4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading symbol(s) |
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Name of each exchange on which registered |
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(NASDAQ Capital Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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☐ |
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Accelerated filer |
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☒ |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No
As of November 3, 2022, the registrant had
BIOLASE, INC.
INDEX
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PART I. |
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2 |
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Item 1. |
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2 |
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Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 |
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2 |
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3 |
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4 |
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6 |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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26 |
Item 3. |
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37 |
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Item 4. |
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37 |
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PART II |
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38 |
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Item 1. |
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38 |
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Item 1A. |
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38 |
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Item 5 |
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38 |
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Item 6. |
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39 |
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41 |
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOLASE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
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September 30, |
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December 31, |
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2022 |
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2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, less allowance of $ |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant, and equipment, net |
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Goodwill |
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Right of use asset |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Deferred revenue, current portion |
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Total current liabilities |
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Deferred revenue |
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Warranty accrual |
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Non current term loans, net of discount |
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Non current operating lease liability |
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Other liabilities |
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Total liabilities |
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Stockholders' equity: |
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Series F Preferred stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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Total liabilities, redeemable preferred stock and stockholders' equity |
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$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
2
BIOLASE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, in thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Sales and marketing |
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General and administrative |
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Engineering and development |
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Loss on patent litigation settlement |
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— |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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Loss on foreign currency transactions |
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( |
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( |
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( |
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Interest expense, net |
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( |
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( |
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Gain on debt forgiveness |
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Non-operating income (loss), net |
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( |
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( |
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Loss before income tax provision |
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( |
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( |
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( |
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Income tax (provision) benefit |
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( |
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Net loss |
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( |
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( |
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( |
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Other comprehensive loss items: |
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Foreign currency translation adjustments |
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( |
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( |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Deemed dividend on convertible preferred stock |
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( |
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( |
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Net loss attributable to common stockholders |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Net loss per share attributable to common stockholders: |
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Basic and Diluted - Note 1 |
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$ |
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$ |
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$ |
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$ |
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Shares used in the calculation of net loss per share: |
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Basic and Diluted - Note 1 |
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See accompanying notes to unaudited consolidated financial statements.
3
BIOLASE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(Unaudited, in thousands)
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Mezzanine |
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Stockholders' Equity |
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Series G |
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Common Stock |
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Additional |
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Series F |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Amount |
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Shares |
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Amount |
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Loss |
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Deficit |
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Equity |
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Balances, June 30, 2022 |
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— |
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$ |
— |
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$ |
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$ |
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— |
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$ |
— |
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$ |
( |
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$ |
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$ |
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Sale of common stock, net of fees |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
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Issuance of stock from |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of common stock warrants |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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Foreign currency |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Balances, September 30, 2022 |
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— |
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$ |
— |
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$ |
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$ |
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— |
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$ |
— |
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$ |
( |
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$ |
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$ |
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Balances, December 31, 2021 |
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— |
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$ |
— |
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$ |
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$ |
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— |
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$ |
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$ |
( |
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$ |
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$ |
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Sale of common stock, net of fees |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of Series G Redeemable |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Redemption of Series G Redeemable |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Conversion of Series F |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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Deemed dividend on Series F |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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— |
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Issuance of stock from |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Liability award reclass |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Foreign currency |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Balances, September 30, 2022 |
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— |
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$ |
— |
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$ |
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$ |
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— |
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$ |
— |
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$ |
( |
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$ |
( |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
4
BIOLASE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(Unaudited, in thousands)
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Stockholders' Equity |
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Common Stock |
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Additional |
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Series F |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Amount |
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Shares |
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Amount |
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Loss |
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Deficit |
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Equity |
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Balances, June 30, 2021 |
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$ |
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$ |
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— |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Exercise of stock option |
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— |
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— |
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— |
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— |
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— |
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Issuance of restricted shares |
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— |
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— |
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— |
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— |
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— |
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Conversion of Series F Convertible Preferred Stock |
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— |
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— |
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( |
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— |
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— |
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— |
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Deemed dividend on Series F Convertible Preferred Stock |
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( |
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— |
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— |
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— |
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— |
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Issuance of stock from RSUs, net |
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64 |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Exercise of common stock warrants |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Foreign currency translation adjustment |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balances, September 30, 2021 |
|
|
|
$ |
|
|
$ |
|
|
|
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balances, December 31, 2020 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
Sale of common stock |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Exercise of stock option |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of common stock for settlement of liability |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of restricted shares |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Conversion of Series F Convertible Preferred Stock |
|
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Deemed dividend on Series F |
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of stock from RSUs, net |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Exercise of common stock warrants |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Foreign currency translation adjustment |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balances, September 30, 2021 |
|
|
|
$ |
|
|
$ |
|
|
|
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
See accompanying notes to unaudited consolidated financial statements.
5
BIOLASE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Provision for bad debts |
|
|
|
|
|
( |
) |
|
Provision for inventory excess and obsolescence |
|
|
|
|
|
|
||
Inventory write-offs and disposals |
|
|
|
|
|
( |
) |
|
Amortization of discount on lines of credit |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Patent litigation mark-to-market |
|
|
|
|
|
|
||
Issuance of restricted shares |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Gain on debt forgiveness |
|
|
|
|
|
( |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
Inventory |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
|
|
|
||
Deferred revenue |
|
|
( |
) |
|
|
|
|
Net cash and cash equivalents used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash Flows from Investing Activities: |
|
|
|
|
|
|
||
Purchases of property, plant, and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash and cash equivalents used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
||
Proceeds from the sale of common stock |
|
|
|
|
|
|
||
Payments of equity offering costs |
|
|
|
|
|
( |
) |
|
Principal payment on loan |
|
|
( |
) |
|
|
|
|
Proceeds from the exercise of common stock warrants |
|
|
|
|
|
|
||
Payment of debt issuance costs |
|
|
|
|
|
( |
) |
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Net cash and cash equivalents provided by financing activities |
|
|
|
|
|
|
||
Effect of exchange rate changes |
|
|
( |
) |
|
|
( |
) |
(Decrease) increase in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow disclosure: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Cash received for interest |
|
$ |
|
|
$ |
|
||
Cash paid for income taxes |
|
$ |
|
|
$ |
|
||
Cash paid for operating leases |
|
$ |
|
|
$ |
|
||
Non-cash settlement of liability |
|
$ |
|
|
$ |
|
||
Non-cash right-of-use assets obtained in exchange for lease obligation |
|
$ |
|
|
$ |
|
||
Deemed dividend on preferred stock |
|
$ |
|
|
$ |
|
See accompanying notes to unaudited consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 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, 2021 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 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 consolidated results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2021, included in BIOLASE’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2022 (the “2021 Form 10-K”).
Except as the context otherwise requires, all common stock share numbers, share price amounts (including exercise prices, conversion prices, and closing market prices), and warrant numbers contained in the unaudited consolidated financial statements and notes thereto reflect the
Liquidity and Management’s Plans
The Company incurred losses from operations and used cash in operating activities for the three and nine months ended September 30, 2022 and for the years ended December 31, 2021, 2020, and 2019. The Company’s recurring losses, level of cash used in operations, and potential need for additional capital, along with uncertainties surrounding the Company’s ability to raise additional capital, raise substantial doubt about the Company’s 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.
As of September 30, 2022, the Company had working capital of approximately $
On June 27, 2022, BIOLASE entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which BIOLASE agreed to issue, (i) in a registered direct offering,
7
Additional capital requirements may depend on many factors, including, among other things, the rate at which the Company’s business grows, the COVID-19 pandemic and the actions taken to contain it, 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.
COVID-19 Risk and Uncertainties
The COVID-19 pandemic severely impacted global economic activity, and many countries and many states in the United States reacted to the pandemic by instituting quarantines, mandating business and school closures and restricting travel. These mandated business closures included dental office closures worldwide, in large part, for all but emergency procedures. As these quarantines and restrictions began to be lifted in 2021, the Company's sales began to return to pre-pandemic levels. However, there are still uncertainties regarding the ongoing and future effects of COVID-19, and there is no assurance that the Company's sales will not be further impacted in 2022 or at any time thereafter.
Membership Interest Purchase Agreement
On September 22, 2022, the Company entered into a Membership Interest Purchase Agreement (the "Purchase Agreement") with Med-Fiber LLC ("Med-Fiber") and Alexei Tchapyjnikov, pursuant to which
Reverse Stock Split
At the 2022 annual meeting of BIOLASE stockholders (the "2022 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, at a ratio ranging from one-for-two (1:2) to one-for-twenty-five (1:25), with the final ratio to be determined by the Board. Immediately after the 2022 Annual Meeting, the Board approved a one-for-twenty-five (1:25) reverse stock split of the outstanding shares of BIOLASE common stock (the “Reverse Stock Split”). On April 28, 2022, BIOLASE filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Reverse Stock Split, which became effective on April 28, 2022. The amendment did not change the number of authorized shares of BIOLASE common stock.
Cyber Incident
In December 2021, the Company experienced a cybersecurity attack that caused a brief network disruption and impacted certain systems. Upon detection, the Company took immediate steps to address the incident, engaged third-party experts, and notified law enforcement. The Company has taken actions to strengthen its existing systems and implement additional prevention measures. The Company will continue to monitor and assess as needed. All liabilities were fully insured, and as of December 31, 2021 the Company recorded an accrued liability and an insurance receivable within prepaid expenses and other current assets of $
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 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.
8
Critical Accounting Policies
Information with respect to the Company’s critical accounting policies, which management believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management as discussed in the Company’s 2021 audited financial statements included in the 2021 Form 10-K. Management believes that there have been no significant changes during the nine months ended September 30, 2022 in the Company’s critical accounting policies from those disclosed in the Company’s 2021 audited financial statements included in the 2021 Form 10-K.
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 the SWK Loan (as defined below) as discussed in Note 9 – Debt, approximate fair value because of the relative short maturity of these items and the market interest rates the Company could obtain.
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 its 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 three and nine months ended September 30, 2022 and 2021, respectively, 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.
Recent Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”).
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s consolidated financial position and results of operations.
Recently Issued Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings per share guidance. This standard became effective for the Company beginning on January 1, 2022. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company adopted this guidance effective January 1, 2022, and the adoption of this standard did not have a material impact on its consolidated financial statements.
9
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options (i.e. warrants) so that the transaction should be treated as an exchange of the original instrument for a new instrument. This standard is effective for fiscal years beginning after December 15, 2021 on a prospective basis, with early adoption permitted. The Company adopted this guidance effective January 1, 2022, and the adoption of this standard did not have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope and to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will be effective for the Company beginning January 1, 2023, with early adoption permitted beginning January 1, 2019. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.
NOTE 3—REVENUE RECOGNITION
Contracts with Customers
Revenue for sales of products and services is derived from contracts with customers. The products and services promised in customer contracts include delivery of laser systems, imaging systems, and consumables as well as certain ancillary services such as training and extended warranties. Contracts with each customer generally state the terms of the sale, including the description, quantity and price of each product or service. Payment terms are stated in the contract and vary according to the arrangement. Because the customer typically agrees to a stated rate and price in the contract that does not vary over the life of the contract, the Company’s contracts do not contain variable consideration. The Company establishes a provision for estimated warranty expense.
Performance Obligations
At contract inception, the Company assesses the products and services promised in its contracts with customers. The Company then identifies performance obligations to transfer distinct products or services to the customers. In order to identify performance obligations, the Company considers all of the products or services promised in contracts regardless of whether they are explicitly stated or are implied by customary business practices.
Revenue from products and services transferred to customers at a single point in time accounted for
Revenue from services transferred to customers over time accounted for
Transaction Price Allocation
The transaction price for a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in a contract. The primary method used to estimate standalone selling price is the observable price when the good or service is sold separately in similar circumstances and to similar customers.
10
Significant Judgments
Revenue is recorded for extended warranties over time as the customer benefits from the warranty coverage. This revenue will be recognized equally throughout the contract period as the customer receives benefits from the Company's promise to provide such services. Revenue is recorded for product training as the customer attends a training program or upon the expiration of the obligation, which is generally after nine months.
The Company also has contracts that include both the product sales and product training as performance obligations. In those cases, the Company records revenue for product sales at the point in time when the product has been shipped. The customer obtains control of the product when it is shipped, as all shipments are made FOB shipping point, and after the customer selects its shipping method and pays all shipping costs and insurance. The Company has concluded that control is transferred to the customer upon shipment.
Accounts Receivable
Accounts receivable are stated at estimated net realizable value. The allowance for doubtful accounts is based on an analysis of customer accounts and the Company’s historical experience with accounts receivable write-offs.
Contract Liabilities
The Company performs its obligations under a contract with a customer by transferring products and/or services in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable for the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods and/or services, and the Company has not transferred control of the goods and/or services.
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Undelivered elements (training, installation, product |
|
$ |
|
|
$ |
|
||
Extended warranty contracts |
|
|
|
|
|
|
||
Total deferred revenue |
|
|
|
|
|
|
||
Less: long-term portion of deferred revenue |
|
|
( |
) |
|
|
( |
) |
Deferred revenue — current |
|
$ |
|
|
$ |
|
The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables at September 30, 2022 and December 31, 2021.
The amount of revenue recognized during the nine months ended September 30, 2022 and 2021 that was included in the opening contract liability balance related to undelivered elements was $
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors.
The Company’s revenues related to the following geographic areas were as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
11
Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue recognized over time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenue recognized at a point in time |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Company’s sales by end market were as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
End-customer |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Distributors |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Shipping and Handling Costs and Revenues
Shipping and freight costs are treated as fulfillment costs. For shipments to end-customers, the customer bears the shipping and freight costs and has control of the product upon shipment. For shipments to distributors, the distributor bears the shipping and freight costs, including insurance, tariffs and other import/export costs.
NOTE 4—REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
BIOLASE's board of directors (the "Board"), without further stockholder authorization, may authorize the issuance from time to time of up to
Preferred Stock
Series G Preferred Stock
On March 1, 2022, the Board declared a dividend of one one-thousandth of a share of Series G Preferred Stock, par value $
Series F Convertible Preferred Stock
On July 23, 2020, the Company consummated the sale of an aggregate of
12
In accordance with applicable accounting standards, the $
The Series F Preferred Stock contained a beneficial conversion feature which resulted in a deemed dividend to preferred stockholders of approximately $
The remaining shares of Series F Preferred Stock were converted into shares of BIOLASE common stock in the first quarter of 2022 with
Stock-Based Compensation
2002 Stock Incentive Plan
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 to the Company. As of September 30, 2022, a total of
2018 Stock Incentive Plan
At the 2018 annual meeting of stockholders, the Company’s stockholders approved the 2018 Long-Term Incentive Plan (as amended effective as of September 21, 2018, May 15, 2019, May 13, 2020, and June 11, 2021, the “2018 Plan”). 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
The Company recognized stock-based compensation expense of $
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, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Engineering and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
13
The fair values of stock options granted in the period were estimated using the Black-Scholes option-pricing model with the following assumptions:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Expected term (years) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Volatility |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Annual dividend per share |
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
||||
Risk-free interest rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
A summary of option activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share data):
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
||||
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
||||
|
|
Shares |
|
|
Exercise |
|
|
Term |
|
|
Intrinsic |
|
||||
Options outstanding at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Forfeited, cancelled, or expired |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Options outstanding at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options exercisable at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested options expired during the period |
|
|
|
|
$ |
|
|
|
|
|
|
|
A summary of unvested stock option activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share data):
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average Grant |
|
||
|
|
Shares |
|
|
Date Fair Value |
|
||
Unvested options at December 31, 2021 |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited or cancelled |
|
|
( |
) |
|
$ |
|
|
Unvested options at September 30, 2022 |
|
|
|
|
$ |
|
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, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Proceeds from stock options exercised |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Tax benefit related to stock options exercised (1) |
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
||||
Intrinsic value of stock options exercised (2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Weighted-average fair value of options granted per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total fair value of stock options vested during the period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
14
Restricted Stock Units
A summary of unvested RSU activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share amounts):
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average Grant |
|
||
|
|
Shares |
|
|
Date Fair Value |
|
||
Unvested RSUs at December 31, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited or cancelled |
|
|
( |
) |
|
$ |
|
|
Unvested RSUs at September 30, 2022 |
|
|
|
|
$ |
|
Warrants
The Company issues warrants to acquire shares of BIOLASE common stock as approved by the Board.
June 2022 Direct Offering and Private Placement
On June 27, 2022, the Company entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which the Company agreed to issue to the Purchasers (as defined therein), (i) in a registered direct offering,
Based on the terms and conditions of the June 2022 Warrants, the Company determined that equity classification was appropriate and recognized the net proceeds in excess of par of $
July 2020 Rights Offering
On July 23, 2020, the Company consummated the Rights Offering issuing (i)
On September 28, 2020, the warrant agreement with respect to the July 2020 Warrants was amended. The amended terms of the July 2020 Warrants meet the requirements for the July 2020 Warrants’ classification as equity. The fair value upon the amendment was estimated to be $
15
June 2020 Registered Direct Offering and Private Placement
On June 8, 2020, the Company entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which the Company agreed to issue to the Purchasers in a registered direct offering and concurrent private placement,
Based on the terms and conditions of the June 2020 Warrants, the Company determined that equity classification was appropriate and recognized the values of the common stock and June 2020 Warrants in excess of par in Additional Paid-In Capital. The Company allocated the net proceeds of $
Western Alliance Warrants
On March 6, 2018, in connection with the execution of a business financing agreement with Western Alliance Bank ("Western Alliance"), the Company issued to Western Alliance warrants (the “Original Western Alliance Warrants”) to purchase up to the number of shares of BIOLASE common stock equal to $
SWK Warrants
On November 9, 2018, in connection with the Credit Agreement (as defined below), the Company issued to SWK warrants (the "SWK Warrants") to purchase up to
In November 2019, the SWK Warrants were consolidated and the exercise price was adjusted to $
16
DPG Warrants
On November 14, 2018, in connection with the SWK Loan, the Company paid a finder’s fee to Deal Partners Group ("DPG") of $
In November 2019, the exercise price of the DPG Warrants issued on November 14, 2018 was adjusted from $
The value of both the SWK Warrants and the DPG Warrants was recognized as a discount on the SWK Loan and is being amortized on a straight-line basis, which approximates the effective-interest method, over the loan term of
A summary of warrant activity for the nine months ended September 30, 2022 is as follows (in thousands, except exercise price amounts):
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average |
|
||
|
|
Shares |
|
|
Exercise |
|
||
Warrants outstanding, December 31, 2021 |
|
|
|
|
$ |
|
||
Granted or Issued |
|
|
|
|
$ |
|
||
Exercised |
|
|
( |
) |
|
$ |
|
|
Forfeited, cancelled, or expired |
|
|
( |
) |
|
$ |
|
|
Warrants outstanding at September 30, 2022 |
|
|
|
|
$ |
|
||
Warrants exercisable at September 30, 2022 |
|
|
|
|
$ |
|
||
Vested warrants expired during the period |
|
|
( |
) |
|
$ |
|
Phantom Awards and Stock Appreciation Rights
During the nine months ended September 30, 2022, the Company issued approximately
17
During the year ended December 31, 2021, the Company issued approximately
Net Loss Per Share – Basic and Diluted
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. The June 2022 Pre-Funded Warrants were included in the calculation of diluted loss per share for the period ended September 30, 2022.
Outstanding stock options, RSUs, and warrants to purchase approximately
NOTE 5—INVENTORY
Inventory is valued at the lower of cost or net realizable value and is comprised of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work-in-process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventory |
|
$ |
|
|
$ |
|
Inventory has been reduced by estimates for excess and obsolete amounts totaling $
NOTE 6—PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, net is comprised of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Building |
|
$ |
|
|
$ |
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Equipment and computers |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property, plant, and equipment, net before land |
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Property, plant, and equipment, net |
|
$ |
|
|
$ |
|
Depreciation and amortization expense related to property, plant, and equipment totaled $
18
NOTE 7—INTANGIBLE ASSETS AND GOODWILL
The Company conducted its last annual impairment test of goodwill as of September 30, 2021 and determined that there was
As of September 30, 2022 and December 31, 2021, the Company had goodwill of $
NOTE 8—ACCRUED LIABILITIES
Accrued liabilities are comprised of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Payroll and benefits |
|
$ |
|
|
$ |
|
||
Warranty accrual, current portion |
|
|
|
|
|
|
||
Contingent Liability |
|
|
|
|
|
|
||
Accrued professional services |
|
|
|
|
|
|
||
Lease liability |
|
|
|
|
|
|
||
Taxes |
|
|
|
|
|
|
||
Accrued insurance premium |
|
|
|
|
|
|
||
Settlement accrual |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Accrued liabilities |
|
$ |
|
|
$ |
|
The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") allows employers to defer the deposit and payment of the employer's share of Social Security taxes from payroll periods through December 31, 2020. Under the CARES Act, the Company had deferred payments of $
Changes in the initial product warranty accrual and the expenses incurred under the Company’s initial and extended warranties are included within accrued liabilities and were as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Balance, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for estimated warranty cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warranty expenditures |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance, end of period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less: long-term portion of warranty accrual |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current portion of warranty accrual |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Company's Waterlase laser systems sold domestically are covered by a warranty against defects in material and workmanship for a period of up to
19
In North America and select international locations, the Company sells extended warranty contracts to its laser systems end-users that cover the period after the expiration of the Company's standard warranty coverage for its laser systems. Extended warranty coverage provided under the Company's service contracts varies by the type of system and the level of service desired by the customer. Products or accessories remanufactured, refurbished, or sold by unauthorized parties, voids all warranties in place for such products and exempts the Company from liability issues relating to the use of such products.
NOTE 9—DEBT
The following table presents the details of the principal outstanding and unamortized discount (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
SWK Loan |
|
$ |
|
|
$ |
|
||
EIDL Loan |
|
|
|
|
|
|
||
Discount and debt issuance costs on SWK Loan |
|
|
( |
) |
|
|
( |
) |
Total |
|
|
|
|
|
|
||
Current term loans, net of discount |
|
|
|
|
|
|
||
Non current term loans, net of discount |
|
$ |
|
|
$ |
|
The Company recognized approximately $
The future minimum principal and interest payments as of September 30, 2022 are as follows (in thousands):
|
|
Principal |
|
|
Interest (1) |
|
||
Remainder of 2022 |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 and thereafter |
|
|
|
|
|
|
||
Total future payments |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
(1) Estimated using London Interbank Bank Offered Rate (“LIBOR”) as of September 30, 2022 |
|
|
|
|
|
|
Term Loan
On November 9, 2018, the Company entered into a
As of September 30, 2022, the Company was in compliance with the debt covenants of the Credit Agreement.
20
EIDL Loan
On May 22, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the Small Business Administration ("SBA") under its Economic Injury Disaster Loan assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the EIDL Loan is $
Paycheck Protection Program Loan
On April 14, 2020, the Company was granted a loan (the “PPP Loan”) under the Paycheck Protection Program from PMB in the aggregate amount of $
The PPP Loan, which was in the form of a note dated
During 2020, the Company requested forgiveness of the PPP Loan in accordance with the application requirements.
In June 2021, the Company received a reply to its request, and the PPP Loan along with all accrued interest was forgiven by the SBA. The amount of loan forgiveness is presented as a component of non-operating (gain) loss on the Company's consolidated statement of operations for the year ended December 31, 2021. The SBA may undertake a review of a loan of any size during the
NOTE 10—LEASES
The Company enters into operating leases primarily for real estate, office equipment, and fleet vehicles. Lease terms generally range from one to
On January 22, 2020, the Company entered into a
On February 4, 2020, the Company entered into a
On May 26, 2022, the Company entered into a lease agreement to expand training operations and establish a dental office with approximately
21
Information related to the Company’s right-of-use assets and related liabilities were as follows (in thousands):
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
September 30, |
|
||||||||||
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cash paid for operating lease liabilities |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Right-of-use assets obtained in exchange for new operating |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Weighted-average remaining lease term |
|
|
|
|
|
|
|
||||||||
Weighted-average discount rate |
|
% |
|
|
% |
|
|
% |
|
|
% |
Lease expense consists of payments for real property, office copiers, and IT equipment. The Company recognizes payments for non-lease components such as common area maintenance in the period incurred.
The Company allocates lease cost amongst lease and non-lease components. The Company excludes short-term leases (those with lease terms of less than
Maturities of lease liabilities as of September 30, 2022 for leases that have commenced are as follows (in thousands):
|
|
September 30, |
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
|
|
Total future minimum lease obligations |
|
|
|
|
Less imputed interest |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
|
|
|
|
|
Current operating lease liabilities, included in |
|
$ |
|
|
Non current lease liabilities |
|
|
|
|
Total lease liabilities |
|
$ |
|
As of September 30, 2022, right-of-use assets were $
Rent expense totaled $
Future minimum rental commitments under lease agreements, as of September 30, 2022, with non-cancelable terms greater than one year for each of the years ending December 31 are as follows (in thousands):
|
|
|
Year Ended |
|
|
|
|
|
December 31, |
|
|
Remainder of 2022 |
|
|
$ |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 and thereafter |
|
|
|
|
|
Total future minimum lease obligations |
|
|
|
|
|
Less imputed interest |
|
|
|
( |
) |
Total lease liabilities |
|
|
$ |
|
22
NOTE 11—COMMITMENTS AND CONTINGENCIES
On April 24, 2012, CAO Group, Inc. (“CAO”) filed a lawsuit against BIOLASE in the District of Utah alleging that BIOLASE’s ezlase dental laser infringes on U.S. Patent No. 7,485,116 (the “116 Patent”). On September 9, 2012, CAO amended its complaint, adding claims for (1) business disparagement/injurious falsehood under common law and (2) unfair competition under 15 U.S.C. Section 1125(a). The additional claims stemmed from a press release that BIOLASE issued on April 30, 2012, which CAO claimed contained false statements that were disparaging to CAO and its diode product. The amended complaint sought injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest. Until January 24, 2018, this lawsuit was stayed in connection with United States Patent and Trademark Office proceedings relating to the 116 Patent, which proceedings ultimately culminated in a January 27, 2017 decision by the United States Court of Appeals for the Federal Circuit, affirming the findings of the Patent Trial and Appeal Board, which were generally favorable to the Company. On January 25, 2018, CAO moved for leave to file a second amended complaint to add certain claims, which filing the Company did not oppose.
On January 23, 2018, CAO filed a lawsuit against BIOLASE in the Central District of California alleging that BIOLASE’s diode lasers infringe on U.S. Patent Nos. 8,337,097, 8,834,497, 8,961,040 and 8,967,883. The complaint sought injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest.
On
In February 2021, the Company issued
NOTE 12—SEGMENT INFORMATION
The Company currently operates in a single business segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. For the three and nine months ended September 30, 2022, sales to customers in the United States accounted for approximately
23
Net revenue by geographic location based on the location of customers was as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
International |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Property, plant, and equipment by geographic location was as follows (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
United States |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
NOTE 13—CONCENTRATIONS
Revenue from the Company’s products are as follows (dollars in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||||
Laser systems |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||||
Consumables and other |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Services |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||||
Total net revenue |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
The Company maintains its cash and cash equivalents in money market investment accounts with established commercial banks. Such cash deposits periodically exceed the Federal Deposit Insurance Corporation insured limit.
The Company currently purchases certain key components of its products from single suppliers. Although there are a limited number of manufacturers of these key components, management believes that other suppliers could provide similar key components on comparable terms. A change in suppliers, however, could cause delays in manufacturing and a possible loss of sales, which could adversely affect the Company’s business, results of operations and financial condition.
24
NOTE 14—INCOME TAXES
The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered, and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Based on the Company’s net losses in prior years, management has determined that a full valuation allowance against the Company’s net deferred tax assets is appropriate.
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 de-recognition, 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. With respect to the liability for unrecognized tax benefits, including related estimates of penalties and interest, the Company did
During the three and nine months ended September 30, 2022, the Company recorded an income tax benefit of $
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and our audited consolidated financial statements and related notes included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2021 (the “2021 Form 10-K”).
In addition to historical information, this discussion and analysis contains “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that involve risks, uncertainties, and assumptions, which could cause actual results to differ materially from management's expectations. Such forward-looking statements include statements, predictions, or expectations regarding expected investment activities, future liquidity, potential collaborations, market opportunities, plans with respect to products and services, future demand for improved dental care and dental laser equipment, seasonality and the reasons therefor, operating and other expenses, anticipated cash needs, our strategy and any other statement that is not historical fact. Forward-looking statements are identified by the use of words such as “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “continue,” “expect,” “believe,” “anticipate,” “estimate,” “predict,” “outlook,” “potential,” “plan,” “seek,” “forecast,” and similar expressions and variations or the negatives of these terms or other comparable terminology.
The forward-looking statements contained in this Form 10-Q are based on the expectations, estimates, projections, beliefs, and assumptions of our management based on information available to management as of the date on which this Form 10-Q was filed with the SEC, or as of the date on which the information incorporated by reference was filed with the SEC, as applicable, all of which are subject to change. Forward-looking statements are subject to risks, uncertainties, and other factors that are difficult to predict and could cause actual results to differ materially from those stated or implied by our forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to:
26
Further information about factors that could materially affect the Company, including our results of operations and financial condition, is contained under “Risk Factors” in Item 1A in the 2021 Form 10-K and Item 1A of Part II of this Form 10-Q. Except as required by law, we undertake no obligation to revise or update any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise.
