Basis of Presentation
|12 Months Ended|
Dec. 31, 2019
|Accounting Policies [Abstract]|
|Basis of Presentation||
NOTE 1 — BASIS OF PRESENTATION
BIOLASE, Inc. (“BIOLASE” and, together with its consolidated subsidiaries, the “Company”) incorporated in Delaware in 1987, is a leading provider of advanced laser systems for the dental industry that develops, manufacture, markets, and sells laser systems that provide significant benefits for dental practitioners and their patients.
Use of Estimates
The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires the Company to make estimates and assumptions that affect amounts reported in the consolidated financial statements and the accompanying notes. Significant estimates in these consolidated financial statements include allowances on accounts receivable, inventory, and deferred taxes, as well as estimates for accrued warranty expenses, goodwill and the ability of goodwill to be realized, revenue deferrals, effects of stock-based compensation and warrants, contingent liabilities, and the provision or benefit for income taxes. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ materially from those estimates.
Fair Value of Financial Instruments
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 fair 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.
The Company’s financial instruments, consisting of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, and SWK Loan (as defined below), approximate fair value because of the liquid or short-term nature of these items or market interest rates as of December 31, 2019.
Reverse Stock Split
At the Company’s annual meeting of stockholders on May 9, 2018 (the “2018 Annual Meeting”), the Company’s stockholders approved an amendment to its Restated Certificate of Incorporation to effect a reverse stock split of its common stock, at a ratio ranging from one-for-five to one-for-fifteen, with the final ratio to be determined by the Company’s board of directors (the “Board”). Immediately after the 2018 Annual Meeting, the Board approved a one-for-five (1:5) reverse stock split of the outstanding shares of the BIOLASE common stock. On May 10, 2018, the Company filed an amendment (the “Fourth Amendment”) to its Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the reverse stock split and to reduce the authorized shares of common stock from 200,000,000 shares to 40,000,000 shares. Except as the context otherwise requires, all current and prior year share numbers (including common stock warrants) and share price amounts (including exercise prices and closing market prices) contained in these audited financial statements and notes thereto reflect the one-for-five reverse stock split. Additionally, in 2018 the Company recorded a reclassification of $0.1 million between common stock and additional paid-in capital, equal to the reduction in par value.
Concentration of Credit Risk, Interest Rate Risk and Foreign Currency Exchange Rate
Financial instruments which potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents, restricted cash, and trade accounts receivable. The Company maintains its 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, management performs ongoing credit evaluations of customers’ financial condition and maintains relationships with the Company’s customers that allow management to monitor current changes in business operations so the Company can respond as needed. The Company does not, generally, require customers to provide collateral before it sells them its products. However, the Company has required certain distributors to make prepayments for significant purchases of products.
Substantially all of the Company’s revenue is denominated in U.S. dollars, including sales to international distributors. Only a small portion of its revenue and expenses is denominated in foreign currencies, principally the Euro and Indian Rupee. The Company’s foreign currency expenditures primarily consist of the cost of maintaining offices, consulting services, and employee-related costs. During the years ended December 31, 2019, 2018, and 2017, the Company did not enter into any hedging contracts. Future fluctuations in the value of the U.S. dollar may affect the price competitiveness of the Company’s products outside the U.S.
Liquidity and Management’s Plans
The Company has reported losses from operations of $15.6 million, $20.9 million, and $18.0 million for the years ended December 31, 2019, 2018, and 2017, respectively, and has not generated cash from operations for the years ended December 31, 2019, 2018, and 2017. During the year ended December 31, 2017, the principal sources of liquidity for the Company were its net proceeds from the December 5, 2017, April 18, 2017 and August 8, 2017 sales by the Company of $11.4 million, $10.2 million, and $9.5 million, respectively, of unregistered shares of the Company’s equity securities. During the year ended December 31, 2018, the Company also received liquidity from the Credit Agreement (as defined and described in Note 6) with SWK Funding, LLC which provided borrowings of $12.5 million but required the repayment of the Business Financing Agreement (as defined and described in Note 6) with Western Alliance Bank, which provided borrowings up to $6.0 million.
As of December 31, 2019, the Company was not in compliance with debt covenants of the Credit Agreement with SWK Funding, LLC and obtained a waiver as part of a Fourth Amendment to Credit Agreement (“Fourth Amendment”) in March 2020. The Company does not anticipate it will regain compliance by March 31, 2020, therefore the Company has reclassified the Term Loan from a long-term liability to a current liability in the consolidated balance sheets. The details of the Fourth Amendment are contained in Note 11 to these consolidated financial statements.
On October 28, 2019, BIOLASE, Inc. (the “Company”) entered into a loan and security agreement with Pacific Mercantile Bank, as lender , which provides for a revolving line of credit. See Note 6 for additional information.
On October 29, 2019, BIOLASE consummated the sale of 7,820,000 shares of its common stock at a price to the public of $0.5750 per share in a public offering and in addition, granted the underwriters a 30-day over-allotment option to purchase up to an additional 1,173,000 shares of common stock at the public offering price, less the underwriting discount.
On October 29, 2019, BIOLASE also sold to existing to investors 69,565 unregistered shares of the Company’s Series E Convertible Preferred Stock (“Series E Preferred Stock”) at a price of $57.50 per share in a concurrent private placement. Each share of preferred stock is automatically convertible into 100 shares of common stock at a conversion price equal to $0.5750 per share, subject to customary anti-dilution adjustments, at such time as BIOLASE increases the amount of its authorized common stock to permit the full conversion.
At the closing and after exercise of the underwriter’s overallotment option, BIOLASE received approximately $4.2 million in net proceeds from the common stock offering, after deducting the underwriting discount, and approximately $4.0 million in gross proceeds from the concurrent private placement, resulting in total net proceeds from the offering and private placement of approximately $8.2 million.
On November 5, 2019, the underwriters exercised their over-allotment option to purchase an additional 1,173,000 shares of common stock at a share price of $0.5750 per share for approximately $0.6 million in net proceeds, after deducting the underwriting discount.
Additional capital requirements may depend on many factors, including, among other things, the rate at which 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 enter into any such equity or debt financings in the future or that the required capital will be available on acceptable terms, if at all, or that any such financing activity will not be dilutive to its stockholders.
The Company’s recurring losses, level of cash used in operations, potential need for additional capital and the uncertainties surrounding its ability to meet its debt covenants and service its debt, or raise additional capital, raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Additionally, there are uncertainties surrounding the impact of COVID-19 on the Company’s business and operations. The details of these uncertainties are contained in Note 11 to these consolidated financial statements.
At December 31, 2019, the Company had approximately $14.7 million in working capital. The Company’s principal sources of liquidity at December 31, 2019 consisted of approximately $6.1 million in cash, cash equivalents, and restricted cash, and $8.8 million of net accounts receivable.
In order for the Company to continue operations beyond the next 12 months and be able to discharge its liabilities and commitments in the normal course of business, the Company must increase sales of its products, control or potentially reduce expenses and establish profitable operations in order to generate cash from operations or obtain additional funds when needed.
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.
The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef