NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

The Company

BIOLASE, Inc. (“BIOLASE” and, together with its consolidated subsidiaries, the “Company”) is a leading provider of advanced laser systems for the dental industry. The Company develops, manufactures, markets, and sells laser systems that provide significant benefits for dental practitioners and their patients. The Company’s proprietary systems allow dentists, periodontists, endodontists, pediatric dentists, oral surgeons, and other dental specialists to perform a broad range of minimally invasive dental procedures, including cosmetic, restorative, and complex surgical applications. The Company’s laser systems are designed to provide clinically superior results for many types of dental procedures compared to those achieved with drills, scalpels, and other conventional instruments. Potential patient benefits include less pain, fewer shots, faster healing, decreased fear and anxiety, and fewer appointments. Potential practitioner benefits include improved patient care and the ability to perform a higher volume and wider variety of procedures and generate more patient referrals.

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of BIOLASE and its wholly-owned subsidiaries and have been prepared on a basis consistent with the December 31, 2023 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments and the elimination of all material intercompany transactions and balances, necessary to fairly present the information set forth therein. The unaudited condensed consolidated financial statements do not include all the footnotes, presentations, and disclosures normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements.

The unaudited condensed consolidated results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results for the full year. The December 31, 2023 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2023 included in included in BIOLASE’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 21, 2024 (the “2023 Form 10-K”).

Bankruptcy

As previously disclosed, on October 1, 2024 the Company and its direct domestic subsidiaries filed voluntary petitions for relief (the "Bankruptcy Petitions") under chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Company will continue to operate its businesses as "debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In addition, the Company filed a motion seeking approval for certain procedures relating to the marketing and auction (if necessary) of all or some of the Company's assets, including approval of an Asset Purchase Agreement (as defined below) and certain bidding procedures for the sale of the Transferred Assets (as defined below) and other assets (the "Bidding Procedures").

In addition, as previously disclosed, on September 30, 2024 the Company entered into a "stalking horse" asset purchase agreement (the "Asset Purchase Agreement") with Sonendo, Inc. ("Sonendo"), a Delaware corporation, pursuant to which Sonendo agreed to acquire substantially all of the Company's assets (the "Transferred Assets"). The acquisition by Sonendo pursuant to the Asset Purchase Agreement is subject to approval of the Bankruptcy Court following an auction, if necessary, to solicit higher or otherwise better bids. Other interested bidders are permitted to participate in the auction if they submit qualifying bids that are higher or otherwise better than the Asset Purchase Agreement.

Under the Asset Purchase Agreement, Sonendo agreed to acquire the Transferred Assets from the Company for (a) $14.0 million in cash paid at closing, subject to working capital adjustments; plus (b) assumption of certain Assumed Liabilities (as defined in the Asset Purchase Agreement); plus (c) the Delaware Litigation Settlement Value (as defined in the Asset Purchase Agreement). The Asset Purchase Agreement includes customary representations and warranties and various customary covenants under the circumstances that are subject to certain limitations, including, without limitation, a break-up fee, expense reimbursement and the right to designate executory contracts and unexpired leases to assume or reject.

On October 17, 2024, the Bankruptcy Court entered an order, which, among other things, approved the Bidding Procedures and the designation of Sonendo as the “stalking horse” bidder.

On November 4, 2024, the Company commenced the auction for the sale of the Transferred Assets (the “Auction”) pursuant to the Bidding Procedures. Following the completion of the Auction, the Company announced that the bid submitted by MegaGen Implant Co., LTD (“MegaGen”) for (a) $20.50 million in cash paid at closing, subject to working capital adjustments; plus (b) assumption of certain Assumed Liabilities, was the successful bid (the “Successful Bid”), and the bid submitted by Sonendo, which was increased from its prior bid to include (a) $19.95 million in cash paid at closing, subject to working capital adjustments; plus (b) assumption of certain Assumed Liabilities; plus (c) the Delaware Litigation Settlement Value, was the backup bid. The Successful Bid is subject to entry into definitive documentation between the Company and MegaGen. A hearing to consider approval of the results of the Auction is scheduled to take place on November 12, 2024.

The filing of the Bankruptcy Petitions constituted an event of default that accelerates the Company’s obligations under the following agreements: that certain Credit Agreement, dated November 9, 2018 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) by and among the Company, the lender parties thereto (each a “Lender” and together, the “Lenders”), and SWK; and those certain standard loan documents required for an unsecured loan, dated as of May 22, 2020 (the “SBA Loan”) by and among the Company and the U.S. Small Business Administration (collectively, the “Financial Obligation Agreements”). The Financial Obligation Agreements provide that as a result of the Bankruptcy Petitions, all obligations to pay any debts, principal, interest, fees, expenses, and other amounts due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the Financial Obligation Agreements are automatically stayed as a result of the Bankruptcy Petitions, and the creditors’ rights of enforcement in respect of the Financial Obligation Agreements are subject to the applicable provisions of the Bankruptcy Code.

