BIOLASE's board of directors (the "Board"), without further stockholder authorization, may issue from time to time up to 1,000,000 shares of the Company’s preferred stock. Of the 1,000,000 shares of preferred stock, 69,565 shares are designated as Series E Participating Convertible Preferred Stock, par value $0.001 per share (“Series E Preferred Stock”), and 18,000 shares are designated as Series F Convertible Preferred Stock, par value $0.001 per share (“Series F Preferred Stock”).

On February 10, 2021, BIOLASE issued and sold in an underwritten bought deal offering an aggregate of 14,000,000 shares of common stock at a price of $1.03 per share less underwriting discounts and commissions (the "Equity Offering"). The Company received gross proceeds of approximately $14.4 million before deducting underwriting discounts and commissions and estimated offering expenses of $1.1 million.

On July 23, 2020, the Company consummated the sale of an aggregate of 18,000 shares of Series F Preferred Stock and 45,000,000 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 is 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 $0.40 per share. Each share of Series F Preferred Stock is convertible into 2,500 shares of common stock, and each July 2020 Warrant entitles the holder thereof to purchase one share BIOLASE common stock at a conversion price of $0.40 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, with the conversion of approximately 18,000 and 17,000 Series F Preferred Stock to common stock as of September 30, 2021 and December 31, 2020 respectively. Upon conversion, this discount was accreted and also recognized as a deemed dividend to preferred stockholders in the amount of $0.5 million and $14.7 million for the nine months ended September 30, 2021 and the year ended December 31, 2020, respectively.

Approximately 251 and 882 shares of Series F Preferred Stock remained outstanding as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021 and December 31, 2020, there were no shares of Series E Preferred Stock issued and outstanding.

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. As of September 30, 2021, a total of 3,110,000 shares have been authorized for issuance under the

2002 Plan, of which approximately 1,036,00 shares of common stock have been issued pursuant to options that were exercised and restricted stock units ("RSUs") that were vested, approximately 879,000 shares of common stock have been reserved for options that are outstanding, and no shares of common stock remain available for future grants.

At the 2018 annual meeting of stockholders, the Company’s stockholders approved the 2018 Long-Term Incentive Plan (as amended, the “2018 Plan”) which was amended by Amendment No. 1 to the 2018 Plan, approved by the Company’s stockholders at a special meeting on September 21, 2018, Amendment No. 2 to the 2018 Plan, as approved by the Company’s stockholders on May 15, 2019, Amendment No. 3 to the 2018 Plan, as approved by the Company’s stockholders on May 13, 2020, and Amendment No. 4 to the 2018 Plan, as approved by the Company's stockholders on June 11, 2021. Although the increase of 24,700,000 in the number of shares of BIOLASE common stock available for issuance under the 2018 Plan was approved by the stockholders on June 11, 2021, the proposal to amend BIOLASE's certificate of incorporation to increase the number of authorized shares of BIOLASE common stock was not approved by stockholders at the meeting. Therefore, the shares available for issuance under the 2018 Plan only increased by the number of remaining shares authorized for issuance. 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 36,921,000 shares of BIOLASE common stock are available for issuance; however, because the increase in the number of authorized shares under the certificate of incorporation was not approved by stockholders at the 2021 annual meeting, only approximately 2.4 million shares are available for future grants as of the date of these unaudited consolidated financial statements. As of September 30, 2021, a total of approximately 4,744,000 shares of the Company’s common stock have been reserved for issuance upon the exercise of outstanding options and or settlement of unvested RSUs under the 2018 Plan.

The Company recognized stock-based compensation expense of $0.2 million and $1.5 million for the three and nine months ended September 30, 2021, respectively, and $0.8 million and $2.4 million for the three and nine months ended September 30, 2020, respectively. As of September 30, 2021 and 2020, the Company had approximately $0.8 million and $1.4 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 1.5 years. As of September 30, 2021 and December 31, 2020, $0.0 million and $0.9 million of the total stock compensation cost related to performance-based awards was recognized as a liability.

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Cost of revenue	$	25	$	79	$	138	$	208
Sales and marketing		62		183		291		571
General and administrative		61		517		777		1,424
Engineering and development		44		68		282		164
Total	$	192	$	847	$	1,488	$	2,367

The stock option fair values were estimated using the Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Expected term (years)		6.1		N/A				6.1			5.5
Volatility		111	%		—	%		111	%		103	%
Annual dividend per share	N/A			N/A			N/A			N/A
Risk-free interest rate		0.98	%		—	%		0.86	%		0.37	%

A summary of option activity for the nine months ended September 30, 2021 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, 2020		2,398		$	2.96		7.2	$	53
Granted at fair market value		50		$	0.87
Exercised		(176	)	$	0.38
Forfeited, cancelled, or expired		(102	)	$	7.78
Options outstanding at September 30, 2021		2,170		$	2.89		6.6	$	286
Options exercisable at September 30, 2021		2,052		$	3.00		6.5	$	277
Vested options expired during the period ended September 30, 2021		91		$	8.48

(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 nine months ended September 30, 2021 is as follows (in thousands, except per share data):


				Weighted
				Average Grant
	Shares			Date Fair Value
Unvested options at December 31, 2020		1,323		$	0.34
Granted		50		$	0.72
Vested		(1,256	)	$	0.31
Unvested options at September 30, 2021		117		$	0.73

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Proceeds from stock options exercised	$	66	$	—	$	66	$	—
Tax benefit related to stock options exercised (1)	N/A		N/A		N/A		N/A
Intrinsic value of stock options exercised (2)	$	42	$	—	$	42	$	—
Weighted-average fair value of options granted during period	$	0.49	$	—	$	0.72	$	0.29
Total fair value of stock options vested during the period	$	8	$	34	$	395	$	188

(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.

During the nine months ended September 30, 2021, the Company granted approximately 2.8 million RSUs and the Company canceled approximately 0.1 million RSUs with performance-based vesting due to non-achievement of the performance targets.

A summary of unvested RSU activity for the nine months ended September 30, 2021 is as follows (in thousands, except per share amounts):


				Weighted
				Average Grant
	Shares			Date Fair Value
Unvested RSUs at December 31, 2020		3,672		$	0.66
Granted		2,808		$	0.83
Vested		(3,772	)	$	0.69
Forfeited or cancelled		(601	)	$	1.33
Unvested RSUs at September 30, 2021		2,107		$	0.63

The Company issues warrants to acquire shares of BIOLASE common stock as approved by the Board. During the first quarter of 2021, the Company received proceeds of $15.0 million from warrants exercised in 2021 and $1.5 million from warrants exercised at the end of the fourth quarter of 2020, which was a receivable included in other current assets as of December 31, 2020.

A summary of warrant activity for the nine months ended September 30, 2021 is as follows (in thousands, except exercise price amounts):


				Weighted
				Average
	Shares			Exercise Price
Warrants outstanding, December 31, 2020		54,052		$	0.62
Exercised		(35,790	)	$	0.43
Forfeited, cancelled, or expired		(407	)	$	10.00
Warrants outstanding at September 30, 2021		17,855		$	0.80
Warrants exercisable at September 30, 2021		17,855		$	0.80
Vested warrants expired during the period ended September 30, 2021		(407	)	$	10.00

See Note 9 for information on the Western Alliance Warrants, the SWK Warrants, and the DPG Warrants (each as defined below).

During the nine months ended September 30, 2021, the Company issued 10.1 million phantom RSUs in lieu of stock-settled RSUs historically granted for leadership bonuses and non-employee director service. The phantom RSUs have either time-based or performance-based vesting conditions and will 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 are included as a component of long-term liability on the consolidated balance sheet and are not considered stock-based compensation due to the cash-settlement feature of the award. If at any time the determination is made to settle the phantom RSUs in BIOLASE common stock, the awards will be included as a component of additional paid-in capital on the consolidated balance sheet. The expense recognized during the three and nine months ended September 30, 2021 was $0.2 million.

During the nine months ended September 30, 2021, the Company issued 0.7 million stock appreciation rights ("SARs") in lieu of stock-settled RSUs historically granted for non-employee director service. Upon exercise, the SARs will be settled in cash with the Company's option to settle in BIOLASE common stock at the sole discretion of the Board. These SARS are included in accrued liabilities on the consolidated balance sheet and are not considered stock-based compensation due to the cash-settlement feature of the award. If at any time the determination is made to settle in BIOLASE common stock, the awards will be included as a component of additional paid-in capital on the consolidated balance sheet. The expense recognized during the three and nine months ended September 30, 2021 was $0.1 million and $0.2 million, respectively.

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.

Outstanding stock options, RSUs, and warrants to purchase approximately 24.0 million and 67.2 million shares were not included in the calculation of diluted loss per share amounts for the periods ended September 30, 2021 and September 30, 2020, respectively, as their effect would have been anti-dilutive. Also excluded in the calculation of diluted loss per share amount for the three and nine months ended September 30, 2021 are the 627,500 shares of BIOLASE common stock issuable upon conversion of the 251 shares of Series F Preferred Stock outstanding as of September 30, 2021.