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Accounting Policies (Policies)
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3 Months Ended |
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Mar. 31, 2013
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| Basis of Presentation |
Basis of Presentation The unaudited consolidated financial statements include the accounts of BIOLASE, Inc. and its wholly-owned subsidiaries and have been prepared on a basis consistent with the December 31, 2012 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. These unaudited, interim, 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. Certain amounts have been reclassified to conform to current period presentations. The consolidated results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2012, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”) filed with the Securities and Exchange Commission on March 15, 2013. |
| Use of Estimates |
Use of Estimates The preparation of these consolidated financial statements in conformity with 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, indefinite-lived intangible assets, and the ability of goodwill to be realized, revenue deferrals for multiple element arrangements, 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. |
| Update to Significant Accounting Policies |
Update to Significant Accounting Policies There have been no material changes to the Company’s significant accounting policies which are described in the Company’s 2012 Form 10-K, except as noted below. See Note 2 – Recent Accounting Pronouncements for adoption of updated authoritative guidance. |
| Excise Tax |
Excise Tax Commencing January 1, 2013, certain of the Company’s product sales are subject to the newly enacted medical device excise tax. The Company has included such taxes separately as a component of operating expense. |
| Fair Value of Financial Instruments |
Fair Value of Financial Instruments The Company’s financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate fair value because of the short maturity of these items. Financial instruments consisting of lines of credit approximate fair value, as the interest rates associated with the lines of credit approximates the market rates for debt securities with similar terms and risk characteristics. 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 should be based on assumptions that market participants would use, including a consideration of nonperformance risk. Level 1 measurement of fair value is quoted prices in active markets for identical assets or liabilities. |
| Liquidity and Management's Plans |
Liquidity and Management’s Plans The Company suffered recurring losses from operations during the three years ended December 31, 2012. Although the Company’s revenues increased during the quarter ended March 31, 2013 compared to the same period in 2012, the Company still incurred a loss from operations and a net loss. At March 31, 2013, the Company had approximately $5.2 million in working capital. The Company’s principal sources of liquidity at March 31, 2013 consisted of approximately $1.2 million in cash and cash equivalents, $10.6 million of net accounts receivable, and $4.7 million of available borrowings under two revolving credit facility agreements. The Company intends to improve its financial condition and ultimately improve its financial results by increasing revenues through expansion of its product offerings and continued development of its direct sales force and distributor relationships both domestically and internationally. Furthermore, to improve liquidity, management amended the Company’s lines of credit increasing the combined aggregate capacity of borrowings to $10.0 million; see Note 13 – Subsequent Events for further discussion. Management expects that the working capital and borrowings available under the lines of credit should be sufficient to fund the requirements of the Company. Management continues to monitor the liquidity of the Company and is prepared to implement cash saving measures in the event that its plans to grow revenue do not materialize in the timeline anticipated by management. |
| Newly Adopted Accounting Standards |
Newly Adopted Accounting Standards In July 2012, the FASB simplified guidance for testing for impairment of indefinite-lived intangible assets other than goodwill. The changes are intended to reduce compliance costs. The revised guidance allows a qualitative approach for testing indefinite-lived intangible assets for impairment, similar to the recently issued impairment testing guidance for goodwill and allows the option to first assess qualitative factors (events and circumstances) that could have affected the significant inputs used in determining the fair value of the indefinite-lived intangible asset to determine whether it is more likely than not (meaning a likelihood of more than 50 percent) that the indefinite-lived intangible asset is impaired. An organization may choose to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to calculating its fair value. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption did not have a material impact on the Company’s consolidated financial statements. In February 2013, the FASB issued guidance for reporting of amounts reclassified out of accumulated other comprehensive income. The revised guidance requires reporting the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about these amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. The guidance is effective prospectively for reporting periods beginning after December 15, 2012. The adoption did not have a material impact on the Company’s consolidated financial statements. |
| New Accounting Standards Not Yet Adopted |
New Accounting Standards Not Yet Adopted In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The revised guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The guidance is effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. Management believes that the adoption of this guidance will not have a material impact on the Company’s consolidated financial statements. |
| Inventory |
Inventory is valued at the lower of cost or market (determined by the first-in, first-out method) |
| Goodwill |
The Company conducted its annual impairment test of intangible assets and goodwill as of June 30, 2012, and determined that there was no impairment. The Company also tests its intangible assets and goodwill between the annual impairment test if events occur or circumstances change that would more likely than not reduce the fair value of the Company or its assets below their carrying amounts. No events have occurred since June 30, 2012, that would trigger further impairment testing of the Company’s intangible assets and goodwill. |
| Commitments and Contingencies |
The Company discloses material loss contingencies deemed to be reasonably possible and accrues for loss contingencies when, in consultation with its legal advisors, management concludes that a loss is probable and reasonably estimable. The ability to predict the ultimate outcome of such matters involves judgments, estimates, and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates. |
| Income Tax Uncertainties |
Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has elected to classify interest and penalties as a component of its income tax provision. For the three months ended March 31, 2013 and 2012, the Company recorded an increase of $0 and $1,000, respectively, with respect to the liability for unrecognized tax benefits, including related estimates of penalties and interest. |