Prior to the filing of the Bankruptcy Petitions, the Company incurred $1.2 million in legal and financial advisory services as a result of receiving a Default Notice from our term loan lender, SWK Funding LLC, entering into a Forbearance Agreement, and preparing for the Bankruptcy Petitions. Due to these charges being incurred prior to the filing of the Bankruptcy Petitions, these expenses are presented as non-operating other loss on the Consolidated Statement of Operations and Comprehensive Loss.

DIP Financing

In connection with the Bankruptcy Petitions, the Company filed a motion seeking Bankruptcy Court approval of a debtor-in-possession ("DIP") financing on the terms set forth in that certain Terms and Conditions of Proposed Senior Secured, Super-Priority Debtor-in-Possession Credit Facility (the “DIP Term Sheet”), by and among the Company, as a borrower, and SWK Funding LLC ("SWK"), as DIP Lender and Agent. The DIP Term Sheet provides for a senior secured super-priority debtor-in-possession financing (the “DIP Financing”) in an aggregate amount of no less than $2.5 million. The DIP Financing will become available up to an amount of $1.43 million upon the satisfaction of customary conditions precedent thereto, including the entry of an order of the Bankruptcy Court approving the DIP Financing on an interim basis. Subject to entry of an order of the Bankruptcy Court approving the DIP Financing on a final basis, the DIP Obligations (as defined in the DIP Term Sheet) will include $2,500,000 advanced by SWK to the Debtors between September 3, 2024, and September 30, 2024.

The proceeds of the DIP Financing will be used by the Company to (a) fund, after application of all other available cash, post-petition operating expenses and working capital needs of the Company, including, but not limited to, those activities required to remain in, or return to, compliance with laws in accordance with 28 U.S.C. § 1930; (b) pay interest, fees and expenses to SWK in accordance with the DIP Term Sheet (whether or not such amounts are reflected in the Budget (as defined in the DIP Term Sheet)); (c) fund fees and expenses incurred in connection with the 363 Sale (as defined in the DIP Term Sheet); (d) pay permitted prepetition claims and adequate protection payments, if any; (e) pay Professional Fees (as defined in the DIP Term Sheet) provided for in the Budget, including funding of the Carve Out (as defined in the DIP Term Sheet); and (f) pay other costs and expenses of administration of the chapter 11 cases.

The maturity date of the loans made under the DIP Financing is the date that is one hundred-twenty (120) days after the Petition Date, or such later date to which SWK consents in writing.

Subject to certain exceptions, the DIP Financing will be secured by a first priority perfected priming security interest in all of the assets of the Company. The security interests and liens are subject only to certain carve-outs and certain permitted liens, as set forth in the DIP Term Sheet. The DIP Financing is subject to certain milestones, customary covenants, and events of default as set forth in the DIP Term Sheet.

Reverse Stock Split

At the annual meeting of stockholders held on May 2, 2024 (the "2024 Annual Meeting"), BIOLASE stockholders approved an amendment to BIOLASE’s Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), to effect a reverse stock split of BIOLASE common stock, par value $0.001 per share (the “common stock”), at a ratio between one-for-two (1:2) and

one-for-fifty (1:50) with the ratio to be determined at the discretion of the Board. No official action has been taken to put this reverse stock into effect.

Liquidity and Management’s Plans - Going Concern

The Company incurred losses from operations and used cash in operating activities for the three and nine months ended September 30, 2024 and for the years ended December 31, 2023 and 2022. The Company’s recurring losses, level of cash used in operations, need for additional capital, along with uncertainties surrounding the Company’s ability to raise additional capital, especially in light of the fact that our common stock is no longer traded on the Nasdaq, which makes it harder to attract investors and limits the types of financings that can be conducted, and the filing of the Bankruptcy Petitions on October 1, 2024, raise substantial doubt about the Company’s ability to continue as a going concern. As such, the financial statements contain certain adjustments that are necessary as the Company is unable to continue as a going concern, which includes the reclassification of certain long term liabilities as current.

As of September 30, 2024, the Company had working capital deficit of approximately $11.4 million with the deficit primarily due to the SWK Loan (as defined below) that is set to mature in May 2025. The Company’s principal sources of liquidity as of September 30, 2024 consisted of approximately $3.4 million in cash and cash equivalents and $3.5 million of net accounts receivable. As of December 31, 2023, the Company had working capital of approximately $5.2 million, $6.6 million in cash and cash equivalents and $5.5 million of net accounts receivable. The decrease in cash and cash equivalents since December 31, 2023 was primarily due to a net loss of $10.7 million and principal payments on the Company's term loan of $0.9 million, partially offset by net proceeds of $5.8 million from the February 2024 public offering, a $2.5 million bridge loan from SWK as part of the Forbearance Agreement, $0.4 million in proceeds from the disposal of property, plant, and equipment, and $0.3 million in proceeds from the exercise of preferred share warrants.

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, any acquisitions that the Company may pursue, and the outcome of the Bankruptcy Petitions. The Company expects that it will be required to raise capital through either equity or debt offerings. The Company cannot provide assurance that it will be able to successfully enter into any such equity or debt financings in the future or that the required capital would be available on acceptable terms, if at all, or that any such financing activity would not be dilutive to its stockholders.