of BIOLASE common stock and one June 2020 Warrant in the offering was $16.00. The Company received aggregate gross proceeds of approximately $6.9 million in the concurrent offerings, before deducting fees to the placement agents and other transaction expenses of approximately $0.7 million.

Based on the terms and conditions of the June 2020 Warrants, the Company determined that equity classification was appropriate and recognized the values of the common stock and June 2020 Warrants in excess of par in Additional Paid-In Capital. The Company allocated the net proceeds of $6.2 million to the common stock and June 2020 Warrants based on their relative fair values. The fair value of the June 2020 Warrants was estimated to be at $10.5 per share using the Black-Scholes pricing model with an expected term of 5 years, market price of $13.5 which is the last closing price of BIOLASE common stock prior to the transaction date, volatility of 109.8% and a risk free rate of 0.45% and an expected dividend yield of 0. Based on the relative fair value of the common stock and the June 2020 Warrants, the Company allocated approximately $3.9 million to the common stock and $3.0 million to the June 2020 Warrants before issuance costs.

Western Alliance Warrants

On March 6, 2018, in connection with the execution of a business financing agreement with Western Alliance Bank ("Western Alliance"), the Company issued to Western Alliance warrants (the “Original Western Alliance Warrants”) to purchase up to the 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 Original Western Alliance Warrants are fully vested and exercisable. The Original 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 $58.75 per share. On September 27, 2018, the Company entered into the Second Modification Agreement to amend the Original Business Financing Agreement. In connection with the Second Modification Agreement, the Original Western Alliance Warrants were terminated, and the Company issued new warrants (the “Western Alliance Warrants”) to purchase up to the number of shares of BIOLASE common stock equal to $120,000 divided by the exercise price of $53.25, which was the closing price of BIOLASE common stock on September 27, 2018 (as adjusted for the Reverse Stock Split). The Western Alliance Warrants were immediately exercisable and expire on September 27, 2028. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The sale of common stock in the second quarter of 2020 triggered an adjustment to the exercise price to approximately $15.00 per share. The impact of the adjustment to the exercise price was not material.

SWK Warrants

On November 9, 2018, in connection with the Credit Agreement (as defined below), the Company issued to SWK warrants (the "SWK Warrants") to purchase up to 14,881 shares of BIOLASE common stock. The SWK Warrants were immediately exercisable and expire on November 9, 2026. The initial exercise price of the SWK Warrants was $33.50 per share, which was the average closing price of BIOLASE common stock for the ten trading days immediately preceding November 9, 2018 (as adjusted for the Reverse Stock Split). These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The fair value of the SWK Warrants was estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 8 years; volatility of 81.79%; annual dividend per share of $0.00; and risk-free interest rate of 3.13%; and resulted in an estimated fair value of $0.4 million.

In November 2019, the SWK Warrants were consolidated and the exercise price was adjusted to $25.00 per share in connection with an amendment to the Credit Agreement, and in March 2020, the exercise price was adjusted a second time to $12.25. The impact of both reprice events was de minimis to the consolidated financial statements. In connection with the Fifth Amendment, the Company entered into a Third Amendment to the SWK Warrant Agreement. Under this amendment, the Company granted to SWK 2,551 additional common stock warrants at an exercise price of approximately $9.75. All other terms and conditions to the additional warrants were the same as those previously granted. The Company also revised the exercise price of the 19,488 common stock warrants held by SWK to $9.75. The Company measured the fair value of the 2,551 warrants granted using the Black-Scholes option-pricing model. The fair value of the additional warrants and the aggregate impact of the exercise price adjustments in previous amendments to the Warrant Agreement were less than $0.1 million and not material to the consolidated financial statements. Due to the repricing that occurred in the second quarter of 2020, the down round features of these warrants was not triggered by the Company’s June 2020 sale of common stock.

DPG Warrants

On November 14, 2018, in connection with the SWK Loan, the Company paid a finder’s fee to Deal Partners Group ("DPG") of $0.4 million cash and issued warrants to purchase up to 11,194 shares of BIOLASE common stock (the “DPG Warrants”). The DPG Warrants were exercisable immediately, and expire on November 9, 2026. The initial exercise price of the DPG Warrants was $33.50, which was the average closing price of the Company’s common stock for the ten trading days immediately preceding November 9, 2018 (as adjusted for the Reverse Stock Split). These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The fair value of the DPG Warrants of $0.3 million was estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 8 years; volatility of 81.79%; annual dividend per share of $0.00; and risk-free interest rate of 3.13%. In May 2019 the Company issued 5,989 warrants to purchase BIOLASE common stock at a weighted average exercise price of $54.25 to SWK and DPG.

In November 2019, the exercise price of the DPG Warrants issued on November 14, 2018 was adjusted from $33.50 per share to $22.00 per share and the exercise price of the DPG Warrants issued on May 7, 2019 was adjusted from $54.25 per share to $35.50 per share. The impact of the reprice was de minimis to the unaudited consolidated financial statements. The June 2020 sale of common stock triggered the down round features of these warrants, and in August 2020, the Company adjusted the exercise price of these warrants to $15.50 and $9.50 per share. The impact of this reprice was not material.

The value of both the SWK Warrants and the DPG Warrants was recognized as a discount on the SWK Loan and is being amortized on a straight-line basis, which approximates the effective-interest method, over the loan term of five years. Additionally, based on the adoption of ASU 2017-11 in the fourth quarter of 2018, these warrants are classified as equity in the consolidated balance sheet as of June 30, 2022 and December 31, 2021.

A summary of warrant activity for the six months ended June 30, 2022 is as follows (in thousands, except exercise price amounts):

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

Shares

 

 

Exercise
Price

 

Warrants outstanding, December 31, 2021

 

 

720

 

 

$

19.98

 

Granted or Issued

 

 

2,132

 

 

$

3.05

 

Exercised

 

 

 

 

$

 

Forfeited, cancelled, or expired

 

 

(31

)

 

$

225.00

 

Warrants outstanding at June 30, 2022

 

 

2,821

 

 

$

4.90

 

Warrants exercisable at June 30, 2022

 

 

2,821

 

 

$

4.90

 

Vested warrants expired during the period
   ended June 30, 2022

 

 

(31

)

 

$

225.00

 

 

Phantom Awards and Stock Appreciation Rights

During the six months ended June 30, 2022, the Company issued approximately 30,000 phantom RSUs in lieu of stock-settled RSUs historically granted for leadership bonuses and non-employee director service. During the year ended December 31, 2021, the Company issued approximately 400,000 phantom RSUs. The phantom RSUs have either time-based or performance-based vesting conditions and could be settled in cash in 2024 with the Company's option to settle the award in BIOLASE common stock at the sole discretion of the Board. These phantom RSUs were included as a component of long-term liability on the consolidated balance sheet and were not considered stock-based compensation due to the cash-settlement feature of the award and limitation on the number of remaining shares authorized for issuance. In the second quarter of 2022, as a result of the Reverse Stock Split, the phantom awards were reclassed to equity and included as a component of additional paid-in-capital in the amount of $0.1 million, with a portion remaining as a component of long-term liability on the consolidated balance sheet, and the expense subsequent to the remeasurement date considered stock-based compensation. The expense recognized during the three and six months ended June 30, 2022 was ($0.1 million) and $0.0 million due to decreases in fair values. As of June 30, 2022 $0.1 million was included in additional paid-in-capital and $0.1 million was included in long-term liabilities on the consolidated balance sheet. The balance included in long-term liabilities as of December 31, 2021, was $0.3 million.

During the year ended December 31, 2021, the Company issued approximately 40,000 SARs in lieu of stock-settled RSUs historically granted for non-employee director service. Upon exercise, the SARs could be settled in cash with the Company's option to settle in BIOLASE common stock at the sole discretion of the Board. These SARS were included in accrued liabilities on the consolidated balance sheet and not considered stock-based compensation due to the cash-settlement feature of the award and limitation on the number of remaining shares authorized for issuance. In the second quarter of 2022, as a result of the Reverse Stock Split, the SARs were reclassed to equity and included as a component of additional paid-in-capital on the consolidated balance sheet in the amount of $0.5 million. The expense recognized during the three and six months ended June 30, 2022 was $0.1 million and $0.3 million respectively and is included in additional paid-in-capital on the consolidated balance sheet as of June 30, 2022. The expense included in accrued liabilities on the consolidated balance sheet as of December 31, 2021 was $0.3 million.

Net Loss Per Share – Basic and Diluted

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of BIOLASE common stock outstanding for the period. In computing diluted net loss per share, the weighted average number of shares of common stock outstanding is adjusted to reflect the effect of potentially dilutive securities. Net income (loss) is adjusted for any deemed dividends to preferred stockholders to compute net income attributable to common stockholders. The pre-funded warrants were included in the calculation of diluted loss per share for the period ended June 30, 2022.

Outstanding stock options, RSUs, and warrants to purchase approximately 2.6 million and 1.0 million shares were not included in the calculation of diluted loss per share amounts for the periods ended June 30, 2022 and June 30, 2021, respectively, as their effect would have been anti-dilutive. Also excluded in the calculation of diluted loss per share amount for the three and six months ended June 30, 2021, are the 652,500 shares of BIOLASE common stock issuable upon conversion of the 261 shares of Series F Preferred Stock outstanding as of June 30, 2021.