BIOLASE, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Supplementary Balance Sheet Information

Supplementary Balance Sheet Information

12 Months Ended

Dec. 31, 2015

Balance Sheet Related Disclosures [Abstract]

Supplemental Balance Sheet Disclosures

NOTE 3 — SUPPLEMENTARY BALANCE SHEET INFORMATION

Accounts Receivable, net:

	December 31,
(in thousands):	2015		2014
Components of accounts receivable, net of allowances, are as follows:
Trade	$	8,850	$	8,887
Royalties		61		88
Other		37		29
Total receivables, net	$	8,948	$	9,004

Accounts receivable is net of allowances for doubtful accounts of approximately $1.8 million and $1.7 million and sales returns of approximately $210,000 and $110,000 at December 31, 2015 and 2014, respectively.

Inventory, net:

	December 31,
(in thousands):	2015		2014
Components of inventory, net of allowances, are as follows:
Raw materials	$	3,627	$	2,857
Work-in-process		1,379		1,348
Finished goods		7,560		8,303
Inventory, net	$	12,566	$	12,508

Inventory is net of a provision for excess and obsolete inventory totaling approximately $2.1 million and $2.4 million at December 31, 2015 and 2014, respectively.

Property, Plant, and Equipment, net:

	December 31,
(in thousands):	2015			2014
Components of property, plant, and equipment, net of depreciation, are as follows:
Building	$	203		$	226
Leasehold improvements		2,019			1,197
Equipment and computers		6,031			4,948
Furniture and fixtures		585			413
Construction in progress		1,045			4
		9,883			6,788
Accumulated depreciation		(6,314	)		(5,669	)
		3,569			1,119
Land		158			176
Property, plant, and equipment, net	$	3,727		$	1,295

The cost basis of assets held under capital lease was $590,000 and the accumulated depreciation related to assets held under capital lease was $118,000 as of December 31, 2015. There were no assets held under capital lease in 2014.

Accrued Liabilities:

	December 31,
(in thousands):	2015		2014
Components of accrued liabilities are as follows:
Payroll and benefits	$	2,303	$	1,905
Warranty accrual, current portion		1,345		930
Taxes		445		139
Accrued professional services		681		1,581
Accrued capital lease and warranty obligations - current		167		—
Accrued insurance premium		467		450
Other		498		183
Accrued liabilities	$	5,906	$	5,188

Deferred Revenue:

	December 31,
(in thousands):	2015		2014
Components of deferred revenue are as follows:
Undelivered elements (training, installation, product and support services)	$	1,608	$	952
Extended warranty contracts		1,428		1,542
Deferred royalties		261		—
Total Deferred Revenue		3,297		2,494
Less long-term amounts:
Deferred royalties		142		—
Total Deferred Revenue - Long-Term		142		—
Total Deferred Revenue - Current	$	3,155	$	2,494

In connection with the Company’s initiatives to measure and improve customer satisfaction and concurrent with the launch of WaterLase iPlus 2.0 in February 2015, the Company introduced its exclusive Practice Growth Guarantee, which is a program to assist with growth in the Company’s clients’ dental practices through training on a select number of clinical procedures and with billing and marketing support for dentists included. Consistent with the Company’s standard terms and conditions applicable to all of its products, the Practice Growth Guarantee does not give the customer the right to return purchased laser systems or receive a refund of any amount of the purchase price. However, the Practice Growth Guarantee does provide for additional training opportunities and certain billing and marketing support activities to the customer. The Company has estimated additional deferred revenue related to the Practice Growth Guarantee for all WaterLase iPlus 2.0 system sales for the year ending December 31, 2015 to be approximately $119,000.

On March 24, 2015 a patent infringement lawsuit against Fotona Proizvodnja Optoelektronskih Naprav D.D. and Fotona LLC (collectively, “Fotona”) was settled whereby the Company was to receive payments totaling $1.4 million. The Company calculated the present value of the settlement amount to be $1.2 million and allocated such amount to each significant element of the settlement on a relative fair value basis. $731,000 and $68,000 were allocated towards the recovery of the Company’s legal expenses and as settlement for the dismissal of the patent infringement lawsuit and are reflected as legal settlement and license fees and royalty revenue, respectively, on the Consolidated Statements of Operations and Comprehensive Loss. The remaining amount of $379,000 was allocated towards the three-year, non-exclusive, paid-up license in the United States market and the five-year, non-exclusive, paid-up license in markets outside of the United States which was reflected within other assets and long-term deferred revenue on the Consolidated Balance Sheets. The deferred revenue is being recognized as license revenue over the terms of the paid-up licenses. The Company has recorded $119,000 in revenue and $261,000 in deferred revenue for the year ended December 31, 2015. For additional information on litigation, see Note 7, Commitments and Contingencies.

In connection with its initiative to measure and improve customer satisfaction, the Company performed a review of its training service policies and procedures and determined that substantially all of the training service for new customers was used within nine months of the related sale transaction. Accordingly, the Company changed the period over which deferred training service revenue was being recognized from an estimated period of 24 months to nine months.

The Company accounted for this change as a change in accounting estimate which, pursuant to U.S. GAAP, was accounted for on a prospective basis effective July 1, 2014. The change resulted in a reduction of deferred revenue and a corresponding recognition of revenue totaling approximately $708,000 for the quarter ended September 30, 2014. Revenue recognized for training is included in product and services revenue in the accompanying consolidated statements of operations.