Overview
BIOLASE, Inc. (“BIOLASE” and, together with its consolidated subsidiaries, the “Company,” “we,” “our” or “us”) is a leading provider of advanced laser systems for the dental industry. We develop, manufacture, market, and sell laser systems that provide significant benefits for dental practitioners and their patients. Our proprietary systems allow dentists, periodontists, endodontists, oral surgeons, and other dental specialists to perform a broad range of minimally invasive dental procedures, including cosmetic, restorative, and complex surgical applications. Our 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.
27
We offer two categories of laser system products: Waterlase (all-tissue) systems and diode (soft-tissue) systems. Our flagship brand, Waterlase, uses a patented combination of water and laser energy and is FDA cleared for over 80 clinical indications to perform most procedures currently performed using drills, scalpels, and other traditional dental instruments for cutting soft and hard tissue. For example, Waterlase safely debrides implants without damaging or significantly affecting surface temperature and is the only effective, safe solution to preserving sick implants. In addition, Waterlase disinfects root canals more efficiently than some traditional chemical methods. We also offer our diode laser systems to perform soft tissue, pain therapy, and cosmetic procedures, including teeth whitening. As of September 30, 2022 we had approximately 302 issued and 28 pending United States and international patents, the majority of which are related to Waterlase technology. From 1998 through December 31, 2021, we sold over 43,300 laser systems in over 80 countries around the world.
Business and Outlook
Our Waterlase systems precisely cut hard tissue, bone, and soft tissue with minimal or no damage to surrounding tissue and dental structures. Our diode systems, which include the Epic system, are designed to complement our Waterlase systems, and are used only in soft tissue procedures, pain therapy, hygiene, and cosmetic applications, including teeth whitening. The diode systems, together with our Waterlase systems, offer practitioners a broad product line with a range of features and price points.
We also manufacture and sell consumable products and accessories for our laser systems. Our Waterlase and diode systems use disposable laser tips of differing sizes and shapes depending on the procedure being performed. We also market flexible fibers and hand pieces that dental practitioners replace at some point after initially purchasing laser systems. For our Epic systems, we sell teeth whitening gel kits.
Due to the limitations associated with traditional and alternative dental instruments, we believe there is a large market opportunity for all-tissue dental laser systems that provide superior clinical outcomes, reduce the need to use anesthesia, help reduce trauma, pain, and discomfort associated with dental procedures, and increase patient acceptance for treatment protocols.
Our strategy is to increase awareness and demand for (i) our products among dental practitioners by educating dental practitioners and patients about the clinical benefits of our product suite and (ii) our laser systems among patients by educating patients about the clinical benefits of the Waterlase and diode systems. An important goal of ours is to increase consumables revenue by selling more single-use accessories used by dental practitioners when performing procedures using our dental laser systems. In the short term, we are striving for operating excellence through lean enterprise initiatives, with a specific focus on our sales strategy and cash flow management, coupled with optimizing our engineering capabilities to develop innovative new products.
We also seek to create value through innovation and leveraging existing technologies into adjacent medical applications. We plan to expand our product line and clinical applications by developing enhancements and transformational innovations, including new clinical solutions for dental applications and for other adjacent medical applications. In particular, we believe that our existing technologies can provide significant improvements over existing standards of care in fields including ophthalmology, otolaryngology, orthopedics, podiatry, pain management, aesthetics/dermatology, veterinary, and consumer products. We plan to continue to explore potential collaborations to apply our proprietary laser technologies with expanded FDA-cleared indications to other medical applications in the future.
The Company experienced revenue growth of 26% and 28% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021, primarily due to the negative impact of COVID-19 during the first half of 2021 and high demand from new users for the Company's dental lasers during 2022. The Company is currently forecasting revenue for fiscal year 2022 to be significantly above fiscal year 2021, as the Company's strategy described above continues to generate sales to new customers.
To educate providers and increase patient access to our products, over the past couple of years, we have formed specialist training programs focused on expanding awareness of the benefits of our dental lasers among dental specialists. These programs provide clinicians with an immersive training experience through peer-led learning and best practice sharing to help ensure appropriate use of Waterlase technology in clinical practices. In the fourth quarter of 2021, we launched the Epic Hygiene Academy which seeks to bring together leaders in the dental hygiene profession to provide improved continuing education in delivering superior patient care through laser technology.
In 2021, we designed, developed, received FDA clearance for, and began production of a laser using our proprietary Er,Cr:YSGG laser technology in partnership with EdgeEndo, a leading endodontic company. The EdgePro is a state-of-the-art microfluidic irrigation device designed to clean and disinfect root canals. The partnership with EdgeEndo is our first exclusive OEM agreement.
28
Recent Developments
Membership Interest Purchase Agreement
On September 22, 2022, BIOLASE entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Med-Fiber LLC (“Med-Fiber”) and Alexei Tchapyjnikov, pursuant to which we acquired all of the issued and outstanding membership interests of Med-Fiber LLC, on the terms and subject to the conditions set forth in the Purchase Agreement, for a purchase price equal to $1,320,000, plus, subject to the satisfaction of certain milestones, additional earn-out consideration in an aggregate amount of up to $880,000. Med-Fiber was engaged in the business of manufacturing and supplying infrared transmitting fiber optics for laser power delivery applications and activities related thereto.
Direct Offering and Private Placement
On June 27, 2022, BIOLASE entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which BIOLASE agreed to issue, (i) in a registered direct offering, 678,745 shares of BIOLASE common stock, par value $0.001 per share, and pre-funded warrants to purchase 726,660 shares of BIOLASE common stock (the “Pre-Funded Warrants”) with an exercise price of $0.001 per share, and (ii) in a concurrent private placement, warrants to purchase 1,405,405 shares of BIOLASE common stock (the “Common Warrants”). The combined purchase price for one share of common stock and one Common Warrant was determined to be $4.625, and the combined purchase price for one Pre-Funded Warrant and one Common Warrant was determined to be $4.624. BIOLASE received aggregate gross proceeds from the transactions of approximately $6.5 million, before deducting fees to the placement agent and other transaction expenses payable by BIOLASE. The 678,745 shares of BIOLASE's common stock, the Pre-Funded Warrants and the shares of BIOLASE common stock issuable upon exercise of the Pre-Funded Warrants were offered by BIOLASE pursuant to a shelf registration statement on Form S-3, which was declared effective on August 23, 2019.
Reverse Stock Split
On April 28, 2022, BIOLASE’s stockholders approved a proposal at BIOLASE’s 2022 annual meeting of stockholders (the “2022 Annual Meeting”) further amending 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, at a ratio between one-for-two (1:2) and one-for-twenty-five (1:25), without reducing the authorized number of shares of BIOLASE common stock. Following the 2022 Annual Meeting, BIOLASE’s board of directors approved a final split ratio of one-for-twenty-five (1:25). Following such approval, the Company filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the reverse stock split (the "Reverse Stock Split"), with an effective time of 11:59 p.m. Eastern Time on April 28, 2022. Except as the context otherwise requires, all common stock share numbers and common stock share price amounts in this Part II, Item 2 of this Form 10-Q have been adjusted to reflect the Reverse Stock Split.
Elimination of Series G Preferred Stock
On March 1, 2022, the Board declared a dividend of one one-thousandth of a share of Series G Preferred Stock, par value $0.001 per share (“Series G Preferred Stock”), for each share of BIOLASE common stock outstanding as of 5:00 p.m. Eastern Time on March 25, 2022 (as calculated on a pre-Reverse Stock Split basis). The certificate of designation for the Series G Preferred Stock provided that all shares of Series G Preferred Stock not present in person or by proxy at the 2022 Annual Meeting immediately prior to the opening of the polls at the 2022 Annual Meeting would be automatically redeemed (the “Initial Redemption”) and that any outstanding shares of Series G Preferred Stock that have not been redeemed pursuant to the Initial Redemption would be redeemed in whole, but not in part, (i) if and when ordered by the Board or (ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation effecting the Reverse Stock Split that was subject to the vote at the 2022 Annual Meeting (the “Subsequent Redemption”). On April 28, 2022, both the Initial Redemption and the Subsequent Redemption occurred. As a result, no shares of Series G Preferred Stock remain outstanding. On June 6, 2022, the Series G Preferred Stock was eliminated.
Ninth Amendment to the Credit Agreement
On June 30, 2022, BIOLASE entered into the ninth amendment to Credit Agreement (the “Ninth Amendment”) with SWK. The Ninth Amendment extended the end of the interest only period of the loan by two quarters, from May 2023 to November 2023, reduced the required minimum consolidated unencumbered liquid assets from $7,500,000 to $3,000,000, reduced the minimum consolidated unencumbered liquid assets triggering the minimum aggregate revenue covenant from $7,500,000 to $5,000,000, and reduced the minimum consolidated unencumbered liquid assets triggering the minimum EBITDA covenant from $7,500,000 to $5,000,000. In connection with the Ninth Amendment, with some of the net proceeds from the June 2022 offering and private placement, the Company prepaid $1.0 million of the outstanding loan balance.
29
Critical Accounting Policies
The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses reported during the period. Information with respect to our critical accounting policies that we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the 2021 Form 10-K. There have been no significant changes during the nine months ended September 30, 2022 in our critical accounting policies from those disclosed in Item 7 of the 2021 Form 10-K.
Results of Operations
The following table sets forth certain data from our unaudited operating results, expressed in thousands and as percentages of net revenue:
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||||||||||
|
|
September 30, |
|
September 30, |
||||||||||||||||||||
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
||||||||||||||||
Net revenue |
|
$ |
12,010 |
|
100.0 |
% |
|
$ |
9,531 |
|
100.0 |
% |
|
$ |
34,411 |
|
100.0 |
% |
|
$ |
26,780 |
|
100.0 |
% |
Cost of revenue |
|
|
9,565 |
|
79.6 |
% |
|
|
4,689 |
|
49.2 |
% |
|
|
22,096 |
|
64.2 |
% |
|
|
15,157 |
|
56.6 |
% |
Gross profit |
|
|
2,445 |
|
20.4 |
% |
|
|
4,842 |
|
50.8 |
% |
|
|
12,315 |
|
35.8 |
% |
|
|
11,623 |
|
43.4 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
5,008 |
|
41.7 |
% |
|
|
3,451 |
|
36.2 |
% |
|
|
15,224 |
|
44.2 |
% |
|
|
10,315 |
|
38.5 |
% |
General and administrative |
|
|
3,109 |
|
25.9 |
% |
|
|
2,479 |
|
26.0 |
% |
|
|
8,825 |
|
25.7 |
% |
|
|
8,613 |
|
32.2 |
% |
Engineering and development |
|
|
1,979 |
|
16.5 |
% |
|
|
1,540 |
|
16.2 |
% |
|
|
5,177 |
|
15.0 |
% |
|
|
4,506 |
|
16.8 |
% |
Loss on patent litigation settlement |
|
|
— |
|
0.0 |
% |
|
|
29 |
|
0.3 |
% |
|
|
— |
|
0.0 |
% |
|
|
190 |
|
0.7 |
% |
Total operating expenses |
|
|
10,096 |
|
84.1 |
% |
|
|
7,499 |
|
78.7 |
% |
|
|
29,226 |
|
84.9 |
% |
|
|
23,624 |
|
88.2 |
% |
Loss from operations |
|
|
(7,651) |
|
(63.7) |
% |
|
|
(2,657) |
|
(27.9) |
% |
|
|
(16,911) |
|
(49.1) |
% |
|
|
(12,001) |
|
(44.8) |
% |
Non-operating income (loss), net |
|
|
(753) |
|
(6.3) |
% |
|
|
(605) |
|
(6.3) |
% |
|
|
(1,839) |
|
(5.4) |
% |
|
|
1,115 |
|
4.2 |
% |
Loss before income tax provision |
|
|
(8,404) |
|
(70.0) |
% |
|
|
(3,262) |
|
(34.2) |
% |
|
|
(18,750) |
|
(54.5) |
% |
|
|
(10,886) |
|
(40.6) |
% |
Income tax (provision) benefit |
|
|
17 |
|
0.2 |
% |
|
|
(14) |
|
(0.2) |
% |
|
|
(23) |
|
(0.1) |
% |
|
|
7 |
|
0.0 |
% |
Net loss |
|
$ |
(8,387) |
|
(69.8) |
% |
|
$ |
(3,276) |
|
(34.4) |
% |
|
$ |
(18,773) |
|
(54.6) |
% |
|
$ |
(10,879) |
|
(40.6) |
% |
Non-GAAP Disclosure
In addition to the financial information prepared in conformity with GAAP, we provide certain historical non-GAAP financial information. Management believes that these non-GAAP financial measures assist investors in making comparisons of period-to-period operating results and that, in some respects, are indicative of our ongoing core performance.
30
Management believes that the presentation of this non-GAAP financial information provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments, and amortization methods, which provides a more complete understanding of our financial performance, competitive position, and prospects for the future. However, the non-GAAP financial measures presented in this Form 10-Q have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by us may be different from similarly named non-GAAP financial measures used by other companies.
Adjusted EBITDA
Management uses Adjusted EBITDA in its evaluation of our core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Adjusted EBITDA is defined as net loss before interest, taxes, depreciation and amortization, patent litigation settlements, stock-based and other non-cash compensation, the change in allowance for doubtful accounts, and gain on debt forgiveness. Management uses adjusted EBITDA in its evaluation of our core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by us may be different from similarly named non-GAAP financial measures used by other companies.
The following table contains a reconciliation of non-GAAP Adjusted EBITDA to GAAP net loss attributable to common stockholders (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
GAAP net loss attributable to common stockholders |
|
$ |
(8,387 |
) |
|
$ |
(3,285 |
) |
|
$ |
(18,990 |
) |
|
$ |
(11,425 |
) |
Deemed dividend on convertible preferred stock |
|
|
— |
|
|
|
9 |
|
|
|
217 |
|
|
|
546 |
|
GAAP net loss |
|
$ |
(8,387 |
) |
|
$ |
(3,276 |
) |
|
$ |
(18,773 |
) |
|
$ |
(10,879 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
424 |
|
|
|
569 |
|
|
|
1,287 |
|
|
|
1,727 |
|
Income tax provision (benefit) |
|
|
(17 |
) |
|
|
14 |
|
|
|
23 |
|
|
|
(7 |
) |
Depreciation and amortization |
|
|
122 |
|
|
|
101 |
|
|
|
369 |
|
|
|
281 |
|
Change in allowance for doubtful accounts |
|
|
(87 |
) |
|
|
(83 |
) |
|
|
56 |
|
|
|
(162 |
) |
Loss on patent litigation settlement |
|
|
— |
|
|
|
29 |
|
|
|
— |
|
|
|
190 |
|
Stock-based and other non-cash compensation |
|
|
591 |
|
|
|
192 |
|
|
|
1,691 |
|
|
|
1,488 |
|
Increase in inventory reserves |
|
|
1,731 |
|
|
|
— |
|
|
|
1,731 |
|
|
|
— |
|
Gain on debt forgiveness |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,014 |
) |
Adjusted EBITDA |
|
$ |
(5,623 |
) |
|
$ |
(2,454 |
) |
|
$ |
(13,616 |
) |
|
$ |
(10,376 |
) |
Comparison of Results of Operations
Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021
Net Revenue: The following table summarizes our unaudited net revenue by category, including each category’s percentage of our total revenue, for the three months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||||||||||
Laser systems |
|
$ |
7,302 |
|
|
|
60.8 |
% |
|
$ |
6,084 |
|
|
|
63.8 |
% |
|
$ |
1,218 |
|
|
|
20.0 |
% |
Consumables and other |
|
|
2,632 |
|
|
|
21.9 |
% |
|
|
2,331 |
|
|
|
24.5 |
% |
|
|
301 |
|
|
|
12.9 |
% |
Services |
|
|
2,076 |
|
|
|
17.3 |
% |
|
|
1,116 |
|
|
|
11.7 |
% |
|
|
960 |
|
|
|
86.0 |
% |
Net revenue |
|
$ |
12,010 |
|
|
|
100.0 |
% |
|
$ |
9,531 |
|
|
|
100.0 |
% |
|
$ |
2,479 |
|
|
|
26.0 |
% |
31
The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the three months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change in each geographic revenue category (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||||||||||
United States |
|
$ |
8,413 |
|
|
|
70.0 |
% |
|
$ |
5,939 |
|
|
|
62.3 |
% |
|
$ |
2,474 |
|
|
|
41.7 |
% |
International |
|
|
3,597 |
|
|
|
30.0 |
% |
|
|
3,592 |
|
|
|
37.7 |
% |
|
|
5 |
|
|
|
0.1 |
% |
Net revenue |
|
$ |
12,010 |
|
|
|
100.0 |
% |
|
$ |
9,531 |
|
|
|
100.0 |
% |
|
$ |
2,479 |
|
|
|
26.0 |
% |
Typically, we experience fluctuations in revenue from quarter to quarter due to seasonality. Revenue in the first quarter typically is lower than average, and revenue in the fourth quarter typically is higher than average, due to the buying patterns of dental practitioners. We believe that this trend exists because a significant number of dentists purchase their capital equipment towards the end of the calendar year in order to maximize their practice earnings while seeking to minimize their taxes. They often use certain tax incentives, such as accelerated depreciation methods for purchasing capital equipment, as part of their year-end tax planning. In addition, revenue in the third quarter may be affected by vacation patterns which can cause revenue to be flat or lower than in the second quarter of the year. Our historical seasonal fluctuations may also be impacted by sales promotions used by large dental distributors that encourage end-of-quarter and end-of-year buying in our industry.
Total net revenue increased by $2.5 million, or 26%, during the three months ended September 30, 2022 as compared to the same period in 2021 primarily due to an increase in Waterlase sales to new customers and specialists in the U.S. Outside the U.S., net revenue of $3.6 million during the three months ended September 30, 2022 was consistent with the same period in 2021. We believe patient volume in many countries outside the U.S. is still lagging from pre-COVID-19 levels.
Cost of Revenue and Gross Profit: The following table summarizes our unaudited cost of revenue and gross profit for the three months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||||||||||
Net revenue |
|
$ |
12,010 |
|
|
|
100.0 |
% |
|
$ |
9,531 |
|
|
|
100.0 |
% |
|
$ |
2,479 |
|
|
|
26.0 |
% |
Cost of revenue |
|
|
9,565 |
|
|
|
79.6 |
% |
|
|
4,689 |
|
|
|
49.2 |
% |
|
|
4,876 |
|
|
|
104.0 |
% |
Gross profit |
|
$ |
2,445 |
|
|
|
20.4 |
% |
|
$ |
4,842 |
|
|
|
50.8 |
% |
|
$ |
(2,397 |
) |
|
|
(49.5 |
)% |
Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. Gross profit for the three months ended September 30, 2022, was $2.4 million, or 20% of net revenue, a decrease of approximately $2.4 million, or 50%, as compared with gross profit of $4.8 million, or 51% of net revenue, for the same period in 2021. The decrease in gross profit as a percentage of revenue reflects the impact of a $1.7 million charge for inventory. This inventory charge was driven by the supply chain issues that we have encountered requiring us to change to new suppliers along with end of life designation for certain products and components, which resulted in higher inventory reserves and warranty expenses. In addition, lower margin OEM products were launched at the beginning of 2022, and a $0.4 million Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") received during the three months ended September 30, 2021 did not occur in 2022. The decrease was partially offset by the recognition of more product training revenue during the three months ended September 30, 2022 compared to the same period in 2021.
Operating Expenses: The following table summarizes our unaudited operating expenses (including as a percentage of net revenue) for the three months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
||||||||||||
Sales and marketing |
|
$ |
5,008 |
|
|
|
41.7 |
% |
|
$ |
3,451 |
|
|
|
36.2 |
% |
|
$ |
1,557 |
|
|
|
45.1 |
% |
General and administrative |
|
|
3,109 |
|
|
|
25.9 |
% |
|
|
2,479 |
|
|
|
26.0 |
% |
|
|
630 |
|
|
|
25.4 |
% |
Engineering and development |
|
|
1,979 |
|
|
|
16.5 |
% |
|
|
1,540 |
|
|
|
16.2 |
% |
|
|
439 |
|
|
|
28.5 |
% |
Loss on patent litigation settlement |
|
|
— |
|
|
|
— |
% |
|
|
29 |
|
|
|
0.3 |
% |
|
|
(29 |
) |
|
|
(100.0 |
)% |
Total operating expenses |
|
$ |
10,096 |
|
|
|
84.1 |
% |
|
$ |
7,499 |
|
|
|
78.7 |
% |
|
$ |
2,597 |
|
|
|
34.6 |
% |
32
Sales and Marketing Expense. Sales and marketing expenses during the three months ended September 30, 2022 increased by $1.6 million, or 45%, as compared to the same period in 2021. This increase is primarily due to $0.7 million of higher compensation expense due to no open territories in 2022 as well as commissions and bonus incentives for achieving sales targets, $0.4 million in higher travel and trade show related expenses incurred in the third quarter of 2022, $0.2 million in supplies and other expenses, and $0.3 million in increased supply costs from an Employee Retention Credit under the CARES Act received during the three months ended September 30, 2021 that did not occur in 2022.
General and Administrative Expense. General and administrative expenses during the three months ended September 30, 2022 increased by $0.6 million, or 25%, compared to the same period in 2021. This increase is primarily due $0.6 million from compensation and bonus incentives for achieving sales targets.
Engineering and Development Expense. Engineering and development expenses during the three months ended September 30, 2022 increased by $0.4 million, or 29%, compared to the same period in 2021. This increase is primarily due to $0.3 million from compensation expenses driven by more engineering projects for 2022 as compared to 2021 and $0.1 million from the impact of an Employee Retention Credit under the CARES Act received during the three months ended September 30, 2021 that did not occur in 2022.
Non-Operating Income (Loss)
Gain (Loss) on Foreign Currency Transactions. We realized an approximately $0.3 million loss on foreign currency transactions during the three months ended September 30, 2022 compared to an approximately $36 thousand loss on foreign currency transactions during the three months ended September 30, 2021, primarily due to exchange rate fluctuations between the U.S. dollar and Euro, as well as other foreign currencies.
Interest Expense, Net. Interest expense was $0.4 million during the three months ended September 30, 2022 compared to $0.6 million for the same period in 2021. The decrease is primarily due to the Ninth Amendment of the SWK Loan, which lowered the stated interest rate from 10% to 9% and the $1.0 million principal payment made in connection with the amendment.
Income Tax (Provision) Benefit. We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our benefit (provision) for income taxes for the three months ended September 30, 2022 was consistent with the same period in 2021. For additional information regarding income taxes, see Part I, Item I, Note 14 – Income Taxes.
Net Loss. For the reasons stated above, our net loss totaled approximately $8.4 million for the three months ended September 30, 2022 compared to a net loss of $3.3 million for the three months ended September 30, 2021.
Comparison of Results of Operations
Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021
Net Revenue: The following table summarizes our unaudited net revenue by category, including each category’s percentage of our total revenue, for the nine months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change in each revenue category (dollars in thousands):
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
Laser systems |
|
$ |
|
21,626 |
|
|
|
62.9 |
% |
|
$ |
|
16,588 |
|
|
|
61.9 |
% |
|
$ |
|
5,038 |
|
|
|
30.4 |
% |
Consumables and other |
|
|
|
8,379 |
|
|
|
24.3 |
% |
|
|
|
6,923 |
|
|
|
25.9 |
% |
|
|
|
1,456 |
|
|
|
21.0 |
% |
Services |
|
|
|
4,406 |
|
|
|
12.8 |
% |
|
|
|
3,269 |
|
|
|
12.2 |
% |
|
|
|
1,137 |
|
|
|
34.8 |
% |
Net revenue |
|
$ |
|
34,411 |
|
|
|
100.0 |
% |
|
$ |
|
26,780 |
|
|
|
100.0 |
% |
|
$ |
|
7,631 |
|
|
|
28.5 |
% |
33
The following table summarizes our unaudited net revenue by geographic location based on the location of customers for the nine months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change in each geographic revenue category (dollars in thousands):
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
United States |
|
$ |
|
24,290 |
|
|
|
70.6 |
% |
|
$ |
|
17,024 |
|
|
|
63.6 |
% |
|
$ |
|
7,266 |
|
|
|
42.7 |
% |
International |
|
|
|
10,121 |
|
|
|
29.4 |
% |
|
|
|
9,756 |
|
|
|
36.4 |
% |
|
|
|
365 |
|
|
|
3.7 |
% |
Net revenue |
|
$ |
|
34,411 |
|
|
|
100.0 |
% |
|
$ |
|
26,780 |
|
|
|
100.0 |
% |
|
$ |
|
7,631 |
|
|
|
28.5 |
% |
Total net revenue increased by $7.6 million, or 28%, during the nine months ended September 30, 2022 as compared to the same period in 2021, primarily due to an increase in Waterlase sales to new customers and specialists. In the U.S., net revenue increased by $7.3 million, or 43%, for the nine months ended September 30, 2022 as compared to the same period in 2021. Outside the U.S., net revenue increased by $0.4 million, or 4%, during the nine months ended September 30, 2022 as compared to the same period in 2021. We believe patient volume in many countries outside the U.S. is still lagging from pre-COVID-19 levels.
Cost of Revenue and Gross Profit: The following table summarizes our unaudited cost of revenue and gross profit for the nine months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
Net revenue |
|
$ |
|
34,411 |
|
|
|
100.0 |
% |
|
$ |
|
26,780 |
|
|
|
100.0 |
% |
|
$ |
|
7,631 |
|
|
|
28.5 |
% |
Cost of revenue |
|
|
|
22,096 |
|
|
|
64.2 |
% |
|
|
|
15,157 |
|
|
|
56.6 |
% |
|
|
|
6,939 |
|
|
|
45.8 |
% |
Gross profit |
|
$ |
|
12,315 |
|
|
|
35.8 |
% |
|
$ |
|
11,623 |
|
|
|
43.4 |
% |
|
$ |
|
692 |
|
|
|
6.0 |
% |
Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. Gross profit for the nine months ended September 30, 2022, was $12.3 million, or 36% of net revenue, an increase of approximately $0.7 million, or 6%, as compared with gross profit of $11.6 million, or 43% of net revenue, for the same period in 2021. The decrease in gross profit as a percentage of revenue reflects the impact of a $1.7 million charge for inventory. This inventory charge was driven by the supply chain issues that we have encountered requiring us to change to new suppliers along with end of life designation for certain products and components, which resulted in higher inventory reserves and warranty expenses. In addition, lower margin OEM products were launched at the beginning of 2022, and a $0.7 million Employee Retention Credit under the CARES Act received during the nine months ended September 30, 2021 did not occur in 2022. The decrease was partially offset by the impact of higher sales volumes in the U.S., where margins are greater than our international business, an increase in average selling prices for products sold during the nine months ended September 30, 2022 compared to the same period in 2021, and the effect of favorable absorption of fixed expenses.
Operating Expenses: The following table summarizes our unaudited operating expenses (including as a percentage of net revenue) for the nine months ended September 30, 2022 and 2021, as well as the amount of change and percentage of change (dollars in thousands):
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
September 30, |
|
|
Amount |
|
|
Percent |
|
||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
Change |
|
|||||||||||||||
Sales and marketing |
|
$ |
|
15,224 |
|
|
|
44.3 |
% |
|
$ |
|
10,315 |
|
|
|
38.5 |
% |
|
$ |
|
4,909 |
|
|
|
47.6 |
% |
General and administrative |
|
|
|
8,825 |
|
|
|
25.6 |
% |
|
|
|
8,613 |
|
|
|
32.2 |
% |
|
|
|
212 |
|
|
|
2.5 |
% |
Engineering and development |
|
|
|
5,177 |
|
|
|
15.0 |
% |
|
|
|
4,506 |
|
|
|
16.8 |
% |
|
|
|
671 |
|
|
|
14.9 |
% |
Loss on patent litigation settlement |
|
|
|
— |
|
|
|
— |
% |
|
|
|
190 |
|
|
|
0.7 |
% |
|
|
|
(190 |
) |
|
|
(100.0 |
)% |
Total operating expenses |
|
$ |
|
29,226 |
|
|
|
84.9 |
% |
|
$ |
|
23,624 |
|
|
|
88.2 |
% |
|
$ |
|
5,602 |
|
|
|
23.7 |
% |
Sales and Marketing Expense. Sales and marketing expenses during the nine months ended September 30, 2022 increased by $4.9 million, or 48%, as compared to the same period in 2021. This increase is primarily due to $2.1 million from compensation expense due to no open territories in 2022, commissions and bonus incentives for achieving sales targets, $1.6 million in higher travel and trade show related expenses, $0.4 million in higher supply costs and other expenses, $0.1 million in additional advertising expenses, and $0.6 million from an Employee Retention Credit under the CARES Act received during the nine months ended September 30, 2021 that did not occur in 2022.
34
General and Administrative Expense. General and administrative expenses during the nine months ended September 30, 2022 increased by $0.2 million, or 2%, compared to the same period in 2021. This increase is primarily due to higher allowance for doubtful accounts of $0.2 million and $0.3 million in expenses incurred in connection with the 2022 Annual Meeting. The 2022 Annual Meeting was significantly more expensive than in recent years due to the proposed reverse stock split. The increase in general and administrative expenses was partially offset by $0.4 million in severance expense that did not occur in 2022.
Engineering and Development Expense. Engineering and development expenses during the nine months ended September 30, 2022 increased by $0.7 million, or 15%, compared to the same period in 2021. This increase is primarily due to $0.4 million from compensation expenses driven by more engineering projects for 2022 as compared to 2021, a $0.1 million increase in other expenses, and $0.2 million for the impact of an Employee Retention Credit under the CARES Act received during the nine months ended September 30, 2021 that did not occur in 2022.
Non-Operating Income (Loss)
Loss on Foreign Currency Transactions. We realized an approximately $0.6 million loss on foreign currency transactions during the nine months ended September 30, 2022 compared to an approximately $0.2 million loss on foreign currency transactions during the nine months ended September 30, 2021, primarily due to exchange rate fluctuations between the U.S. dollar and Euro, as well as other foreign currencies.
Interest Expense, Net. Interest expense was $1.3 million during the nine months ended September 30, 2022 compared to $1.7 million for the same period in 2021. The decrease is primarily due to the Ninth Amendment of the SWK Loan, which lowered the stated interest rate from 10% to 9% and the $1.0 million principal payment made in connection with the amendment.
Income Tax (Provision) Benefit. We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our benefit (provision) for income taxes for the nine months ended September 30, 2022 was consistent with the same period in 2021. For additional information regarding income taxes, see Part I, Item I, Note 14 – Income Taxes.
Net Loss. For the reasons stated above, our net loss totaled approximately $18.8 million for the nine months ended September 30, 2022 compared to a net loss of $10.9 million for the nine months ended September 30, 2021.
Liquidity and Capital Resources
At September 30, 2022, we had approximately $10.0 million in cash and cash equivalents compared to $30.0 million as of December 31, 2021. Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. The decrease in cash and cash equivalents from December 31, 2021 was primarily due to a net loss of $18.8 million, a net increase in operating assets and liabilities of $6.5 million, $3.3 million due to purchases of property, plant and equipment, and a $1.0 million payment on the loan under the Credit Agreement (the "SWK Loan") during the nine months ended September 30, 2022, partially offset by $5.6 million of net proceeds from the June 2022 direct offering and private placement.
The following table summarizes our change in cash, cash equivalents and restricted cash (in thousands):
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net cash flows used in operating activities |
|
$ |
(21,179 |
) |
|
$ |
(13,606 |
) |
Net cash flows used in investing activities |
|
|
(3,256 |
) |
|
|
(396 |
) |
Net cash flows provided by financing activities |
|
|
4,635 |
|
|
|
29,886 |
|
Effect of exchange rate changes |
|
|
(415 |
) |
|
|
(171 |
) |
Net change in cash, cash equivalents and restricted |
|
$ |
(20,215 |
) |
|
$ |
15,713 |
|
35
Operating Activities
Net cash used in operating activities consists of our net loss, adjusted for our non-cash charges, plus or minus working capital changes. Cash used in operating activities for the nine months ended September 30, 2022 totaled $21.2 million and was primarily comprised of our net loss of $18.8 million, and a net increase in operating assets and liabilities of $6.5 million, partially offset by $1.7 million of stock-based compensation costs and a $1.7 million write-off of inventory. The net increase in our operating assets and liabilities was primarily due to a $5.2 million increase in inventory as we have increased inventory levels to try to mitigate the impact of supply disruptions from potential product shortages and delivery delays due to COVID-19, a $0.9 million increase in prepaid expenses and other current assets, and a $0.7 million increase in accounts receivable.
In January 2022, the Company paid all amounts due to CAO Group, Inc under the Settlement Agreement. Refer to Part I, Item 1, Note 11 - Commitments and Contingencies, for further details.
Investing Activities
Cash used in investing activities for the nine months ended September 30, 2022 totaled $3.3 million and was comprised of the purchase of property, plant, and equipment. We expect cash flows from investing activities to increase somewhat through the remainder of 2022 due to the completion of our new training facility.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2022 totaled $4.6 million and was primarily comprised of $5.6 million of net proceeds from the June 2022 direct offering and private placement, partially offset by a $1.0 million payment on the SWK Loan.
Effect of Exchange Rate
The $0.4 million effect of exchange rate on cash for the nine months ended September 30, 2022 was due to recognized loss on foreign currency transactions, primarily driven by changes in the Euro during the period.
Future Liquidity Needs
As of September 30, 2022, we had working capital of approximately $20.1 million. Our principal sources of liquidity as of September 30, 2022 consisted of approximately $10.0 million in cash and cash equivalents and $4.8 million of net accounts receivable.
The Company will need to raise additional capital in the future. 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 will be available on acceptable terms, if at all, or that any such financing activity will not be dilutive to its stockholders.
The Company has historically experienced losses from operations and has used cash and cash equivalents in operating activities. To be able to discharge our liabilities and commitments in the normal course of business, we must increase sales of our products, control or potentially reduce expenses, and establish profitable operations in order to generate cash from operations or obtain additional funds when needed.
The Company’s recurring losses, level of cash used in operations, and potential need for additional capital, along with uncertainties surrounding the Company’s ability to raise additional capital, raise substantial doubt about the Company’s 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.
We intend to improve our financial condition and ultimately improve our financial results by increasing revenues through expansion of our product offerings, continuing to expand and develop our field sales force and distributor relationships both domestically and internationally, forming strategic arrangements within the dental and medical industries, educating dental and medical patients as to the benefits of our advanced medical technologies, and reducing expenses.
36
Term Loan
The information set forth in Part I, Item 1, Note 9 – Debt – Term Loan is hereby incorporated herein by reference.
EIDL Loan
The information set forth in Part I, Item 1, Note 9 – Debt – EIDL Loan is hereby incorporated herein by reference.
2021 Equity Offering
On February 10, 2021, BIOLASE issued and sold in an underwritten bought deal offering an aggregate of 560,000 shares of common stock at a price of $25.75 per share less underwriting discounts and commissions. The Company received gross proceeds of approximately $14.4 million before deducting underwriting discounts and commissions and estimated offering expenses.
2022 Offering and Private Placement
The information set forth in Part II, Item 2 – Recent Developments – Direct Offering and Private Placement is hereby incorporated herein by reference.
Recent Accounting Pronouncements
For a description of recently issued and adopted accounting pronouncements, including the respective dates of adoption and expected effects on our results of operations and financial condition, please refer to Part I, Item 1, Note 2 – Summary of Significant Accounting Policies, which is incorporated herein by this reference.
Additional Information
BIOLASE®, ZipTip®, ezlase®, eztips®, ComfortPulse®, Waterlase®, Waterlase Dentistry®, Waterlase Express®, iLase®, iPlus®, Epic®, Epic Pro®, WCLI®, World Clinical Laser Institute®, Waterlase MD®, Waterlase Dentistry®, and EZLase® are registered trademarks of BIOLASE, and Pedolase is a trademark of BIOLASE. All other product and company names are registered trademarks or trademarks of their respective owners.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has evaluated, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Controls over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
37
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially and adversely affect our results of operations, cash flows and financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management resources and other factors. While the outcome of such proceedings and claims cannot be predicted with certainty, there are no matters, as of September 30, 2022, that, in the opinion of management, will have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of the 2021 Form 10-K. The risks and uncertainties described herein and in the 2021 Form 10-K are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition, or results of operations.
Although our unaudited condensed consolidated financial statements have been prepared on a going concern basis, our management believes that our recurring losses and negative cash flows from operations and other factors have raised substantial doubt about our ability to continue as a going concern as of September 30, 2022.
Our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022 were prepared on a going concern basis in accordance with generally accepted accounting principles in the United States. The going concern basis assumes that we will continue in operation for the next 12 months and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business. Thus, our consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Our recurring losses, negative cash flow, need for additional capital, and the uncertainties surrounding our ability to raise such capital raise substantial doubt about our ability to continue as a going concern. For us to continue operations beyond the next 12 months and be able to discharge our liabilities and commitments in the normal course of business, we must sell our products directly to end-users and through distributors, establish profitable operations through increased sales, decrease expenses, generate cash from operations or raise additional funds when needed. We intend to improve our financial condition and ultimately improve our financial results by increasing revenues through expanding awareness of the benefits of our dental lasers among dental specialists and general practitioners and reducing expenses. If we are unable to raise additional capital, increase sales or reduce expenses, we will be unable to continue to fund our operations, develop our products, realize value from our assets, and discharge our liabilities in the normal course of business. If we become unable to continue as a going concern, we could have to liquidate our assets, and potentially realize significantly less than the values at which they are carried on our financial statements, and stockholders could lose all or part of their investment in our common stock.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
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Incorporated by Reference |
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Exhibit |
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Description |
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Filed Herewith |
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Form |
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Period Ending/Date of Report |
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Exhibit |
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Filing Date |
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2.1 |
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X |
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3.1.1 |
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S-1, Amendment |
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12/23/2005 |
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3.1 |
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12/23/2005 |
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3.1.2 |
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8-K |
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05/10/2012 |
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3.1 |
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05/16/2012 |
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3.1.3 |
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8-A/A |
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11/04/2014 |
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3.1.3 |
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11/04/2014 |
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3.1.4 |
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S-3 |
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07/21/2017 |
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3.4 |
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07/21/2017 |
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3.1.5 |
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8-K |
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05/10/2018 |
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3.1 |
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05/11/2018 |
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3.1.6 |
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8-K |
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05/28/2020 |
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3.1 |
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06/01/2020 |
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3.1.7 |
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8-K |
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04/28/2022 |
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3.1 |
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05/02/2022 |
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3.2 |
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Eighth Amended and Restated Bylaws of the Registrant adopted on March 1, 2022 |
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8-K |
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03/01/2022 |
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3.1 |
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03/03/2022 |
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4.1 |
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8-K |
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07/15/2020 |
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4.2 |
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07/22/2020 |
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4.2 |
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8-K |
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06/27/2022 |
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4.1 |
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06/29/2022 |
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4.3 |
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Form of Warrant to Purchase Common Stock issued on June 30, 2022 |
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8-K |
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06/27/2022 |
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4.2 |
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06/29/2022 |
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31.1 |
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X |
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31.2 |
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X |
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32.1 |
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** |
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32.2 |
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** |
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101 |
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The following unaudited financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended September 30, 2022, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Loss, (iii) Consolidated Statements of Cash Flows, (iv) Notes to Consolidated Financial Statements |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* Compensatory contract or arrangement
** Furnished herewith.
Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the Securities and Exchange Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BIOLASE, INC. |
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(Registrant) |
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November 10, 2022 |
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By: |
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/s/ JOHN R. BEAVER |
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Date |
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John R. Beaver |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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November 10, 2022 |
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By: |
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/s/ JENNIFER BRIGHT |
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Date |
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Jennifer Bright |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
41
Exhibit 2.1
Membership Interest Purchase Agreement
This Membership Interest Purchase Agreement (this “Agreement”), dated as of September 22, 2022, is entered into by and among Biolase, Inc., a Delaware corporation (“Buyer”), Med-Fiber LLC, a Maryland limited liability company (the “Company”), and Alexei Tchapyjnikov, an individual resident of *** and sole member of the Company (“Seller” together with the Company, the “Seller Parties”). In this Agreement, Buyer, the Company, and Seller are sometimes individually referred to as a “Party” and collectively as “Parties. ”
RECITALS
WHEREAS, Seller owns one hundred percent (100%) of the equity interests in the Company (the “Interests”);
WHEREAS, the Company is engaged in the business of manufacturing and supplying infrared transmitting fiber optics for laser power delivery applications, and activities related thereto (the “Business”); and
WHEREAS, at the Closing, on the terms and subject to the conditions set forth herein, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, all of the Interests on the terms and conditions listed below (the “Transaction”).
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1
Article I
Definitions
The following terms have the meanings specified or referred to in this Article I:
“Action” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at Law or in equity.
“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by Contract or otherwise.
“Ancillary Documents” means the Consulting Agreement and any certificate delivered by the Seller Parties to Buyer pursuant to this Agreement.
“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in Los Angeles, California are authorized or required by Law to be closed for business.
“Buyer Group” means, collectively, Buyer, each of its Subsidiaries and their respective Affiliates.
“CARES Act” means the Coronavirus Aid, Relief, and Economic Security Act of 2020, as may be amended or modified from time to time, including any rules or regulations promulgated by a Governmental Authority thereunder (including any analogous or similar provision under state and local Law).
“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.
“Code” means the Internal Revenue Code of 1986, as amended.
“Commercial Ready Stage Conditions” means ***; provided that ***.
“Commercial Ready Stage Outside Date” means the date that is *** from the date that the ***.
“Company Documentation” means all design and manufacturing instructions, workpapers, log-books, and all other documentation relating to the business of Seller described in Exhibit D.
“Company Equipment” means all of the Company’s equipment (including processing equipment) set forth on Exhibit D and identified by make model and serial number.
“Company Equipment Performance Standards” means the achievement of each of the performance standards for the Company Equipment to the extent set forth on Exhibit C.
“Company Inventory” means all the Company’s inventory set forth on Exhibit D.
“Company IP Agreements” means all material licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, permissions and other Contracts (including any right to receive or obligation to pay royalties or any other consideration), whether written or oral, relating
2
to Intellectual Property Rights to which the Company is a party, beneficiary or otherwise bound, but excluding any shrink-wrap, click-wrap, or similar licenses for commercially available off-the-shelf software with purchase prices or annual renewals of less than $5,000.
“Company IP Registrations” means all Intellectual Property Rights that are owned, purportedly owned, held by, or filed by or on behalf of, the Company that are subject to any issuance, registration or application by, to or with any Governmental Authority or authorized private registrar in any jurisdiction, including Patents, Trademarks, Copyrights, Domain Names, and pending applications for any of the foregoing.
“Company Products” means any Company Software from which the Company has derived revenue from the sale, license, maintenance or provision thereof since the Company’s formation.
“Company Software” means all Software that is owned, developed, under development, marketed, distributed, licensed, sold or held for use by or on behalf of the Company.
“Consulting Agreement” means that certain Consulting Agreement dated as of the date hereof, by and between Buyer and Seller in substantially the form attached hereto as Exhibit A.
“Contracts” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, indentures, joint ventures and all other legally binding arrangements, whether written or oral.
“Covid Relief” means any legislation enacted or executive order issued in connection with the COVID-19 pandemic, including (a) the CARES Act, (b) the Continued Assistance Act, (c) the Executive Order signed by President Trump on August 8, 2020, as may be amended or modified from time to time, and (d) the Consolidated Appropriations Act of 2021, which was signed into law on December 27, 2020, as may be amended or modified from time to time, including, in each case, any rules or regulations promulgated thereunder (including any analogous or similar provision under state and local Law).
“Deductions” means all U.S. federal, state and local income Tax deductions related to the exercise or payment of employee options, employee phantom stock units, employee bonuses, payment under deferred compensation arrangements, payment of any investment banking (or other advisory) fees, other deductible Transaction Expenses and amounts included in Indebtedness, and payments made by or on behalf of the Company, in each case in connection with the transactions contemplated by this Agreement.
“Disclosure Schedules” means the Disclosure Schedules delivered by Seller concurrently with the execution and delivery of this Agreement as set forth on Exhibit B attached hereto.
“Documentation” means design and development documentation, operating manuals, user guides, product brochures, published and unpublished descriptions and specifications, written and electronic communications of any kind, in each case regarding or directed to or otherwise relating to the functionality, operation, performance, maintenance or support of the Company Software or Company Products.
“Dollars or $” means the lawful currency of the United States.
“Encumbrance” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.
“Environmental Claim” means any Action, Governmental Order, lien, fine, penalty, or, as to each, any settlement or judgment arising therefrom, by or from any Person alleging liability of whatever kind or
3
nature (including liability or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of, based on or resulting from: (a) the presence, Release of, or exposure to, any Hazardous Materials; or (b) any actual or alleged non-compliance with any Environmental Law or term or condition of any Environmental Permit.
“Environmental Law” means any applicable Law, and any Governmental Order or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “Environmental Law” includes, without limitation, the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.
“Environmental Notice” means any written directive, notice of violation or infraction, or notice respecting any Environmental Claim relating to actual or alleged non-compliance with any Environmental Law or any term or condition of any Environmental Permit.
“Environmental Permit” means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under or issued, granted, given, authorized by or made pursuant to Environmental Law.
“Equipment Delivery Conditions” means written confirmation from *** to Seller on the Closing Date, that ***.
“Equipment Processing Conditions” means the ***.
“Equipment Processing Outside Date” means the date that is *** from the date that ***.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
“ERISA Affiliate” means all employers (whether or not incorporated) that would be treated together with the Company or any of their Affiliates as a “single employer” within the meaning of Section 414 of the Code.
“Flow of Funds” means ***.
“Fraud” means ***.
4
“GAAP” means United States generally accepted accounting principles in effect from time to time.
“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.
“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.
“Hazardous Materials” means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.
“Indebtedness” means all Liabilities (without duplication) of the Company for (a) all indebtedness for the repayment of borrowed money, ***; (b) all Liabilities evidenced by bonds, debentures, notes or similar instruments (including any seller notes, deferred purchase price obligations or earnout obligations issued or entered into in connection with any acquisition); (c) all Liabilities under leases required to be capitalized or classified as a liability ***; (d) any *** contingent reimbursement obligations with respect to letters of credit, banker’s acceptance or similar credit transactions); (e) any off-balance sheet financing, including synthetic leases and project financing; (f) any payment obligations in respect of banker’s acceptances or letters of credit; (g) any obligations with respect to interest rate swaps, currency swap, collars, caps and similar hedging obligations; (h) all obligations for the deferred and unpaid purchase price of property or services; (i) current payment obligations under performance or surety bonds; (j) sale-leaseback transactions; (k) *** all Liabilities and other amounts owed by the Company to any holder of equity interests of the Company or to any such holder’s Affiliates (other than pursuant to the terms of this Agreement) with respect to such equity interests; (l) any of the obligations described in clauses (a) through (k) above of any other Person to the extent either guaranteed by the Company, or secured by any Encumbrance upon any asset or property of any of the Company; and (m) all principal, accreted value, accrued and unpaid interest, prepayment and redemption premiums or penalties (if any), unpaid fees and expenses, breakage costs, fees that would arise or become due as a result of the prepayment and bank overdrafts related to any of the obligations described in clauses (a) through (k) above. For the avoidance of doubt, Indebtedness will exclude all Taxes.
“Intellectual Property Rights” means any and all rights in, arising out of, or associated with any of the following in any jurisdiction throughout the world: (i) patents and patent applications (whether provisional or non-provisional), and all reissues, divisions, renewals, extensions, provisionals, continuations, continuations in part, substitutions, reexaminations, or restorations of any of the foregoing, and other Governmental Authority-issued indicia of invention ownership (including certificates of invention, petty patents, and patent utility models) (“Patents”); (ii) trademarks, service marks, brands, certification marks, trade dress, trade names, logos, slogans, corporate names and other indicia of source or origin, and registrations and applications for registration thereof, together with all of the goodwill associated therewith (“Trademarks”), (iii) copyrights and copyrightable works, whether or not copyrightable, and registrations, applications for registration, and renewals thereof (“Copyrights”), (iv) mask works, and all registrations, applications for registration, and renewals thereof; (v) moral and economic rights of authors and inventors, however denominated, (vi) industrial designs, and all Patents, registrations, applications for registration, and renewals thereof; (vii) internet domain names and social media account or user names (including
5
“handles”), whether or not Trademarks, all associated web addresses, URLs, websites and web pages, social medial accounts and pages, and all content and data thereon or relating thereto, whether or not Copyrights (“Domain Names”), (viii) trade secrets and other confidential information of every kind and description anywhere in the world (including ideas, formulae, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice)), discoveries, improvements, know-how, technology, business and technical information, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, nonpublic data and databases, data compilations and collections, financial and marketing plans and client and vendor lists and information, (ix) rights of publicity, (x) all rights to prosecute and maintain the applications and registrations for any of the foregoing, (xi) all rights to causes of action and remedies related to the foregoing, including without limitation, the right to sue (including, without limitation, for damages and injunctive relief) for any past, present or future infringement, misappropriation, violation, dilution or other unauthorized use of any of the foregoing, (xiii) all rights to receive current and future income, royalties, damages, payments or other consideration with respect to any of the foregoing, and (xiv) all other rights and interests arising out of, in connection with, or in relation to any of the foregoing.
“Inventory and Transportation Certificate” means a certificate, in form and substance reasonably satisfactory to Buyer and Seller, executed by the chief executive officer (or equivalent officer) of the Company certifying on behalf of the Company as of 12:01 a.m. Pacific Standard Time on the Closing Date: (i) the names and contact information of all suppliers of the Company; (ii) the number and type of all inventory in possession of the Company as of the Closing Date (and Buyer acknowledges that Seller is transferring all such inventory “AS IS”); and (iii) the amount of any remaining payments required by each supplier necessary for the company to take possessions of the purchased inventory, free and clear of all Encumbrances.
“Knowledge” means, when used with respect to the Company, the actual or constructive knowledge of *** after due inquiry.
“Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.
“Losses” means losses, damages, liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, Taxes, costs or expenses of whatever kind, including reasonable attorneys’ and other professionals’ fees that ***.
“Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, condition *** prospects, or assets of the Company, or (b) the ability of the Company or Seller to consummate the transactions contemplated hereby on a timely basis; provided, however, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) any changes in financial or securities markets in general; (iii) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; or (iv) any changes in applicable Laws or accounting rules, including GAAP; provided further, however, that any event, occurrence, fact, condition or change set forth above shall be taken into account in determining whether a Material Adverse Effect has occurred or could reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change has a disproportionate effect on the Company, individually or in the aggregate, compared to other participants in the industries in which the Company conducts its business.
“Milestone Payment” or “Milestone Payments” means collectively, Milestone Payment #1 and Milestone Payment #2.
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“Object Code” means one or more computer instructions in machine readable form (whether or not packaged in directly executable form), including any such instructions that are readable in a virtual machine, whether or not derived from Source Code, together with any partially compiled or intermediate code that may result from the compilation, assembly or interpretation of any Source Code. Object Code includes firmware, compiled or interpreted programmable logic, libraries, objects, bytecode, machine code, and middleware.
“Open Source Software” means any Software that is licensed pursuant to: (i) any license that is, or is substantially similar to, a license now or in the future approved by the Open Source Initiative and listed at http://www.opensource.org/licenses, which licenses include all versions of the GNU General Public License (GPL), the GNU Lesser General Public License (LGPL), the GNU Affero GPL, the MIT license, the Eclipse Public License, the Common Public License, the CDDL, the Mozilla Public License (MPL), the Server Side Public License (SSPL), the Artistic License, the Netscape Public License, the Sun Community Source License (SCSL), and the Sun Industry Standards License (SISL), (ii) any license under which Software or other materials are distributed or licensed as “free software,” “open source software” or under similar terms, or that is otherwise considered “free” or “open source” by the Free Software Foundation or the Open Source Foundation or that meets the Free Software Definition (www.gnu.org/philosophy/free-sw.html) or Open Source Definition (www.opensource.org/osd.html), or (iii) any Reciprocal License, in each case whether or not Source Code is available or included in such license.
“Ordinary Course of Business” means ***.
“Owned Intellectual Property Rights” means all Intellectual Property Rights owned or purportedly owned by the Company, including all Intellectual Property Rights in and to the Company Software and the Company Products.
“Permits” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.
“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.
“Post-Closing Tax Period” means any taxable period beginning after the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period (i) beginning after the Closing Date in the case of non-income Taxes or (ii) beginning on the Closing Date in the case of income Taxes.
“Pre-Closing Tax Period” means any taxable period ending on or before the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period ending on and including (i) the Closing Date in the case of non-income Taxes or (ii) the date immediately prior to the Closing Date in the case of income Taxes.
“Pre-Closing Taxes” means: (a) all Taxes of the Company for all Pre-Closing Tax Periods; (b) any Taxes of Seller for any taxable period, (c) all Taxes of any member of an affiliated, consolidated, combined or unitary group (other than the Company) of which the Company (or any predecessor of the Company) is or was a member on or prior to the Closing Date by reason of a Liability under Treasury Regulation Section 1.1502-6 or any comparable provisions of foreign, state or local Law; (d) any and all Taxes of any Person imposed on the Company arising under the principles of transferee or successor liability or by Tax Sharing Agreement entered into prior to the Closing, relating to an event or transaction occurring before the Closing Date, and (e) any Transfer Taxes allocable to Seller under Section 7.01. Notwithstanding the foregoing, Pre-Closing Taxes shall not include any ***.
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“Real Property” means the real property owned, leased or subleased by the Company, together with all buildings, structures and facilities located thereon.
“Reciprocal License” means a license of an item of Software that requires or that conditions any rights granted in such license upon: (i) the disclosure, distribution or licensing of any other Software (other than such item of Software in its unmodified form), (ii) a requirement that any disclosure, distribution or licensing of any other Software (other than such item of Software in its unmodified form) be at no charge, (iii) a requirement that any other licensee of the Software be permitted to modify, make derivative works of, or reverse-engineer any such other Software, (iv) a requirement that such other Software be redistributable by other licensees, or (v) the grant of any Patent rights (other than Patent rights in such item of Software), including non-assertion or Patent license obligations (other than Patent obligations relating to the use of such item of Software).
“Release” means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including, without limitation, ambient air (indoor or outdoor), surface water, groundwater, land surface or subsurface strata or within any building, structure, facility or fixture).
“Representative” means, with respect to any Person, any and all directors, managers, members, stockholders, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.
“Restricted Business” means the business of *** prior to the Closing Date.
“Software” means, in any form or format, any and all (i) computer programs, libraries and middleware, including applications, assemblers, applets, compilers, diagnostics, utilities, user interfaces and any and all software implementations of algorithms, models and methodologies, whether in Source Code, interpreted code or Object Code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow charts and other work product used to design, plan, organize and develop any of the foregoing and (iv) all programmer and user documentation, including user manuals and training materials and the Documentation, related to any of the foregoing.
“Source Code” means the human readable version of the Software that requires compilation or other manipulation before it can be executed by a computer and all corresponding and/or embedded comments, source documentation, development documentation, including but not limited to application programming interface specifications, release notes and build procedures, and technical specifications.
“Straddle Period” means a taxable period that begins on or before the Closing Date and ends after the Closing Date, excluding any Tax period with respect to income Taxes beginning on the Closing Date.
“Subsidiary” means ***.
“Tax Refund” means any refund (whether directly or indirectly through a right of setoff or credit) of Taxes (including payments of estimated Taxes) of the Company and any interest received thereon with respect to all Pre-Closing Tax Periods, to the extent the underlying Taxes were (i) taken into account in Transaction Expenses, (ii) paid by the Company on or before the Closing Date or (iii) paid or economically borne by Seller after the Closing. Tax Refunds for a Straddle Period will be apportioned consistently with the apportionment of the corresponding Tax liabilities pursuant to Section 7.05.
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“Tax Sharing Agreement” means a written agreement, the principal purpose of which relates to the sharing or allocation of, or indemnification for, Taxes.
“Taxes” means any and all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, capital stock, profits, license, lease, service, service use, withholding, payroll, social security contributions, employment, unemployment, disability, value added, alternative or add-on minimum, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, escheat or unclaimed property, ***, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever in the nature of a tax imposed by a Governmental Authority, together with any interest, additions or penalties imposed by a Governmental Authority with respect thereto and any interest imposed by a Governmental Authority in respect of such additions or penalties, whether disputed or not.
“Tax Return” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof, filed or required to be filed with a Governmental Authority.
“Territory” means the *** prior to the Closing Date.
“Transaction Consideration” means (a) the Closing Payment plus (b) the Milestone Payments (if any) minus, (c) the outstanding Indebtedness as of the Closing Date, and minus (d) the amount of unpaid Transaction Expenses as the Closing Date.
“Transaction Expenses” means without duplication, (a) any and all unpaid (whether or not accrued, accelerated or deferred) fees, expenses, or other payments or obligations of the Company and its respective Affiliates (including those fees, expenses, payments and obligations incurred by Seller or its Affiliates on behalf of the Company, or for which the Company is liable), arising from or in each case incurred in connection with the negotiation, preparation, execution and performance and consummation of the Transaction, this Agreement and the Ancillary Documents and due diligence in connection therewith, including financial advisors’, attorneys’, accountants’ and other professional fees and expenses, (b) (i) any bonus, fee, distribution, remuneration or other compensation to any employee, consultant or independent contractor of the Company as a result of, contingent upon or payable in connection with the transactions contemplated by this Agreement (excluding any “double trigger” payments resulting from a termination of employment or service caused or directed by the Buyer after the Closing Date), together with (ii) the employer portion of all payroll and other employment payable with respect to the items set forth in clause (i) above that are paid on or prior to the Closing Date, and (c)(i) any other bonus, fee, distribution, remuneration or other compensation payable to any employee, consultant or independent contractor of the Company at any time at or after the Closing, but solely to the extent accrued as of the Closing or payable with respect to services provided on or prior to the Closing pursuant to plans, Contracts or other obligations in place on or prior to the Closing Date, together with (ii) the employer portion of all payroll and other Taxes payable with respect to the items set forth in clause (i) above that are paid on or prior to the Closing Date. Notwithstanding anything in this Agreement to the contrary, Transaction Expenses will exclude all Taxes other than Taxes addressed in clause (b)(ii) and (c)(ii).
“WARN Act” means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign Laws related to plant closings, relocations, mass layoffs and employment losses.
“Willful Misrepresentation” means an ***.
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Article II
Transactions
Section 2.01 Purchase and Sale. On the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller hereby sells, conveys, assigns, transfers and delivers to Buyer, free and clear of all Encumbrances, and Buyer hereby purchases, acquires and takes assignment and delivery of, the Interests. Seller agrees that the Transaction Consideration payable pursuant to this Agreement constitutes the sole consideration to be received by Seller for all of Seller’s Interests (and any other equity, ownership interest or other security in or of the Company), and that Seller has waived or hereby unconditionally and irrevocably waives any rights or claims to receive any other consideration for Seller’s Interests (and any other equity, ownership interest or other security in or of the Company) under conflicting or contrary agreements, covenants or provisions contained in any Contract or the organization documents of the Company.
Section 2.02 Purchase Price. The purchase price for the Interests is One Million Three Hundred Twenty Thousand Dollars ($1,320,000.00) (the “Closing Payment” ), plus the Milestone Payment(s) described in Section 2.03 below (if any) (collectively, the “Purchase Price” ). At the Closing and subject to satisfaction of the Equipment Delivery Conditions, Buyer shall pay to Seller, the Closing Payment, in cash, via wire transfer of immediately available funds to an account designated in writing by Seller; provided, however, each of Transaction Expenses and payments to payees of Company Indebtedness, shall be deducted from the Closing Payment and paid to those accounts designated on the Flow of Funds; provided further that any compensatory amounts to employees of the Company included in Transaction Expenses will be paid to the Company for payment through the Company’s payroll on the Closing Date.
Section 2.03 Milestone Payments. Subject to the terms and conditions set forth in this Section 2.03, Seller shall be entitled to receive the Milestone Payments.
(a) Milestone Payment #1. Within three (3) Business Days after the Equipment Processing Conditions have been satisfied, Buyer shall pay to Seller, the sum of Four Hundred Forty Thousand Dollars ($440,000.00), in cash, via wire transfer of immediately available funds to an account designated in writing by Seller (“Milestone Payment #1”). *** Notwithstanding the foregoing, Buyer shall have no obligation to pay any portion of the Milestone Payment #1 if the Equipment Processing Conditions are not satisfied by the Equipment Processing Outside Date.
(b) Milestone Payment #2. Within three (3) Business Days after the Commercial Ready Stage Conditions have been satisfied, Buyer shall pay to Seller, the sum of Four Hundred Forty Thousand Dollars ($440,000.00), in cash, via wire transfer of immediately available funds to an account designated in writing by Seller (“Milestone Payment #2”). Notwithstanding the foregoing, Buyer shall have no obligation to pay any portion of the Milestone Payment #2 if the Commercial Ready Stage Conditions are not satisfied by the Commercial Ready Stage Outside Date.
(c) ***
(d) No Partial Payment. Seller acknowledges and agrees that the Milestone Payments are subject to the satisfaction of the conditions set forth in Section 2.03(a) and Section 2.03(b), and that Seller is not guaranteed all or any portion of the Milestone Payments unless and until such conditions are satisfied in accordance with this Agreement.
(e) Tax Treatment of Milestone Payments. Any payments made pursuant to this Section 2.03 will be treated as an adjustment to the Purchase Price for Tax purposes unless otherwise required by applicable Law.
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Section 2.04 Closing. Subject to the terms and conditions of this Agreement, the closing of the Transaction (the “Closing”) shall take place at 12:01 a.m., Pacific Standard Time, on the date hereof, via the electronic exchange of documents and funds, or at such other time or on such other date or at such other place as Buyer and Seller may mutually agree upon in writing (the day on which the Closing takes place being the “Closing Date”).
Section 2.05 Closing Deliverables.
(a) At or prior to the Closing, Seller shall deliver, or cause to be delivered, to Buyer:
(i) an assignment agreement from Seller assigning the Interests to Buyer in form and substance reasonably satisfactory to Buyer;
(ii) the Consulting Agreement duly executed by Seller in substantially the form attached hereto as Exhibit A;
(iii) all consents, authorizations, orders and approvals from the Governmental Authorities referred to in Section 3.03.
(iv) executed counterparts of all approvals, consents and waivers that are listed on Section 3.03 of the Disclosure Schedules;
(v) resignations of each of the managers and officers of the Company as requested by Buyer;
(vi) evidence, in form and substance reasonably satisfactory to Buyer, that each of the Contracts and other arrangements set forth on Schedule 2.05(a)(vii) has been terminated as of the Closing such that no Person shall have any right or obligation thereunder from and after the Closing;
(vii) a certificate of the Secretary or an Assistant Secretary (or equivalent officer or manager) of the Company certifying that (A) attached thereto are true and complete copies of all resolutions adopted by the governing persons of the Company authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, and (B) all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby;
(viii) a good standing certificate (or its equivalent) from the secretary of state or similar Governmental Authority of the respective jurisdiction under the Laws in which the Company is organized;
(ix) *** (the “Payoff Letters”) in form and substance reasonably acceptable to Buyer, ***;
(x) the Flow of Funds, duly executed by Seller;
(xi) *** the Inventory and Transportation Certificate;
(xii) a duly completed and executed IRS Form W-9 of Seller; and
(xiii) all of the books and records of the Company of any kind or nature in Seller’s possession; and
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(xiv) such other documents or instruments as Buyer reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.
(b) At the Closing, Buyer shall deliver or caused to be delivered to Seller the following:
(i) payment to Seller by wire transfer of immediately available funds an amount equal to (A) the Closing Payment, minus (B) the Transaction Expenses;
(ii) the Consulting Agreement duly executed by Buyer in substantially the form attached hereto as Exhibit A;
(iii) the Flow of Funds, ***;
(iv) payment to the applicable third parties by wire transfer of immediately available funds an amount equal to the Transaction Expenses amounts specified in the Flow of Funds, ***;
(v) evidence reasonably satisfactory *** that *** has paid the transportation and shipping costs necessary to ship the Company Equipment and Company Inventory to Buyer’s designated facility and that insurance coverage has been procured *** for the benefit of Buyer with respect to all assets transported to Buyer as contemplated by this Agreement, in each case, in the amounts set forth in the Flow of Funds;
(vi) payment to holders of outstanding Indebtedness, if any, by wire transfer of immediately available funds *** as set forth on the applicable Payoff Letter;
(vii) a certificate of the Secretary or an Assistant Secretary (or equivalent manager or officer) of Buyer certifying that (A) attached thereto are true and complete copies of all resolutions adopted by the managers of Buyer authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, and (B) all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby; and
(viii) such other documents or instruments as the Company reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.
Section 2.06 Withholding Rights. Buyer and the Company shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement such amounts as are required to be deducted and withheld with respect to the making of such payment under the Code or any other provision of Tax Law; provided, that, Buyer shall use commercially reasonable efforts to provide the Seller with advance written notice of any such intended withholding (other than any withholding on amounts properly treated as compensation for U.S. federal income Tax purposes) before the making of such payment, and Buyer shall cooperate in good faith with the Seller to the extent reasonably requested by the Seller to obtain any available exception from, or reduction in, such withholding to the extent permitted under applicable Law. To the extent that amounts are so deducted and withheld and paid over to the appropriate Governmental Authority, such amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made.
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Article III
Representations and warranties of the Company
Except as set forth in the Disclosure Schedules attached as Exhibit B hereto, *** represents and warrants to Buyer that the statements contained in this Article III are true and correct as of the date hereof ***:
Section 3.01 Organization and Qualification of the Company. The Company is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation and has full corporate power and authority to carry on its business as it has been and is currently and historically conducted. Section 3.01 of the Disclosure Schedules sets forth each jurisdiction in which the Company is licensed or qualified to do business, and the Company is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business as currently conducted makes such licensing or qualification necessary or advisable.
Section 3.02 Authority; Board Approval. The Company has full power and authority to enter into and perform its obligations under this Agreement and the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Company and Seller of this Agreement and any Ancillary Document to which it or they is a party and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize the execution, delivery and performance of this Agreement or to consummate the Transaction and the other transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Company, and (assuming due authorization, execution and delivery by each other party hereto) this Agreement constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. When each Ancillary Document to which the Company or Seller is or will be a party has been duly executed and delivered by the Company (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of the Company enforceable against it in accordance with its terms.
Section 3.03 No Conflicts; Consents. The execution, delivery and performance by the Company of this Agreement and the Ancillary Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, including the Transaction, do not and will not: (i) conflict with or result in a violation or breach of, or default under, any provision of the certificate of formation, company agreement, or other organizational documents of the Company (“Company Charter Documents”); (ii) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to the Company; (iii) except as set forth in Section 3.03 of the Disclosure Schedules, require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract to which the Company is a party, or by which the Company is bound or to which any of its assets are subject (including any Material Contract) or any Permit affecting the respective properties, assets or business of the Company; or (iv) result in the creation or imposition of any Encumbrance on any Company Equipment. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to the Company in connection with the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby.
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Section 3.04 Capitalization.
(a) Seller is the sole record and beneficial owner of all of the membership interests of the Company.
(b) (i) No subscription, warrant, option, convertible or exchangeable security, or other right (contingent or otherwise) to purchase or otherwise acquire equity securities of the Company is authorized or outstanding, and (ii) there is no commitment by the Company to issue shares, subscriptions, warrants, options, convertible or exchangeable securities, or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset, to repurchase or redeem any securities of the Company or to grant, extend, accelerate the vesting of, change the price of, or otherwise amend any warrant, option, convertible or exchangeable security or other such right. There are no declared or accrued unpaid distributions with respect to any membership interests of the Company.
(c) All membership interests of the Company are (i) not subject to any preemptive rights created by statute, the Company Charter Documents or any agreement to which the Company is a party; and (ii) free of any Encumbrances created by the Company in respect thereof. All outstanding membership interests were issued in compliance with applicable Law.
(d) No outstanding membership interests of the Company are subject to vesting or forfeiture rights or repurchase by the Company. There are no outstanding or authorized stock appreciation, dividend equivalent, phantom stock, profit participation or other similar rights with respect to the Company or any of its securities.
(e) All distributions, dividends, repurchases and redemptions of the equity interests of the Company were undertaken in compliance with the Company Charter Documents then in effect, any agreement to which the Company then was a party and in compliance with applicable Law.
Section 3.05 Subsidiaries. The Company does not own, or have any interest in any shares or have an ownership interest in any other Person.
Section 3.06 Financial Statements.
(a) Complete copies of the Company’s financial statements consisting of the balance sheet of the Company as of December 31, 2021 and the related statement of income and retained earnings, members’ equity and cash flow for the fiscal year then ended (the “Financial Statements”), and financial statements consisting of the balance sheet of the Company as at July 31, 2022 and the related statement of income and retained earnings, members’ equity and cash flow for the seven-month period then ended (the “Interim Financial Statements” and together with the Reviewed Financial Statements, the “Financial Statements”) have been delivered to Buyer. The Financial Statements have been prepared in accordance with ***. The Financial Statements are based on the books and records of the Company and fairly and accurately present the financial condition of the Company as of the respective dates they were prepared and the results of the operations of the Company for the periods indicated and each line item and each sub line items reflected in the Financial Statement is fair and accurate. The balance sheet of the Company as of December 31, 2021 is referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date” and the balance sheet of the Company as of July 31, 2022 is referred to herein as the “Interim Balance Sheet” and the date thereof as the “Interim Balance Sheet Date”. *** All transactions with the related Persons described in Section 3.26 have been properly recorded and reflected on the accounting records of the Company and have been properly characterized and recorded.
(b) All information reflected on the Inventory and Transportation Certificate is true, complete and accurate.
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Section 3.07 Undisclosed Liabilities. The Company has no liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise (“Liabilities”), except (a) those which are adequately reflected or reserved against in the Balance Sheet as of the Balance Sheet Date, (b) those which have been incurred in the Ordinary Course of Business since the Balance Sheet Date and which are not, individually or in the aggregate, material in amount to the Company; and (c) those that were incurred in connection with the negotiation and consummation of the Agreement and that will be paid in full at Closing.
Section 3.08 Absence of Certain Changes, Events and Conditions. Except as set forth in Section 3.08 of the Disclosure Schedules, the Company and Seller have complied with the binding provisions of the letter agreement, dated July 29, 2022, among Buyer, the Company, and Seller (the “Letter of Intent”). Since the Balance Sheet Date, there has not been, with respect to the Company, any:
(a) event, occurrence or development that has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;
(b) failure to use commercially reasonable efforts to preserve intact the Company’s present business organization and to keep available the services of its officers, managerial personnel and key employees or independent contractors and preserve its relationships with customers, suppliers and others having business dealings with it;
(c) amendment of any Company Charter Document;
(d) split, combination or reclassification of any of its equity interests;
(e) issuance, sale or other disposition of any of its equity interests or grant of any options, warrants or other rights to purchase or obtain (including upon conversion, exchange or exercise) any of its equity interests;
(f) declaration or payment of any dividends or distributions on or in respect of any of its equity interests or redemption, purchase or acquisition of its equity interests, other than tax distributions;
(g) material change in any method of its accounting or accounting practice, except as required by GAAP or as disclosed in the notes to the Financial Statements;
(h) material change in its cash management practices and its policies, practices and procedures with respect to collection of accounts receivable, establishment of reserves for uncollectible accounts, accrual of accounts receivable, inventory control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits;
(i) transfer, assignment, sale or other disposition of any of the assets shown or reflected in the Balance Sheet or cancellation of any debts or entitlements except in the Ordinary Course of Business;
(j) transfer, assignment or grant of any license or sublicense of any material rights under or with respect to any Company Intellectual Property Rights;
(k) material damage, destruction or loss (whether or not covered by insurance) to its property;
(l) any capital investment in, or any loan to, any other Person;
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(m) acceleration, termination, material modification to or cancellation of any Material Contract;
(n) any material capital expenditures;
(o) imposition of any Encumbrance upon any of its properties, equity interests or assets, tangible or intangible, other than a Permitted Encumbrance;
(p) (i) grant of any bonuses, whether monetary of otherwise, or increase in any wages, salary, severance, pension or other compensation or benefits in respect of its current or former employees, officers, directors, independent contractors or consultants, other than as provided for in any written agreements, or as required by applicable Law, (ii) change in the terms of employment for any employee or any termination of any employees for which the aggregate costs and expenses exceed $25,000.00, or (iii) action to accelerate the vesting or payment of any compensation or benefit for any current or former employee, officer, director, independent contractor or consultant;
(q) hiring or promoting any person as or to (as the case may be) an officer or hiring or promoting any employee below officer except to fill a vacancy in the Ordinary Course of Business;
(r) the adoption, modification or termination of any: (i) employment, severance, retention or other agreement with any current or former employee, officer, director, independent contractor or consultant, (ii) Benefit Plan (other than as required by Law), or (iii) collective bargaining or other agreement with a Union, in each case whether written or oral;
(s) any loan to (or forgiveness of any loan to), or entry into any other transaction with, any of its members, stockholders or current or former managers, directors, officers and employees;
(t) entry into a new line of business or abandonment or discontinuance of existing lines of business;
(u) adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law;
(v) purchase, lease or other acquisition of the right to own, use or lease any property or assets for an amount in excess of $10,000.00 individually (in the case of a lease, per annum) or $25,000.00 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of inventory or supplies in the Ordinary Course of Business;
(w) acquisition by merger or consolidation with, or by purchase of a substantial portion of the assets or stock of, or by any other manner, any business or any Person or any division thereof;
(x) action by the Company to (i) make, change or rescind any material Tax election, (ii) amend any Tax Return or file any Tax Return in a manner inconsistent with past practice, (iii) settle or compromise any claim, notice, audit report or assessment in respect of Taxes, (iv) change any annual Tax accounting period, or change any method of Tax accounting, (v) enter into any Tax Sharing Agreement or any closing agreement relating to any Tax, or (vi) consent to any extension or waiver of the statute of limitations period applicable to any Tax claim or assessment; or
(y) any Contract to do any of the foregoing, or any action or omission that would result in any of the foregoing.
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Section 3.09 Material Contracts.
(a) Section 3.09(a) of the Disclosure Schedules lists each of the following Contracts of the Company (such Contracts, together with all Contracts concerning the occupancy, management or operation of any Real Property (including without limitation, brokerage Contracts) listed or required to be disclosed in Section 3.10(a) of the Disclosure Schedules and all Company IP Agreements listed or required to be disclosed in Section 3.12 of the Disclosure Schedules, being the “Material Contracts”):
(i) each Contract of the Company involving aggregate consideration in excess of $10,000.00 during the prior six (6) complete months plus any partial portion of a month and which, in each case, cannot be cancelled by the Company without penalty or without more than 60 days’ notice;
(ii) each Contract of the Company with a Material Customer;
(iii) each Contract of the Company with a Material Supplier;
(iv) all Contracts that require the Company to obtain or maintain a surety or performance bond;
(v) all Contracts that require the Company to purchase its total requirements of any product or service from a third party or that contain “take or pay” provisions;
(vi) all Contracts that provide for the indemnification by the Company of any Person or the assumption of any environmental or other Liability of any Person and all Tax Sharing Agreements;
(vii) all Contracts that relate to the acquisition or disposition of any business, a material amount of stock, assets or a division of any other Person or any real property (whether by merger, sale of stock, sale of assets or otherwise);
(viii) all broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research, marketing consulting and advertising Contracts to which the Company is a party;
(ix) (A) all employment, confidentiality, non-competition, severance or termination agreements with employees or consultants, or involving any loan to any employee or independent contractor of the Company, and (B) all Contracts with independent contractors or consultants (or similar arrangements), in each case of (A) and (B) to which the Company is a party and which are not cancellable without payment or without more than 30 days’ notice;
(x) except for Contracts relating to trade receivables, all Contracts relating to Indebtedness of the Company;
(xi) all Contracts with any Governmental Authority to which the Company is a party (“Government Contracts”);
(xii) all Contracts that limit or purport to limit the ability of the Company to compete in any line of business or with any Person or in any geographic area or during any period of time;
(xiii) all Contracts of the Company containing (A) a “most favored nation” provision, (B) an exclusivity obligation or (C) a minimum purchase, service level guarantees, guaranteed payments or obligations or similar provisions;
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(xiv) any Contracts to which the Company is a party that provide for any joint venture, partnership or similar arrangement by the Company;
(xv) all collective bargaining agreements or Contracts with any Union to which the Company is a party;
(xvi) all Contracts between or among the Company on the one hand and Seller or related Person described in Section 3.26 on the other hand; and
(xvii) any other Contract that is material to the Company and not previously disclosed pursuant to this Section 3.09.
(b) Each Material Contract is (i) valid and binding on the Company in accordance with its terms and, to the Company’s Knowledge, valid and binding on each other party thereto and (ii) is in full force and effect. None of the Company or, to the Company’s Knowledge, any other party thereto is in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of any intention to terminate, any Material Contract. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Buyer.
Section 3.10 Title to Assets; Real Property.
(a) The Company has good and valid (and, in the case of owned Real Property, good and marketable fee simple) title to, or a valid leasehold interest in, all Real Property and personal property and other assets reflected in the Reviewed Financial Statements or acquired after the Balance Sheet Date, other than properties and assets sold or otherwise disposed of in the Ordinary Course of Business since the Balance Sheet Date. All such properties and assets (including leasehold interests) are free and clear of Encumbrances except for the following (collectively referred to as “Permitted Encumbrances”):
(i) liens for Taxes not yet due and payable;
(ii) mechanics, carriers’, workmen’s, repairmen’s or other like liens arising or incurred in the Ordinary Course of Business or amounts that are not delinquent and which are not, individually or in the aggregate, material to the business of the Company and if unpaid, could not disrupt the operation of the Company’s Business;
(iii) easements, rights of way, zoning ordinances and other similar Encumbrances affecting Real Property which are not, individually or in the aggregate, material to the business of the Company; or
(iv) other than with respect to owned Real Property, liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the Ordinary Course of Business which are not, individually or in the aggregate, material to the business of the Company.
(b) Section 3.10(b) of the Disclosure Schedules lists (i) the street address of each parcel of Real Property; (ii) if such property is leased or subleased by the Company, the landlord under the lease, the rental amount currently being paid, and the expiration of the term of such lease or sublease for each leased or subleased property; and (iii) the current use of such property. With respect to owned Real Property, the
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Company has delivered or made available to Buyer true, complete and correct copies of the deeds and other instruments (as recorded) by which the Company acquired such Real Property, and copies of all title insurance policies, opinions, abstracts and surveys in the possession of the Company and relating to the Real Property. With respect to leased Real Property, the Company has delivered or made available to Buyer true, complete and correct copies of any leases affecting the Real Property. The Company is not a sublessor or grantor under any sublease or other instrument granting to any other Person any right to the possession, lease, occupancy or enjoyment of any leased Real Property. The use and operation of the Real Property in the conduct of the Company’s business does not violate in any material respect any Law, covenant, condition, restriction, easement, license, Permit or Contract. No material improvements constituting a part of the Real Property encroach on real property owned or leased by a Person other than the Company. There are no Actions pending nor, to the Company’s Knowledge, threatened against or affecting the Real Property or any portion thereof or interest therein in the nature or in lieu of condemnation or eminent domain proceedings. All utilities (including water, sewer or septic, gas, electricity, trash removal and telephone service) necessary for the current operations of the Company are available to the Real Property and adequately serve the Real Property in connection with the operations of the Company.
Section 3.11 Condition and Sufficiency of Assets. The machinery, inventory, equipment, vehicles and other items of tangible personal property of the Company are in good operating condition and repair, and are adequate for the uses to which they are being or intended to be put, and none of such machinery, inventory, equipment, vehicles and other items of tangible personal property is in need of repairs. The machinery, inventory, equipment, vehicles and other items of tangible personal property of the Company are sufficient for the production of products that meet the performance specifications set forth in the Consulting Agreement presuming they are properly calibrated and operated, and the Company’s equipment is provided with all necessary utility and power tie-ins.
Section 3.12 Intellectual Property.
(a) Section 3.12(a) of the Disclosure Schedules contains a complete and accurate description and list of all Company IP Registrations and all Domain Names owned by, or used for the benefit of, the Company. All required filings and fees related to the Company IP Registrations have been timely filed with and paid to the relevant Governmental Authorities and authorized registrars, and all Company IP Registrations are otherwise in good standing. The Company has perfected all gaps in title to all Company IP Registrations prior to the date hereof.
(b) Section 3.12(b) of the Disclosure Schedules lists all Company IP Agreements. Buyer has been provided true and complete copies (or in the case of any oral agreements, a complete and correct written description) of all such Company IP Agreements, including all modifications, amendments and supplements thereto and waivers thereunder. Each Company IP Agreement is valid and binding on the Company in accordance with its terms and is in full force and effect. None of the Company nor any other party thereto is, or is alleged to be, in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of breach or default of or any intention to terminate (including by non-renewal), any Company IP Agreement.
(c) The Company is the sole and exclusive legal and beneficial (and with respect to the Company IP Registrations, record owner) of all right, title and interest to the Intellectual Property Rights set forth in Section 3.12(a) of the Disclosure Schedules and to the Company’s knowledge, all other Owned Intellectual Property Rights, free and clear of all Encumbrances. The Company owns and possesses sufficient right, title and interest to, or has the right to use pursuant to a valid, written and enforceable Company IP Agreement or license for commercially available off the shelf software, all other Intellectual Property Rights necessary for or used in the operation of its business, free and clear of all Encumbrances (all of the foregoing in this Section 3.12(c), the “Company Intellectual Property Rights”). No current or former
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manager, member, director, officer, employee, agent, consultant or independent contractor of the Company has any right, license, claim, moral right or interest whatsoever in or with respect to any of the Company Intellectual Property Rights.
(d) Neither the execution, delivery, or performance of this Agreement, nor the consummation of the transactions contemplated hereunder, will result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other Person in respect of, the Company’s right to own, use, or hold for use any Intellectual Property Rights as owned, used or held for use in the conduct of the Company’s business or operations as currently conducted.
(e) All of the managers, members, directors, officers, employees, agents, consultants, and independent contractors of the Company, and all other Persons that have contributed to the creation, invention, modification or improvement of any material Intellectual Property Rights for or on behalf of the Company (regardless of whether listed as an inventor on any associated Company IP Registrations), in whole or in part, have signed written Contracts pursuant to which each such Person: (i) grants to the Company a present, irrevocable assignment of any ownership interest such Person may have in or to such Intellectual Property Rights; and (ii) irrevocably waives any right or interest, including any moral rights, regarding such Intellectual Property Rights, to the extent permitted by applicable Law.
(f) To the Company’s knowledge, all Company Intellectual Property Rights are subsisting, valid, and enforceable. Without limiting the generality of the foregoing, here have been no claims or demands made or threatened against the Company, nor is there any proceeding that is pending or threatened, nor is there a reasonable basis therefor, asserting the invalidity, misuse, unenforceability of or that otherwise challenges the rights of the Company with respect to, any of the Company Intellectual Property Rights.
(g) To the Company’s knowledge, the Company has not infringed, misappropriated, diluted or otherwise violated, and the operation of the Company’s business, each item of Company Software, and each Company Product does not infringe, misappropriate, dilute or otherwise violate, any Intellectual Property Rights of any third party. To the Company’s Knowledge, there are no facts that indicate any likelihood of any of the foregoing.
(h) To the Company’s knowledge, no third party has infringed, misappropriated, diluted, violated or otherwise conflicted with any of the Company Intellectual Property Rights, and, to the Company’s Knowledge, there are no facts indicating a likelihood of any of the foregoing.
(i) There are no written Actions (including any opposition, cancellation, revocation, review, or other proceeding) settled, pending or threatened (including in the form of offers to obtain a license): (i) alleging any infringement, misappropriation, dilution or violation of the Intellectual Property Rights of any Person by the Company; (ii) challenging the validity, enforceability, registrability or ownership of any Company Intellectual Property Rights; or (iii) by the Company or any other Person alleging any infringement, misappropriation, dilution or violation by any Person of the Company Intellectual Property Rights. The Company is not subject to any outstanding or prospective Governmental Order (including any motion or petition therefor) that does or would restrict or impair the use of any Company Intellectual Property Rights.
(j) The Company has not disclosed or distributed any of its trade secrets or material confidential information to any Person, except to third parties subject to customary confidentiality obligations. The Company has entered into written confidentiality agreements with each of its managers, members, officers, employees, agents, consultants, and independent contractors pursuant to which such Person acknowledges the confidentiality of the Company Intellectual Property Rights and agrees to keep confidential the confidential information of the Company.
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(k) No Software that has been licensed to the Company under a Reciprocal License (including any modification or derivative work based upon any such Software), in whole or in part: (i) is used in, incorporated into, combined with, linked with, distributed with, provided to any Person as a service, provided via a network or made available with the Company’s product (including, without limitation, Company Products), (ii) was modified or rewritten by the Company, or is otherwise a derivative work created by the Company upon which any Software embodied in or used in the Company product (including, without limitation, Company Products) is based, or (iii) is distributed or made available to any Person by the Company. With respect to any third-party Software and any Open Source Software that is or has been used by the Company in any way in connection with the Company’s product (including, without limitation, Company Products), the Company is and has been in compliance in all material respects with all applicable licenses with respect thereto.
(l) The Company is not a party to or bound by any agreement pursuant to which the Company has granted, or is obligated to grant in the future, to any Person a source code license or option or other right to use or acquire the Company’s Source Code, including any agreements that provide for source code escrow arrangements for such Source Code. The Company has not disclosed or distributed any Software (including Object Code or Source Code) to any Person, except to third parties subject to customary confidentiality obligations. The Company possesses all Source Code and other Documentation and materials necessary or useful to compile and operate any and all Company Software and Company Products. No event has occurred, and no circumstances or conditions exist, that with or without notice, lapse of time or both, will, or could reasonably be expected to, result in the disclosure or delivery to any Person of any Source Code for any such Software.
(m) No government funding, facilities of a university, college, or other educational institution or research center was used in the development of the Company Intellectual Property Rights. No current or former manager, member, officer, employee, agent, consultant, or independent contractor of the Company who was involved in, or who contributed to, the creation or development of any Owned Intellectual Property Rights, has performed services for any government, university, college, or other educational institution or research center during a period of time during which such officer, employee, agent, consultant, or contractor was also performing services for the Company.
(n) The Company is not and has not ever been a member of, a contributor to, or affiliated with, any industry standards organization, body, working group or similar organization that could compel the Company to grant or offer to any third party any license or right to any Company Intellectual Property Rights. None of the Company Intellectual Property Rights, are subject to any licensing, assignment, contribution, disclosure or other requirements or restrictions of any industry standards organization, body, working group or similar organization. Buyer has been provided with accurate and complete copies of all governing documents and other agreements (including charter, bylaws, and participation guidelines) relating to the Company’s or membership in, contribution to or affiliation with any industry standards organization, body, working group or similar organization.
Section 3.13 Equipment; Inventory.
(a) ***
(b) All of the Company Equipment is owned by the Company free and clear of all Encumbrances, and no Company Equipment is held on a consignment basis.
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(c) Section 3.13(c) of the Disclosure Schedules contains a list of each representation and warranty provided by any other Person (including suppliers, manufactures, and any service provider) in writing or implied by applicable Law with respect to the Company’s inventory, tools, machinery and equipment (collectively, the “Company Warranties”). Seller has provided copies of all written Company Warranties to Buyer prior to the Closing.
(d) Except as set forth on Section 3.13(d) of the Disclosure Schedules, the Company will have the full right to enforce each of the Company Warranties after the Closing to the same extent the Company had such right prior to the Closing.
(e) Seller has no Liability for replacement, servicing or repair of any products sold or other damages in connection therewith or any other customer or product obligations not properly reserved against on the Balance Sheet as required under pursuant to the Company’s accounting methods utilized as of the date hereof. Neither Seller nor the Company has any material Liability arising out of any injury to individuals or property as a result of the ownership, possession, or use of any products, materials, supplies, equipment, or inventory, or any other product repaired, maintained, delivered, sold or installed, or services rendered by or on behalf of, the Company. Neither Seller nor the Company has committed any act or failed to commit any act which would result in, and there has been no occurrence which would give rise to or form the basis of, any product liability or material Liability for breach of warranty (whether or not covered by insurance) on the part of the Company with respect to any products, materials, supplies, equipment, or inventory, or any other products repaired, maintained, delivered, sold or installed, or services rendered by or on behalf of, the Company.
Section 3.14 Accounts Receivable. The accounts receivable reflected on the Interim Balance Sheet and the accounts receivable arising after the date thereof (a) have arisen from bona fide transactions entered into by the Company involving the sale of goods or the rendering of services in the Ordinary Course of Business; (b) constitute only valid, undisputed claims of the Company not subject to claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the Ordinary Course of Business; and (c) subject to a reserve for bad debts shown on the Interim Balance Sheet or, with respect to accounts receivable arising after the Interim Balance Sheet Date, on the accounting records of the Company, are collectible in full within 90 days after billing. The reserve for bad debts shown on the Interim Balance Sheet or, with respect to accounts receivable arising after the Interim Balance Sheet Date, on the accounting records of the Company have been determined fairly and accurately in accordance with the Company’s historical accounting methods, consistently applied, subject to normal year-end adjustments and the absence of disclosures normally made in footnotes.
Section 3.15 Customers and Suppliers.
(a) Section 3.15(a) of the Disclosure Schedules sets forth (i) each customer who has paid aggregate consideration to the Company for goods or services rendered in an amount greater than or equal to *** for each of the two most recent fiscal years and for the twelve-month period ending on the Interim Balance Sheet Date (collectively, the “Material Customers”); and (ii) the amount of consideration paid by each Material Customer during such periods. Except as set forth in Section 3.15(a) of the Disclosure Schedules, the Company has not received any notice, and has no reason to believe, that any of its Material Customers has ceased, or intends to cease after the Closing, to use its goods or services or to otherwise terminate or materially reduce its relationship with the Company.
(b) Section 3.15(b) of the Disclosure Schedules sets forth (i) each supplier to whom the Company has paid consideration for goods or services rendered in an amount greater than or equal to *** for each of the two most recent fiscal years and for the twelve-month period ending on the Interim Balance Sheet Date (collectively, the “Material Suppliers”); and (ii) the amount of purchases from each Material Supplier
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during such periods. Except as set forth in Section 3.15(b) of the Disclosure Schedules, the Company has not received any notice, and has no reason to believe, that any of its Material Suppliers has ceased, or intends to cease, to supply goods or services to the Company or to otherwise terminate or materially reduce its relationship with the Company.
Section 3.16 Insurance. Section 3.16 of the Disclosure Schedules sets forth a true and complete list of all current policies or binders of *** insurance maintained by the Company and relating to the assets, business, operations, employees, officers and directors of the Company (collectively, the “Insurance Policies”) and true and complete copies of such Insurance Policies have been made available to Buyer. Such Insurance Policies are in full force and effect and shall remain in full force and effect following the consummation of the transactions contemplated by this Agreement. The Company has not received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Insurance Policies. All premiums due on such Insurance Policies have either been paid or, if due and payable prior to Closing, will be paid prior to Closing in accordance with the payment terms of each Insurance Policy. The Insurance Policies do not provide for any retrospective premium adjustment or other experience-based liability on the part of the Company. All such Insurance Policies (a) are valid and binding in accordance with their terms; (b) are provided by carriers who are financially solvent; and (c) have not been subject to any lapse in coverage. Except as set forth on Section 3.16 of the Disclosure Schedules, there are no claims related to the business of the Company pending under any such Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. The Company is not in default under, and has not otherwise failed to comply with, in any material respect, any provision contained in any such Insurance Policy. The Insurance Policies are of the type and in the amounts customarily carried by Persons conducting a business similar to the Company and are sufficient for compliance with all applicable Laws and Contracts to which the Company is a party or by which it is bound.
Section 3.17 Legal Proceedings; Governmental Orders.
(a) There are no written Actions pending or, to the Company’s Knowledge, Actions threatened (i) against or by the Company affecting any of its properties or assets (or by or against Seller, or any Affiliate of Seller and relating to the Company); or (ii) against or by the Company that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action.
(b) There are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against or affecting the Company or any of its properties or assets. The Company is in compliance with the terms of each Governmental Order set forth in Section 3.17(b) of the Disclosure Schedules. No event has occurred or circumstances exist that may constitute or result in (with or without notice or lapse of time) a violation of any such Governmental Order.
Section 3.18 Compliance with Laws; Permits.
(a) Except as set forth in Section 3.18(a) of the Disclosure Schedules, the Company has complied, and is now complying, with all Laws applicable to it or its respective business, properties or assets.
(b) All Permits required for the Company to conduct its business have been obtained by it and are valid and in full force and effect. All fees and charges with respect to such Permits as of the date hereof have been paid in full. No event has occurred that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse or limitation of any Permit set forth in Section 3.18(b) of the Disclosure Schedules.
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Section 3.19 Environmental Matters.
(a) To the Company’s knowledge, the Company is currently and has been in material compliance with all Environmental Laws and has not received from any Person any: (i) Environmental Notice or Environmental Claim; or (ii) written request for information pursuant to Environmental Law, which, in each case, either remains pending or unresolved, or is the source of ongoing obligations or requirements as of the Closing Date.
(b) The Company has obtained and is in material compliance with all Environmental Permits necessary for the ownership, lease, operation or use of the business or assets of the Company and all such Environmental Permits are in full force and effect in accordance with Environmental Law, and the Company is not aware of any condition, event or circumstance that might prevent or impede, after the Closing Date, the ownership, lease, operation or use of the business or assets of the Company as currently carried out. With respect to any such Environmental Permits, the Company has undertaken all reasonable measures necessary to facilitate transferability of the same, and the Company has no Knowledge of any condition, event or circumstance that would likely prevent or impede the transferability of the same, nor has the Company received any Environmental Notice or written communication regarding any material adverse change in the status or terms and conditions of the same.
(c) No real property currently or formerly owned, operated or leased by the Company is listed on, or has been proposed for listing on, the National Priorities List (or CERCLIS) under CERCLA, or any similar state list.
(d) There has been no Release of Hazardous Materials in contravention of Environmental Law with respect to the business or assets of the Company or any real property currently or formerly owned, operated or leased by the Company, and no real property currently or formerly owned, operated or leased in connection with the business of the Company (including soils, groundwater, surface water, buildings and other structure located on any such real property) has been contaminated with any Hazardous Material which could reasonably be expected to result in an Environmental Claim against, or a violation of Environmental Law or term of any Environmental Permit by, the Company.
(e) There are no active or abandoned aboveground or underground storage tanks owned or operated by the Company.
(f) There are no off-site Hazardous Materials treatment, storage, or disposal facilities or locations used by the Company and any predecessors as to which the Company may retain liability, and none of these facilities or locations has been placed or proposed for placement on the National Priorities List (or CERCLIS) under CERCLA, or any similar state list, and the Company does not retain any liability therefore nor has received any Environmental Notice regarding potential liabilities with respect to such off-site Hazardous Materials treatment, storage, or disposal facilities or locations used by the Company.
(g) The Company has not retained or assumed, by Contract or operation of Law, any liabilities or obligations of third parties under Environmental Law.
(h) The Company has provided or otherwise made available to Buyer: (i) any and all environmental reports, studies, audits, records, sampling data, site assessments, risk assessments, economic models and other similar documents with respect to the business or assets of the Company or any currently or formerly owned, operated or leased real property which are in the possession or control of the Company related to compliance with Environmental Laws, Environmental Claims or an Environmental Notice or the Release of Hazardous Materials; and (ii) any and all material documents concerning planned or anticipated capital expenditures required to reduce, offset, limit or otherwise control pollution and/or emissions, manage waste
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or otherwise ensure compliance with current or future Environmental Laws (including, without limitation, costs of remediation, pollution control equipment and operational changes).
(i) The Company is not aware of or reasonably anticipating, as of the Closing Date, any condition, event or circumstance concerning the Release or regulation of Hazardous Materials that might, after the Closing Date, prevent, impede or increase the costs associated with the ownership, lease, operation, performance or use of the business or assets of the Company as currently carried out.
Section 3.20 Employee Benefit Matters.
(a) Section 3.20(a) of the Disclosure Schedules contains a true and complete list of each pension, benefit, retirement, compensation, employment, consulting, profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity, stock or stock-based, change in control, retention, severance, vacation, paid time off (PTO), medical, vision, dental, disability, welfare, Code Section 125 cafeteria, fringe-benefit and other similar agreement, plan, policy, program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether or not subject to ERISA, which is maintained, sponsored, contributed to or required to be contributed to by the Company for the benefit of any current or former employee, officer, director, retiree, independent contractor or consultant of the Company or any spouse or dependent of such individual, or under which the Company has or may reasonably be expected to have any Liability (including on behalf of an ERISA Affiliate) (as listed on Section 3.20(a) of the Disclosure Schedules, each, a “Benefit Plan”).
(b) With respect to each Benefit Plan, the Company has made available to Buyer accurate, current and complete copies of each of the following: (i) where the Benefit Plan has been reduced to writing, the plan document together with all amendments; (ii) where the Benefit Plan has not been reduced to writing, a written summary of all material plan terms; (iii) where applicable, copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and Contracts, administration agreements and similar agreements, and investment management or investment advisory agreements, now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise; (iv) copies of any summary plan descriptions, summaries of material modifications, summaries of benefits and coverage, COBRA communications, employee handbooks and any other material, non-routine written communications (or a description of any such oral communications) relating to any Benefit Plan; (v) in the case of any Benefit Plan that is intended to be qualified under Section 401(a) of the Code, a copy of the most recent determination, opinion or advisory letter from the Internal Revenue Service and any legal opinions issued thereunder with respect to such Benefit Plan’s continued qualification; (vi) in the case of any Benefit Plan for which a Form 5500 is required to be filed, a copy of the two most recently filed Form 5500, with schedules and financial statements attached; (vii) actuarial valuations and reports related to any Benefit Plans with respect to the two most recently completed plan years; (viii) the most recent nondiscrimination tests performed under the Code; and (ix) copies of material notices, letters or other correspondence from the Internal Revenue Service, Department of Labor, Pension Benefit Guaranty Corporation or other Governmental Authority relating to the Benefit Plan.
(c) Each Benefit Plan and any related trust (other than any multiemployer plan within the meaning of Section 3(37) of ERISA (each a “Multiemployer Plan”)) has been established, administered and maintained, in all material respects, in accordance with its terms and in compliance with all applicable Laws. Each Benefit Plan that is intended to be qualified within the meaning of Section 401(a) of the Code (a “Qualified Benefit Plan”) is so qualified and has received a favorable and current determination letter from the Internal Revenue Service, or with respect to a prototype plan, can rely on an opinion letter from the Internal Revenue Service to the prototype plan sponsor, to the effect that such Qualified Benefit Plan is so qualified and that the plan and the trust related thereto are exempt from federal income taxes under
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Sections 401(a) and 501(a), respectively, of the Code, and nothing has occurred that could reasonably be expected to adversely affect the qualified status of any Qualified Benefit Plan. Nothing has occurred with respect to any Benefit Plan that has subjected or could reasonably be expected to subject the Company (including on behalf of any of its ERISA Affiliates), with respect to any period on or after the Closing Date, Buyer or any of its Affiliates, to a penalty under Section 502 of ERISA or to tax or penalty under Section 4975 of the Code. No pension plan (other than a Multiemployer Plan) which is subject to minimum funding requirements, including any multiple employer plan, (each, a “Single Employer Plan”) in which employees of the Company or any of its ERISA Affiliates participate or have participated has an “accumulated funding deficiency”, whether or not waived, or is subject to a lien for unpaid contributions under Section 303(k) of ERISA or Section 430(k) of the Code. No Single Employer Plan covering employees of the Company which is a defined benefit plan has an “adjusted funding target attainment percentage,” as defined in Section 436 of the Code, less than 80%. Except as set forth in Section 3.20(c) of the Disclosure Schedules, all benefits, contributions and premiums relating to each Benefit Plan have been timely paid in accordance with the terms of such Benefit Plan and all applicable Laws and accounting principles, and all benefits accrued under any unfunded Benefit Plan have been paid, accrued or otherwise adequately reserved to the extent required by, and in accordance with, GAAP.
(d) Neither the Company nor any of their ERISA Affiliates has (i) incurred or reasonably expects to incur, either directly or indirectly, any material Liability under Title I or Title IV of ERISA or related provisions of the Code or applicable local Law relating to Benefit Plans; (ii) failed to timely pay premiums to the Pension Benefit Guaranty Corporation; (iii) withdrawn from any Multiemployer Plan; (iv) engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA; (v) incurred taxes under Section 4971 of the Code with respect to any Single Employer Plan; or (vi) participated in a multiple employer welfare arrangement as defined in Section 3(40) of ERISA(a “MEWA”).
(e) With respect to each Benefit Plan, (i) no such plan is a Multiemployer Plan; (ii) no such plan is a “multiple employer plan” within the meaning of Section 413(c) of the Code or a MEWA; (iii) no Action has been initiated by the Pension Benefit Guaranty Corporation to terminate any such plan or to appoint a trustee for any such plan; (iv) no such plan is subject to the minimum funding standards of Section 412 of the Code or Title IV of ERISA, and none of the assets of the Company or any ERISA Affiliate is, or may reasonably be expected to become, the subject of any lien arising under Section 302 of ERISA or Section 412(a) of the Code; and (v) no “reportable event,” as defined in Section 4043 of ERISA, has occurred with respect to any such plan.
(f) Each Benefit Plan can be amended, terminated or otherwise discontinued after the Closing in accordance with its terms, without material liabilities to Buyer, the Company or any of its Affiliates other than ordinary administrative expenses typically incurred in a termination event. The Company does not have any commitment or obligation nor has made any representations to any employee, officer, director, independent contractor or consultant, whether or not legally binding, to adopt, amend, modify or terminate any Benefit Plan or any collective bargaining agreement, in connection with the consummation of the transactions contemplated by this Agreement or otherwise.
(g) There is no pending or, to the Company’s Knowledge, threatened Action relating to a Benefit Plan (other than routine claims for benefits), and no Benefit Plan has within the three years prior to the date hereof been the subject of an examination or audit by a Governmental Authority or the subject of an application or filing under or is a participant in, an amnesty, voluntary compliance, self-correction or similar program sponsored by any Governmental Authority.
(h) There has been no amendment to or announcement by the Company or any of its Affiliates relating to, or change in employee participation (other than due to participants first becoming eligible to participate in such Benefit Plan) or coverage under, any Benefit Plan or collective bargaining agreement
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that would increase the annual expense of maintaining such plan above the level of the expense incurred for the most recently completed fiscal year with respect to any director, officer, employee, independent contractor or consultant, as applicable. Neither the Company nor any of its Affiliates has any commitment or obligation or has made any representations to any director, officer, employee, independent contractor or consultant, whether or not legally binding, to adopt, amend, modify or terminate any Benefit Plan or any collective bargaining agreement.
(i) Each individual who is classified by the Company as an independent contractor has been properly classified for purposes of participation and benefit accrual under each Benefit Plan.
(j) Each Benefit Plan that is subject to Section 409A of the Code has been administered in compliance with its terms and the operational and documentary requirements of Section 409A of the Code and all applicable regulatory guidance thereunder. The Company does not have any obligation to gross up, indemnify or otherwise reimburse any individual for any excise taxes, interest or penalties incurred pursuant to Section 409A of the Code.
(k) Neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional or subsequent events): (i) entitle any current or former director, officer, employee, independent contractor or consultant of the Company to severance pay or any other payment; (ii) accelerate the time of payment, funding or vesting, or increase the amount of compensation due to any such individual; (iii) limit or restrict the right of the Company to merge, amend or terminate any Benefit Plan; (iv) increase the amount payable under or result in any other material obligation pursuant to any Benefit Plan; (v) result in “excess parachute payments” within the meaning of Section 280G(b) of the Code; or (vi) require a “gross-up” or other payment to any “disqualified individual” within the meaning of Section 280G(c) of the Code.
Section 3.21 Employment Matters.
(a) *** As of the date hereof, (i) the Company does not owe compensation to any employees, independent contractors or consultants of the Company, including wages, commissions and bonuses, to any Person, and (ii) all compensation, including wages, commissions and bonuses, payable to all employees, independent contractors or consultants of the Company for services performed prior to the date hereof have been paid in full (or accrued in full on the balance sheet of the Company) and there are no outstanding agreements, understandings or commitments of the Company with respect to any compensation, commissions or bonuses.
(b) The Company is not, and has never been, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, “Union”), and there is not, and has not been for the past six years, any Union representing or purporting to represent any employee of the Company, and, to the Company’s Knowledge, no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining. Except as set forth in Section 3.21(b) of the Disclosure Schedules, there has never been, nor has there been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting the Company or any of its employees.
(c) The Company is and has been in compliance with the terms of the Contracts listed on Section 3.09(a)(ix) of the Disclosure Schedules and all applicable Laws pertaining to employment and employment practices to the extent they relate to employees of the Company, including all Laws relating to labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions,
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meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence, paid sick leave and unemployment insurance. All individuals characterized and treated by the Company as independent contractors or consultants are properly treated as independent contractors under all applicable Laws. All employees of the Company classified as exempt under the Fair Labor Standards Act and state and local wage and hour Laws are properly classified. The Company is in compliance with, and has complied, with all immigration Laws, including Form I-9 requirements and any applicable mandatory E-Verify obligations. Except as set forth in Section 3.21(c), there are no Actions against the Company pending, or to the Company’s Knowledge, threatened to be brought or filed, by or with any Governmental Authority or arbitrator in connection with the employment of any current or former applicant, employee, consultant, volunteer, intern or independent contractor of the Company, including, without limitation, any claim relating to unfair labor practices, employment discrimination, harassment, retaliation, equal pay, wage and hours or any other employment-related matter arising under applicable Laws.
(d) The Company has complied with the WARN Act, and it has no plans to undertake any action in the future that would trigger the WARN Act.
(e) With respect to each Government Contract, the Company is and has been in compliance with ***. The Company maintains and complies with affirmative action plans in compliance with ***, including all implementing regulations. The Company is not, and has not been for the past six years, the subject of any audit, investigation or enforcement action by any Governmental Authority in connection with any Government Contract or related compliance with ***. The Company has not been debarred, suspended or otherwise made ineligible from doing business with the United States government or any government contractor.
Section 3.22 Taxes. Except as set forth in Section 3.22 of the Disclosure Schedules:
(a) All income and other material Tax Returns required to be filed by the Company have been filed. Such Tax Returns are true, complete and correct in all material respects. All material Taxes due and payable by the Company (whether or not shown on any Tax Return) have been paid.
(b) The Company has withheld and paid each material Tax required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, customer, shareholder or other party, and has complied in all material respects with all backup withholding provisions of applicable Law.
(c) No written claim has been made by any taxing authority in any jurisdiction where the Company does not file Tax Returns that it is, or may be, subject to Tax by that jurisdiction.
(d) Section 3.22(d) of the Disclosure Schedules sets forth:
(i) those Tax Returns that have been subject to examinations by the taxing authorities that have been completed; and
(ii) those Tax Returns for which examinations by taxing authorities are presently being conducted.
(e) No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of the Company to a date after the Closing Date.
(f) All assessments made against the Company as a result of any completed examinations by any taxing authority have been fully paid.
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(g) The Company is not a party to any Action by any taxing authority. There are no Actions pending or threatened in writing or, to the Company’s Knowledge, otherwise threatened by any taxing authority with respect to the Company.
(h) There are no Encumbrances for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company.
(i) The Company has not deferred any payroll Tax obligation to a date after the Closing Date pursuant to any Covid Relief.
(j) The Company is not a party to, or bound by, any Tax Sharing Agreement.
(k) No private letter rulings, technical advice memoranda or similar agreement or rulings have been requested in writing or, to the Company’s Knowledge, otherwise entered into or issued by any taxing authority with respect to the Company.
(l) The Company has made available to Buyer copies of all federal, state income Tax Returns filed by the Company.
(m) The Company has never been a member of an affiliated, combined, consolidated or unitary Tax group for Tax purposes (other than a group the common parent of which was the Company). The Company does not have any Liability for Taxes of any Person (other than the Company) under Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local or foreign Law), as transferee or successor, by Tax Sharing Agreement or otherwise pursuant to any Law.
(n) The Company will not be required to include any item of income in, or exclude any item or deduction from, taxable income for taxable period or portion thereof beginning after the Closing Date as a result of:
(i) any change in a method of accounting under Section 481 of the Code (or any comparable provision of state, local or foreign Tax Laws) for a taxable period ending on or prior to the Closing Date made prior to the Closing;
(ii) binding determination of a taxing authority concerning the Company’s use of a method of accounting prior to the Closing Date that is incorrect under applicable law;
(iii) an installment sale or open transaction occurring on or prior to the Closing Date;
(iv) a prepaid amount received on or before the Closing Date;
(v) any closing agreement under Section 7121 of the Code, or similar provision of state, local or foreign Law executed prior to the Closing; or
(vi) any election under Section 965 of the Code made prior to the Closing.
(o) The Company has never been a “distributing corporation” or a “controlled corporation” in connection with a distribution described in Section 355 of the Code.
(p) The Company is not, and has never been a party to a transaction that is a “listed transaction” or a “reportable transaction” within the meaning of Treasury Regulations Section 1.6011-4(b) or comparable provision of state, local or foreign Law.
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(q) At all times since its formation, the Company has been classified as an S corporation within the meaning of Code Sections 1361 and 1362 for U.S. federal and applicable state and local Tax purposes. No Tax authority has challenged in writing the status of the Company as an S corporation for income Tax purposes.
(r) ***
Section 3.23 Books and Records. The minute books and stock record books of the Company, all of which have been made available to Buyer, are complete and correct and have been maintained in accordance with sound business practices. The minute books of the Company contain accurate and complete records of all meetings, and actions taken by written consent of, Seller, the Company’s governing persons and any committees of such governing persons, and no meeting, or action taken by written consent, of Seller, any governing persons or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the Company.
Section 3.24 COVID-19 and Related Matters. The Company has not applied for or received any benefits, programs or arrangements (including any loans of grants) pursuant to Covid Relief or any similar legislation.
Section 3.25 Bank Accounts; Powers of Attorney. Section 3.25 of the Disclosure Schedules sets forth a true, correct and complete list of the names and locations of all banks in which the Company currently has depository bank accounts, safe deposit boxes or trusts, and the account numbers of such accounts and the names of the persons authorized to draw thereon or otherwise have access thereto. No Person holds a power of attorney to act on behalf of the Company, other than a power of attorney granted to the Persons set forth on Section 3.25 of the Disclosure Schedules in connection with the preparation or filing of Tax Returns.
Section 3.26 Related Party Transactions. Except as set forth on Section 3.26 of the Disclosure Schedules, no employee, officer, manager, member or of the Company, including Seller, nor any member of his or her immediate family, or any Affiliate of the foregoing is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them. None of such Persons has any direct or indirect ownership interest in (a) any Person with which the Company is Affiliated or with which the Company has a business relationship or (b) any Person that competes with the Company (other than the ownership of less than 5% of the outstanding class of publicly traded stock in publicly traded companies that may compete with the Company). No employee, officer, manager, member or of the Company, including Seller, nor any member of his immediate family has any direct or indirect interest in any property, real or personal, tangible or intangible, used in or pertaining to the business of the Company. No officer, including Seller, nor to the Knowledge of the Company, any member of his or her immediate family, is or has been within the 12 months prior to the Closing Date, directly or indirectly, a party to or interested in any Contract or business relationship with the Company or its Affiliates. Section 3.26 of the Disclosure Schedule contains a complete list of any family member (which includes parents, grandparents and any descendants of a parent or grandparent, whether by birth or adoption) of Seller who is employed by or an independent contractor of the Company.
Section 3.27 Prohibited Payments. Excluding the payment of Taxes, custom duties, license fees and other charges required to be paid by applicable Laws, none of the Company nor its Representatives has directly or indirectly taken any action on behalf of the Company or Seller in violation of the Foreign Corrupt Practices Act of 1977, 15 U.S.C. §§ 78dd 1 et seq or any other applicable anti-corruption or anti-bribery Laws of any Governmental Authority, including in connection with any Government Contract.
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Section 3.28 Brokers. Except as set forth on Section 3.28 of the Disclosure Schedules no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any Ancillary Document based upon arrangements made by or on behalf of the Company.
Section 3.29 Full Disclosure. No representation or warranty by the Company in this Agreement and no statement contained in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to Buyer or any of its Representatives pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.
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Article IV
Representations and Warranties of Seller
Except as set forth in the Disclosure Schedules, Seller represents and warrants to Buyer that the statements contained in this Article IV are true and correct as of the date hereof ***:
Section 4.01 Owner of Membership Interests. Seller is the sole holder of record and owns beneficially all of the Interests, free and clear of any Encumbrances. Seller does not have, and will not have, the right to acquire, any capital stock or other ownership interest in the Company, and other than such Interests, Seller does not have, and will not have, any other membership interests of the Company issued or outstanding at the Closing. None of the Interests were issued in violation of any Contract, arrangement or commitment to which Seller is a party or is subject to or in violation of any preemptive or similar rights of any Person. There are no voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of the Interests held by Seller.
Section 4.02 Authority.
(a) Seller has full legal capacity to execute and deliver this Agreement and the other Ancillary Documents to which Seller is a party and to perform the obligations of Seller hereunder and thereunder. This Agreement and such Ancillary Documents and the consummation by Seller of the transactions contemplated hereby or thereby have been, or upon execution and delivery will be, duly and validly executed and delivered by Seller and constitute a valid and binding obligation of Seller, enforceable against Seller in accordance with their respective terms.
Section 4.03 No Conflicts; Consents. The execution, delivery and performance by Seller of this Agreement and the Ancillary Documents to which Seller is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (i) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Seller; (ii) except as set forth in Section 3.03 of the Disclosure Schedules, require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract to which Seller is a party or by which Seller is bound or to which its properties and assets are subject or any Permit affecting the properties, assets or business of the Company; or (iii) result in the creation or imposition of any Encumbrance other than Permitted Encumbrances on any Interests. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Seller in connection with the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby.
Section 4.04 Related Party Transactions. Except as set forth on Section 3.26 of the Disclosure Schedule, neither Seller nor any member of Seller’s immediate family, is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them. None of such Persons has any direct or indirect ownership interest in (a) any Person with which the Company is Affiliated or with which the Company has a business relationship (other than Seller) or (b) any Person that competes with the Company (other than the ownership of less than 5% of the outstanding class of publicly traded stock in publicly traded companies that may compete with the Company). Neither Seller nor any member of its immediate family, is or has been within the 12 months prior to the Closing Date, directly or indirectly, a party to or interested in any Contract or business relationship with the Company or its Affiliates. Section 3.26 of the Disclosure Schedule contains a complete list of any family member (which includes parents, grandparents and any descendants of a parent or grandparent, whether by birth or adoption) of Seller who is employed by or an independent contractor of the Company, other than the Seller.
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Section 4.05 Brokers’ and Finders’ Fees. Except as set forth on Section 4.05 of the Disclosure Schedules, Seller has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement or any other Ancillary Document to which Seller is a party or any transaction contemplated hereby or thereby.
Section 4.06 No Restrictions on Business. Seller is not currently and after the Closing does not expect to be obligated by any Contract which may be enforced, construed or interpreted to prohibit, restrict or otherwise limit the ability of the Company or any of its employees to carry on its business as it is now being conducted and is expected to be conducted after the Closing in any geographic location within the United States.
Section 4.07 Foreign Person. Seller is not a “foreign person” as that term is used in Treasury Regulations Section 1.1445-2.
Section 4.08 Full Disclosure. No representation or warranty by Seller in this Agreement and no statement contained in the Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to Buyer or any of its Representatives pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.
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Article V
Representations and warranties of Buyer
Buyer represents and warrants to Seller that the statements contained in this Article V are true and correct as of the date hereof ***:
Section 5.01 Organization and Authority of Buyer. Buyer is a corporation duly formed, validly existing and in good standing under the Laws of the jurisdiction of its formation. Buyer has full power and authority to enter into and perform its obligations under this Agreement and the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Buyer of this Agreement and any Ancillary Document to which it is a party and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of Buyer and no other proceedings on the part of Buyer are necessary to authorize the execution, delivery and performance of this Agreement or to consummate the Transaction and the other transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by each other party hereto) this Agreement constitutes a legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms. When each Ancillary Document to which Buyer is a party has been duly executed and delivered by Buyer (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of Buyer enforceable against it in accordance with its terms.
Section 5.02 No Conflicts; Consents. The execution, delivery and performance by Buyer of this Agreement and the Ancillary Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of formation, company agreement or other organizational documents of Buyer; (b) conflict with or result in a violation or breach of any provision of any material Law or material Governmental Order applicable to Buyer; or (c) require the consent, notice or other action by any Person under any Contract to which Buyer is a party. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Buyer in connection with the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby.
Section 5.03 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any Ancillary Document based upon arrangements made by or on behalf of Buyer.
Section 5.04 Legal Proceedings. There are no Actions pending or, to Buyer’s knowledge, threatened against or by Buyer or its Affiliates that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise or serve as a basis for any such Action.
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Section 5.05 Purchase for Investment. Buyer is purchasing the Interests for investment for its own account and not with a view to, or for sale in connection with, any distribution thereof. Buyer is an “accredited investor” and has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Interests and is capable of bearing the economic risks of such investment. Buyer acknowledges that it is informed as to the risks of the transactions contemplated hereby and of ownership of the Interests. Buyer acknowledges that the Interests have not been registered under the Securities Act, or any state or foreign securities laws and that the Interests may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of unless such transfer, sale, assignment, pledge, hypothecation or other disposition is pursuant to the terms of an effective registration statement under the Securities Act and are registered under any applicable state or foreign securities laws or pursuant to an exemption from registration under the Securities Act and any applicable state or foreign securities laws.
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Article VI
Covenants
Section 6.01 Directors’ and Officers’ Indemnification. Seller hereby irrevocably releases the Company from any and all rights to indemnification, advancement of expenses or exculpation by the Company now existing in favor of Seller that arose contemporaneously with or prior to the Closing Date, whether from Seller’s status as a member, manager, officer, employee, creditor or otherwise of the Company, as provided in the certificate of formation or operating agreement of the Company, any Contract or otherwise. Seller shall indemnify each Buyer Indemnitee for any and all obligations or liabilities for indemnification, advancement of expenses or exculpation by the Company now existing in favor of any officer, director, member, employee, representative or other Person that arose contemporaneously with or prior to the Closing Date, as provided in the certificate of formation or operating agreement of the Company, any Contract or otherwise.
Section 6.02 Confidentiality. From and after the Closing, Seller shall, and shall cause his Affiliates to, hold, and shall use its reasonable best efforts to cause its or their respective Representatives to hold, in confidence any and all confidential or proprietary information, whether written or oral, concerning the Company, except to the extent that such information (a) is generally available to and known by the public or the Company’s industry through no violation of Seller, any of his Affiliates or their respective Representatives of any confidentiality obligations; (b) is lawfully acquired by Seller from and after the Closing from sources which are not known by such Person to be prohibited from disclosing such information by a legal, contractual or fiduciary obligation; or (c) any information Seller is required by Law to disclose. If Seller is compelled to disclose any information by judicial or administrative process or by other requirements of Law, Seller shall, to the extent permitted by Law and reasonably practicable under the circumstances, promptly notify Buyer in writing and shall disclose only that portion of such information which such Person is advised by its counsel is legally required to be disclosed; provided, that Seller shall use reasonable best efforts to assist Buyer in obtaining, at the Buyer’s expense, an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information.
Section 6.03 Release. ***
Section 6.04 Non-competition. Seller hereby agrees that for a period (the “Restricted Period”) ***, such Person shall not, and shall not permit any of its Affiliates to, directly or indirectly, (i) engage in or assist others in engaging in the Restricted Business in the Territory; (ii) have an interest in any Person that engages directly or indirectly in the Restricted Business in the Territory in any capacity, ***; or (iii) interfere with the business relationships *** between the Buyer Group and customers, suppliers, or other service partners of the Company. Notwithstanding the foregoing, Seller may own, directly or indirectly, solely as an investment, securities of any Person traded on any national securities exchange if Seller is not a controlling Person of, or a member of a group which controls, such Person and does not, directly or indirectly, own 5% or more of any class of securities of such Person.
Section 6.05 Non-solicitation; Non-disparagement. Seller hereby agree as follows:
(a) During the Restricted Period, (i) Seller shall not, and shall not permit any of its Affiliates to, directly or indirectly, hire or solicit any employee of the Buyer Group (including, after the Closing, the Company) or encourage any such employee to leave such employment or hire any such employee who has left such employment within *** of such departure; and (ii) Seller shall not, and shall not permit any of its Affiliates to, directly or indirectly, solicit or entice, or attempt to solicit or entice, any clients, customers or other service partners of the Buyer Group (including, after the Closing, the Company) or potential clients, customers or service partners of the Buyer Group (including, after the Closing, the Company), for purposes of diverting their business or services from the Company.
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(b) Neither Seller nor Buyer will not at any time make, publish, or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the other Party (or in the case of the Seller, concerning the Buyer Group), the Company or their business (in the case of Seller), or any of their employees, officers, and, in the case of Seller, Buyer’s existing and prospective customers, suppliers, investors and other associated third parties; ***.
Section 6.06 Acknowledgements. With respect to the covenants and agreements contained in Section 6.04 and Section 6.05, Seller acknowledges that:
(a) a breach or threatened breach of such Sections would give rise to irreparable harm to Buyer and the Company, for which monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach by Seller of any such obligations, Buyer shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to seek equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond); and
(b) the restrictions contained in such Sections are reasonable and necessary to protect the legitimate interests of Buyer and the Company and constitute a material inducement to Buyer to enter into this Agreement and consummate the transactions contemplated by this Agreement. In the event that any covenant contained in such Sections should ever be adjudicated to exceed the time, geographic, product or service, or other limitations permitted by applicable Law in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable Law. The covenants contained in Section 6.04, Section 6.05 and this Section 6.06, and each provision hereof and thereof, are severable and distinct covenants and provisions. The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction.
Section 6.07 Public Announcements. Unless otherwise required by applicable Law (based upon the reasonable advice of counsel), Seller shall not make any public announcements in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of Buyer.
Section 6.08 Further Assurances. At and after the Closing, Buyer shall be authorized to execute and deliver, in the name and behalf of Seller, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of Seller, any other actions and things to vest, perfect or confirm of record or otherwise in Buyer any and all right, title and interest in, to and under the Interests and any of the rights, properties or assets of the Company acquired or to be acquired by Buyer as a result of, or in connection with, the Transaction.
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Article VII
Tax matters
Section 7.01 Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the Ancillary Documents (including any real property transfer Tax and any other similar Tax and the out-of-pocket costs of preparing and filing any related Tax Returns) (“Transfer Taxes”) shall be borne and paid ***. Buyer and Seller further agree, upon request, to use commercially reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Transfer Taxes that could be imposed in connection with the transactions contemplated hereby. Buyer shall timely file any Tax Return or other document with respect to such Transfer Taxes (and Seller shall cooperate with respect thereto as necessary).
Section 7.02 Termination of Existing Tax Sharing Agreements. Any and all existing Tax Sharing Agreements binding upon the Company shall be terminated as of the Closing Date. After such date, neither the Company nor any of its Representatives shall have any further rights or liabilities thereunder.
Section 7.03 Certain Post-Closing Covenants. Without Seller’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed), Buyer will not, and will cause the Company not to (i) amend, refile or modify any Tax Return for the Company with respect to a taxable period ending on or prior to the Closing Date or Straddle Period, (ii) file a Tax Return for a taxable period ending on or prior to the Closing Date in a jurisdiction where the Company did not file such Tax Return for such period, (iii) make any voluntary disclosures with respect to Taxes of the Company for a taxable period ending on or prior to the Closing Date or Straddle Period, (iv) excluding any actions contemplated by this Agreement or resulting from the transactions contemplated by this Agreement, change any accounting method or adopt any convention with respect to a Pre-Closing Tax Period that (A) shifts taxable income of the Company from a Post-Closing Tax Period to a Pre-Closing Tax Period or (B) shifts deductions or losses of the Company from a Pre-Closing Tax Period to a Post-Closing Tax Period, or (v) initiate discussions or examinations with any Governmental Authority regarding Taxes or Tax Returns of the Company with respect to any taxable period ending on or prior to the Closing Date. Without the Seller’s prior written consent, Buyer will not make, or cause to be made, an election under Section 338 or 336 of the Code with respect to the transactions contemplated by this Agreement. Without the prior written consent of Buyer (not to be unreasonably withheld, conditioned or delayed), Seller will not take, or permit the Company to take, any actions outside of the ordinary course of business on the Closing Date prior to the Closing except in connection with the transactions contemplated by this Agreement.
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Section 7.04 Tax Returns.
(a) Seller shall, at Seller’s expense, prepare or cause to be prepared all income, franchise and similar Tax Returns for the Company for all taxable periods ending on or prior to the Closing Date that are filed after the Closing Date (each, a “Seller Return”). Any Seller Return shall be prepared in a manner consistent with the Company’s past practice (unless otherwise required by Law). All Deductions shall be reported on the Seller Returns for the Tax period ending on the day immediately preceding the Closing Date to the maximum extent permitted by Law under a “more likely than not” standard; provided that, notwithstanding anything to the contrary herein, the parties agree not to report any “extraordinary items” in accordance with Prop. Reg. § 1.1502-76(b)(1)(ii)(B)(2). Seller shall deliver each such Seller Return to Buyer at least ten (10) days prior to the due date (taking into account any extension) for the filing of such Tax Return for Buyer’s review and comment. Seller shall consider in good faith any reasonable comments that Buyer submits to Seller in respect of a Seller Return no less than five (5) days prior to the due date of such Seller Return. Seller shall remit to Buyer an amount equal to the Pre-Closing Taxes due as reflected on any such Seller Returns that are originally due after the Closing Date at least two (2) days prior to the due date (including extensions) for filing such Seller Returns.
(b) Buyer shall prepare and timely file, or cause to be prepared and timely filed, all other Tax Returns filed by the Company with respect to taxable periods ending on or prior to the Closing Date (other than Seller Returns) and Straddle Periods (each, a “Buyer Return”). ***. Any such Buyer Return shall be prepared in a manner consistent with past practice (unless otherwise required by Law). Seller shall remit to Buyer an amount equal to the Pre-Closing Taxes due as reflected on any such Buyer Returns that are originally due after the Closing Date at least two (2) days prior to the due date (including extensions) for filing such Buyer Returns.
(c) Notwithstanding anything to the contrary herein, Seller shall have sole control over any Tax Returns of Seller.
Section 7.05 Straddle Period. In the case of Taxes that are payable with respect to a Straddle Period, the portion of any such Taxes that are treated as allocable to a Pre-Closing Tax Period shall be: (i) in the case of all real property Taxes, personal property Taxes and similar ad valorem Taxes, deemed to be the amount of such Taxes for the entire Straddle Period multiplied by a fraction, the numerator of which is the number of calendar days of such Straddle Period in the Pre-Closing Tax Period and the denominator of which is the number of calendar days in the entire Straddle Period, (ii) in the case of all income Taxes, determined as though the taxable year of the Company terminated at the close of business on the day immediately prior to the Closing Date, and (iii) in the case of all other Taxes, determined as though the taxable year of the Company terminated at the close of business on the Closing Date; provided, however, that exemptions, allowances, deductions or Taxes that are calculated on an annual basis, such as property Taxes and depreciation deductions, shall be apportioned to the Pre-Closing Tax Period on a daily basis.
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Section 7.06 Contests. Buyer agrees to give written notice to Seller within ten (10) days of the receipt of any written notice by the Company, Buyer or any of Buyer’s Affiliates which involves the assertion of any Action, or the commencement of any Action with respect to Taxes or Tax Returns for a Pre-Closing Tax Period (a “Tax Claim”); provided, that failure to comply with this provision shall not affect Buyer’s right to indemnification hereunder except to the extent that Seller is materially prejudiced by such failure. Buyer (at its expense) shall control the contest or resolution of any Tax Claim; provided, however, that Buyer shall obtain the prior written consent of Seller (which consent shall not be unreasonably withheld or delayed) before entering into any settlement of a Tax Claim or ceasing to defend such Tax Claim; and, provided further, that Seller shall be entitled to participate in the defense of such claim and to employ counsel of its choice for such purpose, the fees and expenses of which separate counsel shall be borne solely by Seller. To the extent of any inconsistency between the provisions of this Section 7.06 and Section 8.05, this Section 7.06 shall control.
Section 7.07 Cooperation and Exchange of Information. Seller and Buyer shall provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return pursuant to this Article VII or in connection with any Tax Refund or any audit or other proceeding in respect of Taxes of the Company for a Pre-Closing Tax Period. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by Tax authorities. Each of Seller and Buyer shall retain all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Company for any taxable period beginning before the Closing Date until the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, without regard to extensions except to the extent notified by any of the other parties in writing of such extensions for the respective Tax periods. Prior to transferring, destroying or discarding any Tax Returns, material schedules and work papers, records and other material documents in its possession relating to Tax matters of the Company for any taxable period beginning on or before the Closing Date, Seller or Buyer (as the case may be) shall provide the other parties with reasonable written notice and offer the other parties the opportunity to take custody of such materials.
Section 7.08 Tax Refunds. Seller shall be entitled to the amount of any Tax Refund with respect to a Pre-Closing Tax Period, which refund is actually recognized by Buyer or its Subsidiaries (including the Company) after the Closing, net of any reasonable out-of-pocket cost to Buyer and its affiliates attributable to the obtaining and receipt of such refund, except to the extent such refund arises as the result of a carryback of a loss or other tax benefit from a Tax period (or portion thereof) beginning on or after the Closing Date (with respect to income Taxes) or after the Closing Date (with respect to non-income Taxes) or such refund was included as an asset in the calculation of Purchase Price. Buyer shall pay, or cause to be paid, to Seller any amount to which Seller is entitled pursuant to the prior sentence no later than twenty (20) following the receipt of the applicable refund by Buyer or its Subsidiaries or Affiliates. Following the Closing, Buyer and the Company shall reasonably cooperate with the Seller to file a claim for refund (including by filing an amended Tax Return) with respect to Maryland state income Taxes for the Company’s 2022 taxable year.
Section 7.09 Survival. Notwithstanding anything in this Agreement to the contrary, the provisions of Section 3.22, this Article VII and Section 8.02(e) shall survive for the full period of all statutes of limitations applicable to the subject matter thereof (giving effect to any waiver, mitigation or extension thereof) plus ninety (90) days.
Section 7.10 Overlap. To the extent that any obligation or responsibility pursuant to Article VIII may overlap with an obligation or responsibility pursuant to this Article VII, the provisions of this Article VII shall govern.
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Article VIII
Indemnification
Section 8.01 Survival. Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until *** from the Closing Date; provided, that the representations and warranties in (a) *** (together, the “Fundamental Representations”) shall survive until the sixth anniversary of the Closing Date and (b) *** (together with the representations and warranties in *** the “Statutory Representations”) shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus 90 days. All covenants and agreements of the parties contained herein (other than any covenants or agreements contained in Article VII which are subject to Article VII) shall survive the Closing in accordance with the applicable statute of limitation or for the period explicitly specified therein or in Section 7.09. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the Indemnified Party to the Indemnifying Party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.
Section 8.02 Indemnification by Seller. Subject to the other terms and conditions of this Article VIII, Seller shall indemnify and defend each of Buyer and its Affiliates (including the Company) and their respective Representatives (collectively, the “Buyer Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Buyer Indemnitees based upon, arising out of, with respect to or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of the Company or Seller contained in this Agreement, any Ancillary Document, or in any certificate or instrument delivered pursuant to this Agreement ***;
(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by or on behalf of Seller or (on or before Closing) the Company pursuant to this Agreement;
(c) any Transaction Expenses or Indebtedness of the Company outstanding as of the Closing to the extent not paid or satisfied by the Company at or prior to the Closing, or if paid by Buyer at or prior to the Closing, to the extent not deducted in the determination of Transaction Consideration;
(d) any Pre-Closing Taxes; and
(e) an inaccuracy in any certificate delivered to Buyer pursuant to Section 2.05(a) (including the Inventory and Transportation Certificate), including any shortfall delivery of the inventory delivered to Buyer at Closing against the Inventory and Transportation Certificate.
Section 8.03 Indemnification by Buyer. Subject to the other terms and conditions of this Article VIII, Buyer shall indemnify and defend Seller and its Affiliates and their respective Representatives (collectively, the “Seller Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, Seller Indemnitees based upon, arising out of, with respect to or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of Buyer contained in this Agreement, any Ancillary Document, or in any certificate or instrument delivered pursuant to this Agreement ***; or
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(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by or on behalf of Buyer pursuant to this Agreement.
Section 8.04 Certain Limitations. The indemnification provided for in Section 8.02 and Section 8.03 shall be subject to the following limitations:
(a) Seller shall not be liable to the Buyer Indemnitees for indemnification under Section 8.02 until the aggregate amount of all Losses in respect of indemnification under Section 8.02 exceeds $*** (the “Deductible”), ***. The aggregate amount of all Losses for which Seller shall be liable pursuant to Section 8.02 shall not exceed $*** (the “Cap”).
(b) Buyer shall not be liable to Seller Indemnitees for indemnification under Section 8.03(a) until the aggregate amount of all Losses in respect of indemnification under Section 8.03(a) exceeds the Deductible ***. The aggregate amount of all Losses for which Buyer shall be liable pursuant to Section 8.03(a) shall not exceed the Cap.
(c) Notwithstanding the foregoing set forth in Section 8.04(a) and Section 8.04(b), the Deductible shall not apply to Losses based upon, arising out of, with respect to or by reason of any inaccuracy in or breach of any of the Fundamental Representations; and neither the Deductible nor the Cap shall apply to Losses based upon, arising out of, with respect to or by reason of Fraud, *** by the applicable party.
(d) In calculating the Deductible and the amounts otherwise payable to an Indemnified Party pursuant to this Article VIII , the amount of any indemnified Losses shall be computed net of payments actually recovered by the Indemnified Party under any insurance policy with respect to such Losses (after giving effect to any applicable deductible or retention and any out of pocket costs incurred by the Indemnified Party in connection therewith). In the event an insurance recovery relating to an indemnification payment is received after the Indemnifying Party has made an indemnification payment under this Agreement that did not take into account such insurance recovery, the Indemnified Party shall promptly pay the Indemnifying Party an amount equal to the lesser of such insurance recovery and the amount of the related indemnification payment by wire of immediately available funds.
(e) Each Indemnified Party shall use commercially reasonable efforts to pursue recovery from any insurance policy which provides coverage for any Losses, provided that no Indemnified Party shall be required to incur any costs to undertake or file an Action against any insurance carrier in connection with this Section 8.04(f) provided further, that no Buyer Indemnitees nor Seller Indemnitees shall be obligated to pursue coverage from any insurance policy for a period of time in excess of 90 days after notice of the initial claim.
(f) For purposes of this Article VIII, any inaccuracy in or breach of any representation or warranty (and the amount of Losses resulting therefrom) shall be determined without regard to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation or warranty, provided, however, that: (i) any dollar thresholds contained in such representation, warranty or covenant shall not be ignored for purposes of determining any such inaccuracy or breach; (ii) the word “Material” in the definition “Material Contract” shall not be ignored; (iii) the word “material” in Section 3.09(a)(xvii) shall not be ignored; and (iv) the term “Material Adverse Change” in Section 3.08(a) shall not be ignored.
Section 8.05 Indemnification Procedures. The party making a claim under this Article VIII is referred to as the “Indemnified Party”, and the party against whom such claims are asserted under this Article VIII is referred to as the “Indemnifying Party.” For purposes of this Article VIII, (i) if Buyer (or any other Buyer Indemnitee) comprises the Indemnified Party, any references to Indemnifying Party
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(except provisions relating to an obligation to make payments) shall be deemed to refer to Seller, and (ii) if Buyer comprises the Indemnifying Party, any references to the Indemnified Party shall be deemed to refer to Seller.
(a) Third Party Claims. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a “Third Party Claim”) against such Indemnified Party with respect to which the Indemnifying Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 30 calendar days after receipt of such notice of such Third Party Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure or is otherwise materially prejudiced or harmed by such failure. Such notice by the Indemnified Party shall describe the Third Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense; provided, that if the Indemnifying Party is Seller, (i) prior to the Indemnifying Party assuming control of such defense it will, within twenty days of its receipt of an indemnification claim, first verify to the Indemnified Party in writing that such Indemnifying Party will be fully responsible (with no reservation of any rights) for all liabilities and obligations relating to such claim for indemnification (without regard to the Deductible, Cap or any other limitation of liability herein), and (ii) such Indemnifying Party shall not have the right to defend or direct the defense of any such Third Party Claim that (x) is asserted directly by or on behalf of a Person that is a supplier or customer of the Company, or (y) seeks an injunction or other equitable relief against the Indemnified Parties. In the event that the Indemnifying Party assumes the defense of any Third Party Claim, subject to Section 8.05(b), it shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third Party Claim in the name and on behalf of the Indemnified Party. The Indemnified Party shall have the right to participate in the defense of any Third Party Claim with counsel selected by it subject to the Indemnifying Party’s right to control the defense thereof. The fees and disbursements of such counsel shall be at the expense of the Indemnified Party, provided, that if in the reasonable opinion of counsel to the Indemnified Party, (A) there are legal defenses available to an Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (B) there exists a conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel to the Indemnified Party in each jurisdiction for which the Indemnified Party determines counsel is required. If the Indemnifying Party elects not to compromise or defend such Third Party Claim, fails to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to diligently prosecute the defense of such Third Party Claim, the Indemnified Party may, subject to Section 8.05(b), pay, compromise, defend such Third Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third Party Claim. Seller and Buyer shall cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including making available records relating to such Third Party Claim and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third Party Claim.
(b) Settlement of Third Party Claims. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 8.05(b). If a firm offer is made to settle
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a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party that will not be satisfied in full by the Indemnifying Party and provides, in reasonable form, for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such firm offer within ten days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and in such event, the maximum liability of the Indemnifying Party as to such Third Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms set forth in such firm offer to settle such Third Party Claim. If the Indemnified Party has assumed the defense pursuant to Section 8.05(a), it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed).
(c) Direct Claims. Any Action by an Indemnified Party on account of a Loss which does not result from a Third Party Claim (a “Direct Claim”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than 30 days after the Indemnified Party becomes aware of such Direct Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have 60 days after its receipt of such notice to respond in writing to such Direct Claim. The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including access to the Company’s premises and personnel and the right to examine and copy any accounts, documents or records) as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond within such 30-day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.
(d) Tax Claims. Notwithstanding any other provision of this Agreement, the control of any Action proceeding in respect of Taxes of the Company (including, but not limited to, any such claim in respect of a breach of the representations and warranties in Section 3.22 hereof or any breach or violation of or failure to fully perform any covenant, agreement, undertaking or obligation in Article VII) shall be governed exclusively by Article VII hereof.
Section 8.06 Payments.
(a) Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this Article VIII, the Indemnifying Party shall satisfy its obligations within 30 Business Days of such final, non-appealable adjudication by wire transfer of immediately available funds. The Parties agree that should an Indemnifying Party not make full payment of any such obligations within such 30 Business Day period, any amount payable shall accrue interest from and including the date of agreement of the Indemnifying Party or final, non-appealable adjudication to but excluding the date such payment has been made at a rate ***. Such interest shall be calculated daily on the basis of a 365-day year and the actual number of days elapsed.
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(b) Any Losses payable to a Buyer Indemnitee pursuant to Section 8.02(a) shall be satisfied: from Seller directly, including the ability of a Buyer Indemnitee to seek amounts directly from the Seller with respect to Losses based upon, arising out of, with respect to or by reason of Fraud, Willful Misrepresentation, or criminal activity.
Section 8.07 Tax Treatment of Indemnification Payments. All indemnification payments made under this Agreement shall be treated by the Parties as an adjustment to the Transaction Consideration for Tax purposes, unless otherwise required by Law.
Section 8.08 Effect of Investigation. The representations, warranties and covenants of the Indemnifying Party, and the Indemnified Party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of the Indemnified Party (including by any of its Representatives) or by reason of the fact that the Indemnified Party or any of its Representatives knew or should have known that any such representation or warranty is, was or might be inaccurate or by reason of the Indemnified Party’s waiver of any deliverables, as the case may be.
Section 8.09 No Circular Recovery. Notwithstanding anything to the contrary herein, Seller hereby agrees that Seller shall not make any claim for indemnification against the Buyer or the Company or its Subsidiaries by reason of the fact that the Seller was a controlling person, manager or managing member, of the Company or its Subsidiaries or was serving as such for another Person at the request of the Company or its Subsidiaries (whether such claim is for Losses of any kind or otherwise and whether such claim is pursuant to any applicable Law, organizational or governance document, contract or otherwise) with respect to any claim brought by a Buyer Indemnitee under this Agreement or otherwise relating to this Agreement, any other Ancillary Document or any of the transactions contemplated hereby or thereby. With respect to any claim brought by a Buyer Indemnitee under this Agreement or otherwise relating to this Agreement, any other Ancillary Document or the transactions contemplated hereby or thereby, Seller expressly waives any right of subrogation, contribution, advancement, indemnification or other claim against the Company or its Subsidiaries with respect to any amounts owed by Seller hereunder.
Section 8.10 Exclusive Remedies. Each party hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their Affiliates and each of their respective Representatives arising under or based upon any Law, except pursuant to the indemnification provisions set forth in Article VII and this Article VIII. Nothing in this Section 8.10 shall limit any Person’s right to seek and obtain any equitable relief to which any Person shall be entitled or to seek any remedy on account of any party’s Fraud, criminal activity, or Willful Misrepresentation, by the applicable party.
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Article IX
Miscellaneous
Section 9.01 Expenses. Except as otherwise expressly provided herein, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred.
Section 9.02 Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective Parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 9.02):
If to Seller: |
Med-Fiber LLC *** E-mail: *** Attention: Alexei Tchapyjnikov |
with a copy to: |
Sapien Esq. 117 N Acacia Ave Solana Beach, CA 92075 E-mail: rich@sapienesq.com Attention: Rich Sapien |
If to Buyer: |
Biolase, Inc. 27042 Towne Centre Drive, Suite 207 Foothill Ranch, California 92610 E-mail: csilvers@biolase.com Attention: Christopher Silvers |
with a copy to: |
Greenberg Traurig, LLP 2200 Ross Avenue, Suite 5200 Dallas, Texas 75201 E-mail: woolseyt@gtlaw.com Attention: Thomas Woolsey |
Section 9.03 Interpretation. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole; (d) the singular form of nouns, pronouns and verbs will include the plural and vice versa; and (e) unless otherwise defined in this Agreement, financial terms will have the meanings given to such terms under GAAP. Unless the context otherwise requires, references herein: (x) to Articles, Sections, Disclosure Schedules and Exhibits mean the Articles and Sections of, and Disclosure Schedules and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes
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any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Disclosure Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein. Information in the Disclosure Schedules qualify the representations and warranties in the Section of this Agreement to which the Schedule relates (or makes cross-reference).
Section 9.04 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
Section 9.05 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to effectuate the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
Section 9.06 Entire Agreement. This Agreement, the Ancillary Documents, the binding provisions of the Letter of Intent, and INCOTERMS 2020 (solely with respect to the reference to EX) constitute the sole and entire agreement of the Parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and those in the Ancillary Documents, the Exhibits and Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this Agreement will control.
Section 9.07 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns. No party may assign its rights or obligations hereunder without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed; provided, that Buyer may assign its rights and its obligations under this Agreement, in whole or in part, (a) to one or more of its Affiliates (including, for the avoidance of doubt, any Affiliate organized subsequent to the date hereof), (b) for collateral security purposes, to any lender providing financing to Buyer or its Affiliates and all extensions, renewals, replacements, refinancings and refundings thereof in whole or in part, and (c) in connection with a (i) merger or consolidation involving Buyer or any of its Affiliates, (ii) a sale of all or substantially all of the stock or assets (including any real estate) of Buyer or any of its Affiliates or (iii) dispositions of the all or substantially all of the business of the Company or Buyer or any of its Affiliates or any part thereof. No assignment shall relieve the assigning party of any of its obligations hereunder.
Section 9.08 No Third-party Beneficiaries. Except as provided in Article VIII, this Agreement is for the sole benefit of the Parties and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 9.09 Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by Buyer and Seller. Any failure of Buyer, on the one hand, or Seller, on the other hand, to comply with any obligation, covenant, agreement or condition herein may be waived by Seller (with respect to any failure by Buyer) or by Buyer (with respect to any failure by Seller), respectively, only by a written instrument signed by the party granting such waiver, but
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such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
Section 9.10 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
(a) This Agreement shall be governed by and construed in accordance with the internal Laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction).
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF DELAWARE IN EACH CASE LOCATED IN THE CITY OF WILMINGTON AND COUNTY OF NEW CASTLE, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE ANCILLARY DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 9.10(c).
Section 9.11 Specific Performance. The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at Law or in equity.
Section 9.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
BUYER: |
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BIOLASE, INC. |
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By: |
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Name: |
John R. Beaver |
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Title: President and Chief Executive Officer |
[Signature Page to Membership Interest Purchase and Contribution Agreement]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
COMPANY: |
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MED-FIBER LLC |
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By: |
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Name: Alexei Tchapyjnikov |
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Title: Owner and Chief Executive Officer |
[Signature Page to Membership Interest Purchase and Contribution Agreement]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
SELLER: |
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By: |
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Alexei Tchapyjnikov |
[Signature Page to Membership Interest Purchase and Contribution Agreement]
Exhibit A
Consulting Agreement
(Attached)
Exhibit B
Disclosure Schedules
(Attached)
Exhibit C
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Exhibit D
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Exhibit 31.1
CERTIFICATION
I, John R. Beaver, certify that:
Date: November 10, 2022 |
By: |
/s/ JOHN R. BEAVER |
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John R. Beaver |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Jennifer Bright, certify that:
Date: November 10, 2022 |
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/s/ JENNIFER BRIGHT |
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Jennifer Bright |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. § 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of BIOLASE, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2022 (the “Report”), I, John R. Beaver, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 10, 2022 |
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By: |
/s/ JOHN R. BEAVER |
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John R. Beaver |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. § 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of BIOLASE, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2022 (the “Report”), I, Jennifer Bright, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 10, 2022 |
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By: |
/s/ JENNIFER BRIGHT |
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Jennifer Bright |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) shares in Thousands, $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
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Allowance for accounts receivable | $ 2,172 | $ 2,154 |
Series F Preferred stock, par value | $ 0.001 | $ 0.001 |
Series F Preferred stock, shares authorized | 18 | 18 |
Series F Preferred stock, shares issued | 0 | 0 |
Series F Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 180,000 | 180,000 |
Common stock, shares issued | 7,144 | 7,142 |
Common stock, shares outstanding | 6,149 | 6,147 |
Consolidated Statements Of Operations And Comprehensive Loss (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
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Income Statement [Abstract] | ||||
Net revenue | $ 12,010 | $ 9,531 | $ 34,411 | $ 26,780 |
Cost of revenue | 9,565 | 4,689 | 22,096 | 15,157 |
Gross profit | 2,445 | 4,842 | 12,315 | 11,623 |
Operating expenses: | ||||
Sales and marketing | 5,008 | 3,451 | 15,224 | 10,315 |
General and administrative | 3,109 | 2,479 | 8,825 | 8,613 |
Engineering and development | 1,979 | 1,540 | 5,177 | 4,506 |
Loss on patent litigation settlement | 0 | 29 | 190 | |
Total operating expenses | 10,096 | 7,499 | 29,226 | 23,624 |
Loss from operations | (7,651) | (2,657) | (16,911) | (12,001) |
Loss on foreign currency transactions | (329) | (36) | (552) | (172) |
Interest expense, net | (424) | (569) | (1,287) | (1,727) |
Gain on debt forgiveness | 0 | 0 | 0 | 3,014 |
Non-operating income (loss), net | (753) | (605) | (1,839) | 1,115 |
Loss before income tax (provision) benefit | (8,404) | (3,262) | (18,750) | (10,886) |
Income tax (provision) benefit | 17 | (14) | (23) | 7 |
Net income (loss) | (8,387) | (3,276) | (18,773) | (10,879) |
Other comprehensive loss items: | ||||
Foreign currency translation adjustments | (152) | (90) | (415) | (173) |
Comprehensive income (loss) | (8,539) | (3,366) | (19,188) | (11,052) |
Net income (loss) | (8,387) | (3,276) | (18,773) | (10,879) |
Deemed dividend on convertible preferred stock | 0 | (9) | (217) | (546) |
Net loss attributable to common stockholders | $ (8,387) | $ (3,285) | $ (18,990) | $ (11,425) |
Net loss per share attributable to common stockholders: | ||||
Basic and Diluted - Note 1 | $ (1.10) | $ (0.54) | $ (2.85) | $ (1.96) |
Basic and Diluted - Note 1 | $ (1.10) | $ (0.54) | $ (2.85) | $ (1.96) |
Shares used in the calculation of net loss per share: | ||||
Basic and Diluted - Note 1 | 7,615 | 6,078 | 6,661 | 5,832 |
Basic and Diluted - Note 1 | 7,615 | 6,078 | 6,661 | 5,832 |
Description of Business and Basis of Presentation |
9 Months Ended |
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Sep. 30, 2022 | |
Accounting Policies [Abstract] | |
Description of Business and Basis of Presentation | 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 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, 2021 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 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 consolidated results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2021, included in BIOLASE’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2022 (the “2021 Form 10-K”). Except as the context otherwise requires, all common stock share numbers, share price amounts (including exercise prices, conversion prices, and closing market prices), and warrant numbers contained in the unaudited consolidated financial statements and notes thereto reflect the one-for-twenty-five (1:25) reverse stock split (the “Reverse Stock Split”) effectuated by the Company on April 28, 2022. Liquidity and Management’s Plans The Company incurred losses from operations and used cash in operating activities for the three and nine months ended September 30, 2022 and for the years ended December 31, 2021, 2020, and 2019. The Company’s recurring losses, level of cash used in operations, and potential need for additional capital, along with uncertainties surrounding the Company’s ability to raise additional capital, raise substantial doubt about the Company’s 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. As of September 30, 2022, the Company had working capital of approximately $20.1 million. The Company’s principal sources of liquidity as of September 30, 2022 consisted of approximately $10.0 million in cash and cash equivalents and $4.8 million of net accounts receivable. As of December 31, 2021, the Company had working capital of approximately $35.5 million, $30.0 million in cash and cash equivalents and $4.2 million of net accounts receivable. The decrease in cash and cash equivalents since December 31, 2021 was primarily due to cash used in operating activities of $21.2 million, $3.3 million cash used in investing activities, and a $1.0 million payment on the SWK Loan (as defined below), partially offset by cash provided by the $5.6 million of net proceeds from the June 2022 direct offering and private placement. The $21.2 million of net cash used in operating activities was primarily driven by our net loss of $18.8 million and net increase in operating assets and liabilities of $6.5 million. On June 27, 2022, BIOLASE entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which BIOLASE agreed to issue, (i) in a registered direct offering, 678,745 shares of BIOLASE common stock and pre-funded warrants to purchase 726,660 shares of BIOLASE common stock, and (ii) in a concurrent private placement, warrants to purchase 1,405,405 shares of BIOLASE common stock. The Company received aggregate gross proceeds from the transactions of approximately $6.5 million, before deducting fees to the placement agent and other transaction expenses payable by the Company. Additional capital requirements may depend on many factors, including, among other things, the rate at which the Company’s business grows, the COVID-19 pandemic and the actions taken to contain it, 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. COVID-19 Risk and Uncertainties The COVID-19 pandemic severely impacted global economic activity, and many countries and many states in the United States reacted to the pandemic by instituting quarantines, mandating business and school closures and restricting travel. These mandated business closures included dental office closures worldwide, in large part, for all but emergency procedures. As these quarantines and restrictions began to be lifted in 2021, the Company's sales began to return to pre-pandemic levels. However, there are still uncertainties regarding the ongoing and future effects of COVID-19, and there is no assurance that the Company's sales will not be further impacted in 2022 or at any time thereafter.
Membership Interest Purchase Agreement On September 22, 2022, the Company entered into a Membership Interest Purchase Agreement (the "Purchase Agreement") with Med-Fiber LLC ("Med-Fiber") and Alexei Tchapyjnikov, pursuant to which the Company acquired all of the issued and outstanding membership interests of Med-Fiber on the terms and subject to the conditions set forth in the Purchase Agreement, for a purchase price equal to $1,320,000, plus, subject to the satisfaction of certain milestones, additional earn-out consideration in an aggregate amount of up to $880,000. Med-Fiber was engaged in the business of manufacturing and supplying infrared transmitting fiber optics for laser power delivery applications and activities related thereto. The purchase was accounted for as an asset acquisition as substantially all of the fair value of the gross assets acquired is concentrated in a group of similar assets. The $2,220,000 is included as a component of property, plant, and equipment in the consolidated balance sheet as of September 30, 2022.
Reverse Stock Split At the 2022 annual meeting of BIOLASE stockholders (the "2022 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, at a ratio ranging from one-for-two (1:2) to one-for-twenty-five (1:25), with the final ratio to be determined by the Board. Immediately after the 2022 Annual Meeting, the Board approved a one-for-twenty-five (1:25) reverse stock split of the outstanding shares of BIOLASE common stock (the “Reverse Stock Split”). On April 28, 2022, BIOLASE filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Reverse Stock Split, which became effective on April 28, 2022. The amendment did not change the number of authorized shares of BIOLASE common stock.
Cyber Incident In December 2021, the Company experienced a cybersecurity attack that caused a brief network disruption and impacted certain systems. Upon detection, the Company took immediate steps to address the incident, engaged third-party experts, and notified law enforcement. The Company has taken actions to strengthen its existing systems and implement additional prevention measures. The Company will continue to monitor and assess as needed. All liabilities were fully insured, and as of December 31, 2021 the Company recorded an accrued liability and an insurance receivable within prepaid expenses and other current assets of $0.4 million. In March 2022 the Company received the cash reimbursement from its insurance provider. |
Summary of Significant Accounting Policies |
9 Months Ended |
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Sep. 30, 2022 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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, 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. Critical Accounting Policies Information with respect to the Company’s critical accounting policies, which management believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management as discussed in the Company’s 2021 audited financial statements included in the 2021 Form 10-K. Management believes that there have been no significant changes during the nine months ended September 30, 2022 in the Company’s critical accounting policies from those disclosed in the Company’s 2021 audited financial statements included in the 2021 Form 10-K. 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 the SWK Loan (as defined below) as discussed in Note 9 – Debt, approximate fair value because of the relative short maturity of these items and the market interest rates the Company could obtain. 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 its 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 three and nine months ended September 30, 2022 and 2021, respectively, 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. Recent Accounting Pronouncements Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s consolidated financial position and results of operations. Recently Issued Accounting Standards In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings per share guidance. This standard became effective for the Company beginning on January 1, 2022. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company adopted this guidance effective January 1, 2022, and the adoption of this standard did not have a material impact on its consolidated financial statements. In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options (i.e. warrants) so that the transaction should be treated as an exchange of the original instrument for a new instrument. This standard is effective for fiscal years beginning after December 15, 2021 on a prospective basis, with early adoption permitted. The Company adopted this guidance effective January 1, 2022, and the adoption of this standard did not have a material impact on its consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope and to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will be effective for the Company beginning January 1, 2023, with early adoption permitted beginning January 1, 2019. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements. |
Revenue Recognition |
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Revenue Recognition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition | NOTE 3—REVENUE RECOGNITION Contracts with Customers Revenue for sales of products and services is derived from contracts with customers. The products and services promised in customer contracts include delivery of laser systems, imaging systems, and consumables as well as certain ancillary services such as training and extended warranties. Contracts with each customer generally state the terms of the sale, including the description, quantity and price of each product or service. Payment terms are stated in the contract and vary according to the arrangement. Because the customer typically agrees to a stated rate and price in the contract that does not vary over the life of the contract, the Company’s contracts do not contain variable consideration. The Company establishes a provision for estimated warranty expense. Performance Obligations At contract inception, the Company assesses the products and services promised in its contracts with customers. The Company then identifies performance obligations to transfer distinct products or services to the customers. In order to identify performance obligations, the Company considers all of the products or services promised in contracts regardless of whether they are explicitly stated or are implied by customary business practices. Revenue from products and services transferred to customers at a single point in time accounted for 83% and 87% of net revenue for the three and nine months ended September 30, 2022, respectively, and 88% of net revenue for the three and nine months ended September 30, 2021. The majority of the Company’s revenue recognized at a single point in time is for the sale of laser systems and consumables. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during the shipping process. Revenue from services transferred to customers over time accounted for 17% and 13% of net revenue for the three and nine months ended September 30, 2022, respectively, and 12% of net revenue for the three and nine months ended September 30, 2021. The majority of the Company’s revenue that is recognized over time relates to product training and extended warranties. Deferred revenue attributable to undelivered elements, which primarily consists of product training, totaled approximately $0.4 million and $0.8 million as of September 30, 2022 and December 31, 2021, respectively. Transaction Price Allocation The transaction price for a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in a contract. The primary method used to estimate standalone selling price is the observable price when the good or service is sold separately in similar circumstances and to similar customers. Significant Judgments Revenue is recorded for extended warranties over time as the customer benefits from the warranty coverage. This revenue will be recognized equally throughout the contract period as the customer receives benefits from the Company's promise to provide such services. Revenue is recorded for product training as the customer attends a training program or upon the expiration of the obligation, which is generally after nine months. The Company also has contracts that include both the product sales and product training as performance obligations. In those cases, the Company records revenue for product sales at the point in time when the product has been shipped. The customer obtains control of the product when it is shipped, as all shipments are made FOB shipping point, and after the customer selects its shipping method and pays all shipping costs and insurance. The Company has concluded that control is transferred to the customer upon shipment. Accounts Receivable Accounts receivable are stated at estimated net realizable value. The allowance for doubtful accounts is based on an analysis of customer accounts and the Company’s historical experience with accounts receivable write-offs. Contract Liabilities The Company performs its obligations under a contract with a customer by transferring products and/or services in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable for the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods and/or services, and the Company has not transferred control of the goods and/or services. The opening and closing balances of the Company’s contract liabilities are as follows (in thousands):
The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables at September 30, 2022 and December 31, 2021. The amount of revenue recognized during the nine months ended September 30, 2022 and 2021 that was included in the opening contract liability balance related to undelivered elements was $0.7 million and $0.2 million, respectively. The amounts related to extended warranty contracts was $1.3 million and $1.1 million, for the nine months ended September 30, 2022 and 2021, respectively. Disaggregation of Revenue The Company disaggregates revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors. The Company’s revenues related to the following geographic areas were as follows (in thousands):
Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows (in thousands):
The Company’s sales by end market were as follows (in thousands):
Shipping and Handling Costs and Revenues Shipping and freight costs are treated as fulfillment costs. For shipments to end-customers, the customer bears the shipping and freight costs and has control of the product upon shipment. For shipments to distributors, the distributor bears the shipping and freight costs, including insurance, tariffs and other import/export costs. |
Redeemable Preferred Stock and Stockholders' Equity |
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Temporary Equity And Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable Preferred Stock and Stockholders' Equity | NOTE 4—REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY BIOLASE's board of directors (the "Board"), without further stockholder authorization, may authorize the issuance from time to time of up to 1,000,000 shares of the Company’s preferred stock. Preferred Stock Series G Preferred Stock On March 1, 2022, the Board declared a dividend of one one-thousandth of a share of Series G Preferred Stock, par value $0.001 per share ("Series G Preferred Stock"), of BIOLASE common stock outstanding as of March 25, 2022 (as calculated on a pre-Reverse Stock Split basis). The certificate of designation for the Series G Preferred Stock provided that all shares of Series G Preferred Stock not present in person or by proxy at the 2022 Annual Meeting immediately prior to the opening of the polls at the 2022 Annual Meeting would be automatically redeemed (the “Initial Redemption”) and that any outstanding shares of Series G Preferred Stock that have not been redeemed pursuant to the Initial Redemption would be redeemed in whole, but not in part, (i) if and when ordered by the Board or (ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation effecting the Reverse Stock Split that was subject to the vote at the 2022 Annual Meeting (the “Subsequent Redemption”). On April 28, 2022, both the Initial Redemption and the Subsequent Redemption occurred. As a result, no shares of Series G Preferred Stock remain outstanding. On June 6, 2022, the Series G Preferred Stock was eliminated. Series F Convertible Preferred Stock On July 23, 2020, the Company consummated the sale of an aggregate of 18,000 shares of Series F Preferred Stock, par value $0.001 per share ("Series F Preferred Stock"), and 45,000,000 warrants (the “July 2020 Warrants”), with each warrant exercisable for one twenty-fifth of a 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 was 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 $10.00 per share. Each share of Series F Preferred Stock was convertible into 100 shares of common stock, and each July 2020 Warrant entitled the holder thereof to purchase one twenty-fifth of a share BIOLASE common stock at an exercise price of $10.00 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. Upon conversion, including the conversion described below, this discount was accreted and also recognized as a deemed dividend to preferred stockholders in the amount of $0.2 million, $0.5 million and $14.7 million for the nine months ended September 30, 2022 and the years ended December 31, 2021 and 2020, respectively. The remaining shares of Series F Preferred Stock were converted into shares of BIOLASE common stock in the first quarter of 2022 with none outstanding as of September 30, 2022. Approximately 251 shares of Series F Preferred Stock remained outstanding as of December 31, 2021. On March 3, 2022, the Series F Preferred Stock was eliminated. Stock-Based Compensation 2002 Stock Incentive Plan 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 to the Company. As of September 30, 2022, a total of 124,400 shares have been authorized for issuance under the 2002 Plan, of which approximately 41,000 shares of BIOLASE common stock have been issued pursuant to options that were exercised and restricted stock units ("RSUs") that were vested, approximately 23,000 shares of common stock have been reserved for options that are outstanding, and no shares of common stock remain available for future grants. 2018 Stock Incentive Plan At the 2018 annual meeting of stockholders, the Company’s stockholders approved the 2018 Long-Term Incentive Plan (as amended effective as of September 21, 2018, May 15, 2019, May 13, 2020, and June 11, 2021, the “2018 Plan”). 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 0.1 million shares of BIOLASE common stock are available for issuance as of September 30, 2022. As of September 30, 2022, a total of 1.5 million shares of common stock have been authorized for issuance under the 2018 Plan, of which approximately 1.0 million shares of the Company’s common stock have been reserved for issuance upon the exercise of outstanding options or stock appreciation rights ("SARs"), and/or settlement of unvested RSUs or phantom awards under the 2018 Plan. The Company recognized stock-based compensation expense of $0.6 million and $1.7 million for the three and nine months ended September 30, 2022, respectively, and $0.2 million and $1.5 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022 and 2021, the Company had approximately $1.8 million and $0.8 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 1.1 years. The following table summarizes the income statement classification of compensation expense associated with share-based payments (in thousands):
The fair values of stock options granted in the period were estimated using the Black-Scholes option-pricing model with the following assumptions:
A summary of option activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share data):
(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, 2022 is as follows (in thousands, except per share data):
Fair value disclosures related to grants, exercises and vested options are as follows (in thousands, except per share amounts):
(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. Restricted Stock Units A summary of unvested RSU activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share amounts):
Warrants The Company issues warrants to acquire shares of BIOLASE common stock as approved by the Board. June 2022 Direct Offering and Private Placement On June 27, 2022, the Company entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which the Company agreed to issue to the Purchasers (as defined therein), (i) in a registered direct offering, 678,745 shares of BIOLASE common stock, and pre-funded warrants to purchase 726,660 shares of BIOLASE common stock (the “June 2022 Pre-Funded Warrants”) with an exercise price of $0.001 per share, and (ii) in a concurrent private placement, warrants to purchase 1,405,405 shares of BIOLASE common stock (each a "Common Warrant" and together with the June 2022 Pre-Funded Warrants, the “June 2022 Warrants”). The combined purchase price for one share of BIOLASE common stock and one Common Warrant was $4.625, and the combined purchase price for one June 2022 Pre-Funded Warrant and one Common Warrant was $4.624. In the offering and concurrent private placement, the Company received aggregate gross proceeds of approximately $6.5 million before deducting fees to the placement agent and other transaction expenses. Based on the terms and conditions of the June 2022 Warrants, the Company determined that equity classification was appropriate and recognized the net proceeds in excess of par of $5.6 million in Additional Paid-In Capital. July 2020 Rights Offering On July 23, 2020, the Company consummated the Rights Offering issuing (i) 18,000 shares of Series F Preferred Stock and (ii) 45,000,000 July 2020 Warrants with an exercise price of $10.00 per share of BIOLASE common stock. The initial fair value of the July 2020 Warrants was estimated to be at $8.50 per share of BIOLASE common stock using the Black-Scholes pricing model with an expected term of 5 years, market price of $11.00 per share, which was the last closing price of BIOLASE common stock prior to the transaction date, volatility of 109.8%, a risk free rate of 0.27% and an expected dividend yield of 0. Based on the terms and conditions of the July 2020 Warrants, the Company initially determined that liability classification was appropriate and recognized the fair value of the July 2020 Warrants as a liability. Based on the fair value of the July 2020 Warrants, the Company allocated approximately $2.7 million to the Series F Preferred Stock and $15.3 million to the July 2020 Warrants before issuance costs. Issuance costs of $1.6 million relating to the July 2020 Warrants were recognized as an expense and were recorded in Other (income) expense, net in the consolidated statement of operations for the year ended December 31, 2020. On September 28, 2020, the warrant agreement with respect to the July 2020 Warrants was amended. The amended terms of the July 2020 Warrants meet the requirements for the July 2020 Warrants’ classification as equity. The fair value upon the amendment was estimated to be $5.25 per share of BIOLASE common stock using the Black-Scholes pricing model with an expected term of 5 years, a market price of $7.00 per share of BIOLASE common stock, which was the last closing price of BIOLASE common stock prior to the amendment date, volatility of 109.5%, a risk free rate of 0.26% and an expected dividend yield of 0. On the effective date of the amendment to the warrant agreement, the Company remeasured the fair value of the July 2020 Warrants as described above, reclassified the value of $9.5 million to equity, and recognized the change in fair value as a gain of approximately $5.8 million in the consolidated statement of operations in Other (income) expense, net for the year ended December 31, 2020. June 2020 Registered Direct Offering and Private Placement On June 8, 2020, the Company entered into a Securities Purchase Agreement with certain accredited institutional investors, pursuant to which the Company agreed to issue to the Purchasers in a registered direct offering and concurrent private placement, 10,800,000 shares of BIOLASE common stock, and warrants to purchase 10,800,000 shares of BIOLASE common stock (the “ June 2020 Warrants”) with an exercise price of $0.515 per share. The June 2020 Warrants are exercisable commencing on the date of their issuance and will expire on June 10, 2025. The combined purchase price for one share of BIOLASE common stock and one June 2020 Warrant in the offering was $16.00. The Company received aggregate gross proceeds of approximately $6.9 million in the concurrent offerings, before deducting fees to the placement agents and other transaction expenses of approximately $0.7 million. Based on the terms and conditions of the June 2020 Warrants, the Company determined that equity classification was appropriate and recognized the values of the common stock and June 2020 Warrants in excess of par in Additional Paid-In Capital. The Company allocated the net proceeds of $6.2 million to the common stock and June 2020 Warrants based on their relative fair values. The fair value of the June 2020 Warrants was estimated to be at $10.5 per share using the Black-Scholes pricing model with an expected term of 5 years, market price of $13.5 which was the last closing price of BIOLASE common stock prior to the transaction date, volatility of 109.8% and a risk free rate of 0.45% and an expected dividend yield of 0. Based on the relative fair value of the common stock and the June 2020 Warrants, the Company allocated approximately $3.9 million to the common stock and $3.0 million to the June 2020 Warrants before issuance costs. Western Alliance Warrants On March 6, 2018, in connection with the execution of a business financing agreement with Western Alliance Bank ("Western Alliance"), the Company issued to Western Alliance warrants (the “Original Western Alliance Warrants”) to purchase up to the number of shares of BIOLASE common stock equal to $120,000 divided by the applicable exercise price at the time such warrants are exercised. The Original Western Alliance Warrants are fully vested and exercisable. The Original Western Alliance Warrants may be exercised with a cash payment from Western Alliance, or, in lieu of a cash payment, Western Alliance may convert the warrants into a number of shares, in whole or in part. The initial exercise price of the warrants was $58.75 per share. On September 27, 2018, the Company entered into the Second Modification Agreement to amend the Original Business Financing Agreement. In connection with the Second Modification Agreement, the Original Western Alliance Warrants were terminated, and the Company issued new warrants (the “Western Alliance Warrants”) to purchase up to the number of shares of BIOLASE common stock equal to $120,000 divided by the exercise price of $53.25, which was the closing price of BIOLASE common stock on September 27, 2018 (as adjusted for the Reverse Stock Split). The Western Alliance Warrants were immediately exercisable and expire on September 27, 2028. These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The sale of common stock in the second quarter of 2020 triggered an adjustment to the exercise price to approximately $15.00 per share. The impact of the adjustment to the exercise price was not material. SWK Warrants On November 9, 2018, in connection with the Credit Agreement (as defined below), the Company issued to SWK warrants (the "SWK Warrants") to purchase up to 372,023 shares of BIOLASE common stock. The SWK Warrants were immediately exercisable and expire on November 9, 2026. The initial exercise price of the SWK Warrants was $33.50 per share, which was the average closing price of BIOLASE common stock for the ten trading days immediately preceding November 9, 2018 (as adjusted for the Reverse Stock Split). These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The fair value of the SWK Warrants was estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 8 years; volatility of 81.79%; annual dividend per share of $0.00; and risk-free interest rate of 3.13%; and resulted in an estimated fair value of $0.4 million. In November 2019, the SWK Warrants were consolidated and the exercise price was adjusted to $25.00 per share in connection with an amendment to the Credit Agreement, and in March 2020, the exercise price was adjusted a second time to $12.25. The impact of both reprice events was de minimis to the consolidated financial statements. In connection with the Fifth Amendment, the Company entered into a Third Amendment to the SWK Warrant Agreement. Under this amendment, the Company granted to SWK 63,779 additional common stock warrants at an exercise price of approximately $9.75. All other terms and conditions to the additional warrants were the same as those previously granted. The Company also revised the exercise price of the 487,198 common stock warrants held by SWK to $9.75. The Company measured the fair value of the 63,779 warrants granted using the Black-Scholes option-pricing model. The fair value of the additional warrants and the aggregate impact of the exercise price adjustments in previous amendments to the Warrant Agreement were less than $0.1 million and not material to the consolidated financial statements. Due to the repricing that occurred in the second quarter of 2020, the down round features of these warrants was not triggered by the Company’s June 2020 sale of common stock. DPG Warrants On November 14, 2018, in connection with the SWK Loan, the Company paid a finder’s fee to Deal Partners Group ("DPG") of $0.4 million cash and issued warrants to purchase up to 279,851 shares of BIOLASE common stock (the “DPG Warrants”). The DPG Warrants were exercisable immediately, and expire on November 9, 2026. The initial exercise price of the DPG Warrants was $33.50, which was the average closing price of the Company’s common stock for the ten trading days immediately preceding November 9, 2018 (as adjusted for the Reverse Stock Split). These warrants contain down-round features that require the Company to adjust the exercise price proportionately should the Company issue shares at a price per share less than the exercise price. The fair value of the DPG Warrants of $0.3 million was estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 8 years; volatility of 81.79%; annual dividend per share of $0.00; and risk-free interest rate of 3.13%. In May 2019 the Company issued 149,727 warrants to purchase BIOLASE common stock at a weighted average exercise price of $54.25 to SWK and DPG. In November 2019, the exercise price of the DPG Warrants issued on November 14, 2018 was adjusted from $33.50 per share to $22.00 per share and the exercise price of the DPG Warrants issued on May 7, 2019 was adjusted from $54.25 per share to $35.50 per share. The impact of the reprice was de minimis to the unaudited consolidated financial statements. The June 2020 sale of common stock triggered the down round features of these warrants, and in August 2020, the Company adjusted the exercise price of these warrants to $15.50 and $9.50 per share. The impact of this reprice was not material. The value of both the SWK Warrants and the DPG Warrants was recognized as a discount on the SWK Loan and is being amortized on a straight-line basis, which approximates the effective-interest method, over the loan term of five years. Additionally, based on the adoption of ASU 2017-11 in the fourth quarter of 2018, these warrants are classified as equity in the consolidated balance sheet as of September 30, 2022 and December 31, 2021. A summary of warrant activity for the nine months ended September 30, 2022 is as follows (in thousands, except exercise price amounts):
Phantom Awards and Stock Appreciation Rights During the nine months ended September 30, 2022, the Company issued approximately 30,000 phantom RSUs in lieu of stock-settled RSUs historically granted for leadership bonuses and non-employee director service. During the year ended December 31, 2021, the Company issued approximately 400,000 phantom RSUs. The phantom RSUs have either time-based or performance-based vesting conditions and could 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 were included as a component of long-term liability on the consolidated balance sheet and were not considered stock-based compensation due to the cash-settlement feature of the award and limitation on the number of remaining shares authorized for issuance. In the second quarter of 2022, as a result of the Reverse Stock Split, the phantom awards were reclassed to equity and included as a component of additional paid-in-capital in the amount of $0.1 million, with a portion remaining as a component of long-term liability on the consolidated balance sheet, and the expense subsequent to the remeasurement date considered stock-based compensation. The expense recognized during the three and nine months ended September 30, 2022 was $0.1 million. As of September 30, 2022 $0.1 million was included in additional paid-in-capital and $0.2 million was included in long-term liabilities on the consolidated balance sheet. The balance included in long-term liabilities as of December 31, 2021, was $0.3 million. During the year ended December 31, 2021, the Company issued approximately 40,000 SARs in lieu of stock-settled RSUs historically granted for non-employee director service. Upon exercise, the SARs could be settled in cash with the Company's option to settle in BIOLASE common stock at the sole discretion of the Board. These SARS were included in accrued liabilities on the consolidated balance sheet and not considered stock-based compensation due to the cash-settlement feature of the award and limitation on the number of remaining shares authorized for issuance. In the second quarter of 2022, as a result of the Reverse Stock Split, the SARs were reclassed to equity and included as a component of additional paid-in-capital on the consolidated balance sheet in the amount of $0.5 million. No expense was recognized during the three months ended September 30, 2022, and the expense recognized during the nine months ended September 30, 2022 was $0.3 million and is included in additional paid-in-capital on the consolidated balance sheet as of September 30, 2022. The expense included in accrued liabilities on the consolidated balance sheet as of December 31, 2021 was $0.3 million. Net Loss Per Share – Basic and Diluted 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. The June 2022 Pre-Funded Warrants were included in the calculation of diluted loss per share for the period ended September 30, 2022. Outstanding stock options, RSUs, and warrants to purchase approximately 2.6 million and 1.0 million shares were not included in the calculation of diluted loss per share amounts for the periods ended September 30, 2022 and September 30, 2021, 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 652,500 shares of BIOLASE common stock issuable upon conversion of the 261 shares of Series F Preferred Stock outstanding as of September 30, 2021. |
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory | NOTE 5—INVENTORY Inventory is valued at the lower of cost or net realizable value and is comprised of the following (in thousands):
Inventory has been reduced by estimates for excess and obsolete amounts totaling $1.3 million and $1.0 million as of September 30, 2022 and December 31, 2021, respectively. |
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Property, Plant, and Equipment | NOTE 6—PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment, net is comprised of the following (in thousands):
Depreciation and amortization expense related to property, plant, and equipment totaled $0.1 million and $0.4 million for the three and nine months ended September 30, 2022, respectively, and $0.1 million and $0.3 million for the three and nine months ended September 30, 2021, respectively. |
Intangible Assets and Goodwill |
9 Months Ended |
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Sep. 30, 2022 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible Assets And Goodwill | NOTE 7—INTANGIBLE ASSETS AND GOODWILL The Company conducted its last annual impairment test of goodwill as of September 30, 2021 and determined that there was no impairment. The Company also tests its intangible assets and goodwill between the annual impairment tests 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. For intangible assets subject to amortization, the Company performs its impairment test when indicators, such as reductions in demand or significant economic slowdowns, are present. No events have occurred since September 30, 2021 through the date of these unaudited consolidated financial statements that would trigger further impairment testing of the Company’s intangible assets and goodwill. As of September 30, 2022 and December 31, 2021, the Company had goodwill of $2.9 million. As of September 30, 2022 and December 31, 2021, all intangible assets have been fully amortized and no amortization expense was recognized during the three and nine months ended September 30, 2022 and 2021. |
Accrued Liabilities |
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Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Liabilities | NOTE 8—ACCRUED LIABILITIES Accrued liabilities are comprised of the following (in thousands):
The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") allows employers to defer the deposit and payment of the employer's share of Social Security taxes from payroll periods through December 31, 2020. Under the CARES Act, the Company had deferred payments of $0.2 million outstanding as of September 30, 2022 and December 31, 2021. The deferred liability is included in accrued payroll and benefits. Changes in the initial product warranty accrual and the expenses incurred under the Company’s initial and extended warranties are included within accrued liabilities and were as follows (in thousands):
The Company's Waterlase laser systems sold domestically are covered by a warranty against defects in material and workmanship for a period of up to one year from the date of sale to the end-user by the Company or a distributor. The Company's diode systems sold domestically are covered by a warranty against defects in material and workmanship for a period of up to two years from the date of sale to the end-user by the Company or a distributor. Waterlase systems and diode systems sold internationally are covered by a warranty against defects in material and workmanship for a period of up to 24 months from date of sale to the international distributor. The Company's laser systems warranty covers parts and service for sales in its North American territories and parts only for international distributor sales. In North America and select international locations, the Company sells extended warranty contracts to its laser systems end-users that cover the period after the expiration of the Company's standard warranty coverage for its laser systems. Extended warranty coverage provided under the Company's service contracts varies by the type of system and the level of service desired by the customer. Products or accessories remanufactured, refurbished, or sold by unauthorized parties, voids all warranties in place for such products and exempts the Company from liability issues relating to the use of such products. |
Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | NOTE 9—DEBT The following table presents the details of the principal outstanding and unamortized discount (in thousands):
The Company recognized approximately $0.4 million and $1.3 million in interest expense for the three and nine months ended September 30, 2022, respectively, and $0.6 million and $1.7 million in interest expense for the three and nine months ended September 30, 2021, respectively. The weighted-average interest rate as of September 30, 2022 was 10.25%. The future minimum principal and interest payments as of September 30, 2022 are as follows (in thousands):
Term Loan On November 9, 2018, the Company entered into a five-year secured Credit Agreement (as amended, restated, and supplemented from time to time, the “Credit Agreement”) with SWK Funding LLC (“SWK”), pursuant to which the Company has borrowed $14.3 million (“SWK Loan”) as of September 30, 2022. The Company’s obligations under the Credit Agreement are secured by substantially all of the Company’s assets. Under the terms of the Credit Agreement and subsequent amendments as discussed in the Company’s 2021 Form 10-K and below, repayment of the SWK Loan is interest-only through May 2023, paid quarterly with the option to extend the interest-only period. On June 30, 2022 the Company entered into the ninth amendment to the Credit Agreement (the "Ninth Amendment"), which extended the interest-only period by two quarters from May 2023 to November 2023 and lowered the required minimum unencumbered liquid assets. In connection with the Ninth Amendment, the Company prepaid $1.0 million of the outstanding loan balance. Principal repayments begin in November 2023 and will be approximately $0.7 million quarterly until the SWK Loan matures in May 2025. The loan bears interest of 9% plus a LIBOR floor of 1.25% or another index that approximates LIBOR as close as possible if and when LIBOR no longer exists. As of September 30, 2022, the Company was in compliance with the debt covenants of the Credit Agreement. EIDL Loan On May 22, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the Small Business Administration ("SBA") under its Economic Injury Disaster Loan assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the EIDL Loan is $150,000, with proceeds to be used for working capital purposes. Interest on the EIDL Loan accrues at the rate of 3.75%, per annum and installment payments, including principal and interest, are due monthly beginning in July 2021 and are payable through July 2050. In April 2021, the SBA announced that it was extending the first payment due date for all loans until 2022, or 24 months from the loan execution date. In March 2022, the SBA announced that it was extending the first payment due date for all loans an additional six months, or 30 months from the loan execution date. The Company is obligated to begin making payments on the EIDL Loan starting in November 2022. Fixed payments are first applied to any accrued interest. Paycheck Protection Program Loan On April 14, 2020, the Company was granted a loan (the “PPP Loan”) under the Paycheck Protection Program from PMB in the aggregate amount of $2,980,000, pursuant to the Paycheck Protection Program under the CARES Act. The PPP Loan, which was in the form of a note dated April 13, 2020 issued by BIOLASE, had a maturity date of April 13, 2022 and bore interest at a rate of 1.0% per annum. Interest was payable monthly commencing on November 1, 2020. Funds from the PPP Loan could only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. Under the terms of the PPP Loan, certain amounts of the PPP Loan could be forgiven if they were used for qualifying expenses as described in the CARES Act. During 2020, the Company requested forgiveness of the PPP Loan in accordance with the application requirements. In June 2021, the Company received a reply to its request, and the PPP Loan along with all accrued interest was forgiven by the SBA. The amount of loan forgiveness is presented as a component of non-operating (gain) loss on the Company's consolidated statement of operations for the year ended December 31, 2021. The SBA may undertake a review of a loan of any size during the six-year period following forgiveness of the loan. The review may include the loan forgiveness application, as well as whether the Company received the proper loan amount. There can be no assurance as to the result of any such SBA review. |
Leases |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | NOTE 10—LEASES The Company enters into operating leases primarily for real estate, office equipment, and fleet vehicles. Lease terms generally range from one to five years, and often include options to renew for one year. The Company leases its 11,000 square foot corporate headquarters pursuant to a lease that expires on December 31, 2025 and leases a manufacturing facility located in Corona, California, which expires on June 30, 2025. The Company also leases additional office space and certain office equipment under various operating lease arrangements. On January 22, 2020, the Company entered into a five-year real property lease agreement for an approximately 11,000 square foot facility in Corona, California and moved its manufacturing operations. The lease commenced on July 1, 2020. On December 10, 2021, the Company entered a lease for an additional 15,000 square feet at its facility in Corona, California. This additional lease commenced on February 1, 2022 and expires on June 30, 2025. On February 4, 2020, the Company entered into a 66-month real property lease agreement for office space of approximately 11,000 square feet of office space in Lake Forest, California. The lease commenced on July 1, 2020. On May 26, 2022, the Company entered into a lease agreement to expand training operations and establish a dental office with approximately 8,000 square feet of office space in Lake Forest, California. The lease commences upon completion of construction expected in early 2023 and expires December 31, 2025. Information related to the Company’s right-of-use assets and related liabilities were as follows (in thousands):
Lease expense consists of payments for real property, office copiers, and IT equipment. The Company recognizes payments for non-lease components such as common area maintenance in the period incurred. The Company allocates lease cost amongst lease and non-lease components. The Company excludes short-term leases (those with lease terms of less than one year at inception) from the measurement of lease liabilities or right-of-use assets. Maturities of lease liabilities as of September 30, 2022 for leases that have commenced are as follows (in thousands):
As of September 30, 2022, right-of-use assets were $1.9 million and lease liabilities were $2.0 million. Rent expense totaled $0.3 million and $0.8 million for the three and nine months ended September 30, 2022 and $0.2 million and $0.6 million for the three and nine months ended September 30, 2021. Future minimum rental commitments under lease agreements, as of September 30, 2022, with non-cancelable terms greater than one year for each of the years ending December 31 are as follows (in thousands):
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Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2022 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 11—COMMITMENTS AND CONTINGENCIES On April 24, 2012, CAO Group, Inc. (“CAO”) filed a lawsuit against BIOLASE in the District of Utah alleging that BIOLASE’s ezlase dental laser infringes on U.S. Patent No. 7,485,116 (the “116 Patent”). On September 9, 2012, CAO amended its complaint, adding claims for (1) business disparagement/injurious falsehood under common law and (2) unfair competition under 15 U.S.C. Section 1125(a). The additional claims stemmed from a press release that BIOLASE issued on April 30, 2012, which CAO claimed contained false statements that were disparaging to CAO and its diode product. The amended complaint sought injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest. Until January 24, 2018, this lawsuit was stayed in connection with United States Patent and Trademark Office proceedings relating to the 116 Patent, which proceedings ultimately culminated in a January 27, 2017 decision by the United States Court of Appeals for the Federal Circuit, affirming the findings of the Patent Trial and Appeal Board, which were generally favorable to the Company. On January 25, 2018, CAO moved for leave to file a second amended complaint to add certain claims, which filing the Company did not oppose. On January 23, 2018, CAO filed a lawsuit against BIOLASE in the Central District of California alleging that BIOLASE’s diode lasers infringe on U.S. Patent Nos. 8,337,097, 8,834,497, 8,961,040 and 8,967,883. The complaint sought injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest. On January 25, 2019 (the “Effective Date”), BIOLASE entered into a settlement agreement (the “CAO Settlement Agreement”) with CAO. Pursuant to the CAO Settlement Agreement, CAO agreed to dismiss with prejudice the lawsuits filed by CAO against the Company in April 2012 and January 2018. In addition, CAO granted to the Company and its affiliates a non-exclusive, non-transferable (except as provided in the CAO Settlement Agreement), royalty-free, fully-paid, worldwide license to the licensed patents for use in the licensed products and agreed not to sue the Company, its affiliates or any of its manufacturers, distributors, suppliers or customers for use of the licensed patents in the licensed products, and the parties agreed to a mutual release of claims. The Company agreed (i) to pay to CAO, within five days of the Effective Date, $500,000 in cash, (ii) to issue to CAO, within 30 days of the Effective Date, 20,000 restricted shares of BIOLASE common stock (the “Stock Consideration”), and (iii) to pay to CAO, within 30 days of December 31, 2021, an amount in cash equal to the difference (if positive) between $1,000,000 and the value of the Stock Consideration on December 31, 2021. The Stock Consideration vested and became transferrable on December 31, 2021, subject to the terms of a restricted stock agreement entered into between the parties. The Company considered this a Type I subsequent event and recognized a $1.5 million contingent loss on patent litigation settlement in its consolidated statement of operations for the year ended December 31, 2018. In January 2019, the Company paid CAO $500,000 in cash. On January 31, 2019, the case was dismissed with prejudice. During the three-month period ended March 31, 2019, the Company recorded an additional loss on patent litigation of $0.2 million which represented the change in fair value of the restricted stock to be issued to CAO at March 31, 2019. Subsequent to March 31, 2019, the Company reversed the additional loss commensurate with the fluctuations in the Company’s share price. In August 2020, the Company signed a Letter Agreement to terminate the Manufacturing Agreement and purchase from CAO raw materials and other inventory held by CAO as part of the original CAO Settlement Agreement. During the year ended December 31, 2021, the Company recorded an additional loss on patent litigation of $0.3 million which represented the change in fair value of the liability to be paid to CAO. In February 2021, the Company issued 20,000 restricted shares of common stock in satisfaction of its obligation to issue the Stock Consideration to CAO under the CAO Settlement Agreement and reduced the accrued liability to $0.6 million. As of December 31, 2021, the remaining accrued liability related to the CAO Settlement Agreement was included in current accrued liabilities in the amount of $0.8 million. In January 2022, the Company paid all amounts due to CAO and removed the liability. |
Segment Information |
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Segment Information | NOTE 12—SEGMENT INFORMATION The Company currently operates in a single business segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. For the three and nine months ended September 30, 2022, sales to customers in the United States accounted for approximately 70% and 71% of net revenue, respectively, and international sales accounted for approximately 30% and 29% of net revenue, respectively. For the three and nine months ended September 30, 2021, sales to customers in the United States accounted for approximately 62% and 64% of net revenue and international sales accounted for approximately 38% and 36% of net revenue. No individual country, other than the United States, represented more than 10% of total net revenue during the three and nine months ended September 30, 2022 or 2021. Net revenue by geographic location based on the location of customers was as follows (in thousands):
Property, plant, and equipment by geographic location was as follows (in thousands):
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Concentrations |
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Concentrations | NOTE 13—CONCENTRATIONS Revenue from the Company’s products are as follows (dollars in thousands):
No individual customer represented more than 10% of the Company’s revenue for the three and nine months ended September 30, 2022 or 2021. The Company maintains its cash and cash equivalents in money market investment accounts with established commercial banks. Such cash deposits periodically exceed the Federal Deposit Insurance Corporation insured limit. No individual customer represented more than 10% of the Company’s accounts receivable at September 30, 2022 and December 31, 2021. The Company currently purchases certain key components of its products from single suppliers. Although there are a limited number of manufacturers of these key components, management believes that other suppliers could provide similar key components on comparable terms. A change in suppliers, however, could cause delays in manufacturing and a possible loss of sales, which could adversely affect the Company’s business, results of operations and financial condition. |
Income Taxes |
9 Months Ended |
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Sep. 30, 2022 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | NOTE 14—INCOME TAXES The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered, and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Based on the Company’s net losses in prior years, management has determined that a full valuation allowance against the Company’s net deferred tax assets is appropriate. 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 de-recognition, 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. With respect to the liability for unrecognized tax benefits, including related estimates of penalties and interest, the Company did not record a liability for unrecognized tax benefits for the three and nine months ended September 30, 2022 and 2021. The Company does not expect any changes to its unrecognized tax benefit for the next 12 months that would materially impact its consolidated financial statements. During the three and nine months ended September 30, 2022, the Company recorded an income tax benefit of $17,000 and an income tax provision of $23,000, respectively, resulting in an effective tax rate of 0.2% and (0.1%) respectively. During the three and nine months ended September 30, 2021, the Company recorded an income tax provision of $14,000 and an income tax benefit of $7,000, respectively, resulting in an effective tax rate of (0.4%) and 0.1%, respectively. The income tax provisions and benefit for the three and nine months ended September 30, 2022 and 2021 were calculated using the discrete year-to-date method. The effective tax rate differs from the statutory tax rate of 21% primarily due to the existence of valuation allowances against net deferred tax assets and current liabilities resulting from the estimated state income tax liabilities and foreign tax liability. |
Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 2022 | |
Accounting Policies [Abstract] | |
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, 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. |
Critical Accounting Policies | Critical Accounting Policies Information with respect to the Company’s critical accounting policies, which management believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management as discussed in the Company’s 2021 audited financial statements included in the 2021 Form 10-K. Management believes that there have been no significant changes during the nine months ended September 30, 2022 in the Company’s critical accounting policies from those disclosed in the Company’s 2021 audited financial statements included in the 2021 Form 10-K. |
Fair Value of Financial Instruments | 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 the SWK Loan (as defined below) as discussed in Note 9 – Debt, approximate fair value because of the relative short maturity of these items and the market interest rates the Company could obtain. |
Concentration of Credit Risk, Interest Rate Risk and Foreign Currency Exchange Rate | 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 its 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 three and nine months ended September 30, 2022 and 2021, respectively, 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. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s consolidated financial position and results of operations. Recently Issued Accounting Standards In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings per share guidance. This standard became effective for the Company beginning on January 1, 2022. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company adopted this guidance effective January 1, 2022, and the adoption of this standard did not have a material impact on its consolidated financial statements. In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options (i.e. warrants) so that the transaction should be treated as an exchange of the original instrument for a new instrument. This standard is effective for fiscal years beginning after December 15, 2021 on a prospective basis, with early adoption permitted. The Company adopted this guidance effective January 1, 2022, and the adoption of this standard did not have a material impact on its consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope and to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will be effective for the Company beginning January 1, 2023, with early adoption permitted beginning January 1, 2019. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements. |
Revenue Recognition (Tables) |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Opening and Closing Balances of Contract Liabilities | The opening and closing balances of the Company’s contract liabilities are as follows (in thousands):
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Summary of Disaggregation of Revenues Related to Geographic Areas | The Company’s revenues related to the following geographic areas were as follows (in thousands):
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Summary of Revenues Disaggregated by Timing of Goods and Services Transferred | Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows (in thousands):
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Summary of Sales by End Market | The Company’s sales by end market were as follows (in thousands):
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Redeemable Preferred Stock and Stockholders' Equity (Tables) |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Income Statement Classification of Compensation Expense | The following table summarizes the income statement classification of compensation expense associated with share-based payments (in thousands):
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Assumptions on Estimation of Stock Option Fair Values | The fair values of stock options granted in the period were estimated using the Black-Scholes option-pricing model with the following assumptions:
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Summary of Option Activity | A summary of option activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share data):
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Summary of Unvested Stock Option Activity | A summary of unvested stock option activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share data):
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Fair Value Disclosures Related to Grants, Exercises and Vesting Options | Fair value disclosures related to grants, exercises and vested options are as follows (in thousands, except per share amounts):
(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. |
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Summary of Unvested Restricted Stock Units | A summary of unvested RSU activity for the nine months ended September 30, 2022 is as follows (in thousands, except per share amounts):
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Summary of Warrant Activity | A summary of warrant activity for the nine months ended September 30, 2022 is as follows (in thousands, except exercise price amounts):
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Inventory (Tables) |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Inventory | Inventory is valued at the lower of cost or net realizable value and is comprised of the following (in thousands):
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Property, Plant, and Equipment (Tables) |
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Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Property, Plant, and Equipment | Property, plant, and equipment, net is comprised of the following (in thousands):
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Accrued Liabilities (Tables) |
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Accrued Liabilities | Accrued liabilities are comprised of the following (in thousands):
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Changes in Initial Product Warranty Accrual and Expenses Under Initial and Extended Warranties | Changes in the initial product warranty accrual and the expenses incurred under the Company’s initial and extended warranties are included within accrued liabilities and were as follows (in thousands):
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Debt (Tables) |
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Sep. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Principal Outstanding and Unamortized Discount | The following table presents the details of the principal outstanding and unamortized discount (in thousands):
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Summary of Future Minimum Principal and Interest Payments | The future minimum principal and interest payments as of September 30, 2022 are as follows (in thousands):
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Leases (Tables) |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Information related to Right-of-use Assets and Liabilities | Information related to the Company’s right-of-use assets and related liabilities were as follows (in thousands):
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Schedule of Maturities of Lease Liabilities | Maturities of lease liabilities as of September 30, 2022 for leases that have commenced are as follows (in thousands):
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Future minimum rental commitments under lease agreements with non-cancelable Operating Leases | Future minimum rental commitments under lease agreements, as of September 30, 2022, with non-cancelable terms greater than one year for each of the years ending December 31 are as follows (in thousands):
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Segment Information (Tables) |
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Net Revenue by Geographic Location | Net revenue by geographic location based on the location of customers was as follows (in thousands):
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Summary of Property, Plant and Equipment by Geographic Location | Property, plant, and equipment by geographic location was as follows (in thousands):
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Concentrations (Tables) |
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Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Net Revenue from Various Products | Revenue from the Company’s products are as follows (dollars in thousands):
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Description of Business and Basis of Presentation - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 9 Months Ended | 12 Months Ended | ||||||
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Sep. 22, 2022 |
Apr. 28, 2022 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Jun. 30, 2022 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
Jun. 27, 2022 |
Dec. 31, 2020 |
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Basis Of Presentation [Line Items] | ||||||||||
Series F Preferred stock, shares issued | 0 | 0 | 0 | |||||||
Common Stock, Shares, Issued | 7,144,000 | 7,144,000 | 7,142,000 | |||||||
Proceeds from the sale of common stock | $ 5,635 | $ 13,291 | ||||||||
Net loss | $ (8,387) | $ (3,276) | (18,773) | (10,879) | ||||||
Net increase in operating assets a liabilities | 6,500 | |||||||||
Prepaid expenses and other current assets | 2,648 | 2,648 | $ 2,012 | |||||||
Working capital | 20,100 | 20,100 | 35,500 | |||||||
Cash and cash equivalents | 9,960 | 9,960 | 29,972 | |||||||
Cash, cash equivalents, and restricted cash | 9,960 | $ 33,589 | 9,960 | 33,589 | 30,175 | $ 17,876 | ||||
Net cash and cash equivalents used in investing activities | (3,256) | (396) | 3,300 | |||||||
Accounts receivable, net | $ 4,846 | 4,846 | 4,238 | |||||||
Net cash used in operating activities | $ (21,179) | $ (13,606) | ||||||||
Net decreases in operating assets | 21,200 | |||||||||
Reverse stock split | one-for-twenty-five | |||||||||
SWK Loan | ||||||||||
Basis Of Presentation [Line Items] | ||||||||||
Proceed from term loan offering | 1,000 | |||||||||
Cyber Incident | ||||||||||
Basis Of Presentation [Line Items] | ||||||||||
Prepaid expenses and other current assets | $ 400 | |||||||||
Private Placement [Member] | ||||||||||
Basis Of Presentation [Line Items] | ||||||||||
Proceeds from offering, net of underwriting discounts and commissions | $ 5,600 | |||||||||
Securities Purchase Agreement [Member] | ||||||||||
Basis Of Presentation [Line Items] | ||||||||||
Warrant issued | 726,660 | |||||||||
Common Stock, Shares, Issued | 678,745 | |||||||||
Gross proceeds from transactions and other transactions | $ 6,500 | |||||||||
Securities Purchase Agreement [Member] | Private Placement [Member] | ||||||||||
Basis Of Presentation [Line Items] | ||||||||||
Common Stock, Shares, Issued | 1,405,405 | |||||||||
Membership Interest Purchase Agreement [Member] | ||||||||||
Basis Of Presentation [Line Items] | ||||||||||
Purchase price payable, description | the Company acquired all of the issued and outstanding membership interests of Med-Fiber on the terms and subject to the conditions set forth in the Purchase Agreement, for a purchase price equal to $1,320,000, plus, subject to the satisfaction of certain milestones, additional earn-out consideration in an aggregate amount of up to $880,000. Med-Fiber was engaged in the business of manufacturing and supplying infrared transmitting fiber optics for laser power delivery applications and activities related thereto. The purchase was accounted for as an asset acquisition as substantially all of the fair value of the gross assets acquired is concentrated in a group of similar assets. The $2,220,000 is included as a component of property, plant, and equipment in the consolidated balance sheet as of September 30, 2022. |
Revenue Recognition - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
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Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
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Revenue Recognition [Abstract] | |||||
Revenue recognized from contract liability | $ 700 | $ 200 | |||
Contract With Customer Liability Revenue Recognized Extended Warranty | 1,300 | $ 1,100 | |||
Undelivered elements (product training, installation, product and support services) | $ 366 | $ 366 | $ 835 | ||
Revenue from services transferred to customers over time, percentage | 17.00% | 12.00% | 13.00% | 12.00% | |
Revenue from products and services transferred to customers, percentage | 83.00% | 88.00% | 87.00% | 88.00% |
Summary of Opening and Closing Balances of Contract Liabilities (Detail) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Revenue Recognition [Abstract] | ||
Undelivered elements (training, installation, product and support services) | $ 366 | $ 835 |
Extended warranty contracts | 1,851 | 1,753 |
Total deferred revenue | 2,217 | 2,588 |
Less long-term portion of deferred revenue | (347) | (329) |
Deferred revenue — current | $ 1,870 | $ 2,259 |
Summary of Disaggregation of Revenues Related to Geographic Areas (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Disaggregation Of Revenue [Line Items] | ||||
Total net revenue | $ 12,010 | $ 9,531 | $ 34,411 | $ 26,780 |
United States | ||||
Disaggregation Of Revenue [Line Items] | ||||
Total net revenue | 8,413 | 5,939 | 24,290 | 17,024 |
International | ||||
Disaggregation Of Revenue [Line Items] | ||||
Total net revenue | $ 3,597 | $ 3,592 | $ 10,121 | $ 9,756 |
Summary of Revenues Disaggregated by Timing of Goods and Services Transferred (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Disaggregation Of Revenue [Line Items] | ||||
Net revenue | $ 12,010 | $ 9,531 | $ 34,411 | $ 26,780 |
Revenue Recognized Over Time | ||||
Disaggregation Of Revenue [Line Items] | ||||
Net revenue | 2,076 | 1,116 | 4,406 | 3,269 |
Revenue Recognized at a Point in Time | ||||
Disaggregation Of Revenue [Line Items] | ||||
Net revenue | $ 9,934 | $ 8,415 | $ 30,005 | $ 23,511 |
Summary of Sales by End Market (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Disaggregation Of Revenue [Line Items] | ||||
Net revenue | $ 12,010 | $ 9,531 | $ 34,411 | $ 26,780 |
End-customer | ||||
Disaggregation Of Revenue [Line Items] | ||||
Net revenue | 8,413 | 5,939 | 24,290 | 17,024 |
Distributors | ||||
Disaggregation Of Revenue [Line Items] | ||||
Net revenue | $ 3,597 | $ 3,592 | $ 10,121 | $ 9,756 |
Classification of Compensation Expense Associated with Share-Based Payments (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||||
Allocated Share-based Compensation Expense | $ 591 | $ 192 | $ 1,691 | $ 1,488 |
Cost of Revenue | ||||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||||
Allocated Share-based Compensation Expense | 20 | 25 | 133 | 138 |
Sales and Marketing | ||||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||||
Allocated Share-based Compensation Expense | 136 | 62 | 448 | 291 |
General and Administrative | ||||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||||
Allocated Share-based Compensation Expense | 32 | 61 | 183 | 777 |
Engineering and Development | ||||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||||
Allocated Share-based Compensation Expense | $ 403 | $ 44 | $ 927 | $ 282 |
Assumptions Used in Estimating Fair Value of Stock Options Granted (Detail) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions and Methodology [Abstract] | ||||
Expected term (years) | 6 years 1 month 6 days | 6 years 1 month 6 days | ||
Volatility | 0.00% | 111.00% | 0.00% | 111.00% |
Risk-free interest rate | 0.00% | 0.98% | 0.00% | 0.86% |
Summary of Option Activity (Detail) - USD ($) $ / shares in Units, $ in Thousands |
9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Dec. 31, 2021 |
|||
Equity [Abstract] | ||||
Beginning Balance | 70,000 | |||
Forfeited, cancelled, or expired | (18,000) | |||
Ending Balance | 52,000 | 70,000 | ||
Options exercisable at September 30, 2022 | 50,000 | |||
Vested options expired during the period ended September 30, 2022 | 0 | |||
Beginning Balance | $ 62.01 | |||
Forfeited, cancelled, or expired | 22.82 | |||
Ending Balance | 74.95 | $ 62.01 | ||
Options exercisable at September 30, 2022 | 77.50 | |||
Vested options expired during the period ended September 30, 2022 | $ 0 | |||
Weighted-Average Remaining Contractual Term (Years) | ||||
Options outstanding | 6 years | 7 years 1 month 6 days | ||
Options exercisable | 5 years 10 months 24 days | |||
Options outstanding | [1] | $ 0 | $ 15 | |
Options exercisable | [1] | $ 0 | ||
|
Summary of Unvested Stock Option Activity (Detail) - $ / shares |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||||
Granted | $ 0 | $ 0.49 | $ 0 | $ 0.72 |
Stock Options | ||||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||||
Beginning Balance | 5,000 | |||
Vested | (2,000) | |||
Forfeited or cancelled | (1,000) | |||
Ending Balance | 2,000 | 2,000 | ||
Beginning Balance | $ 17.31 | |||
Vested | 20.99 | |||
Forfeited or cancelled | 17.03 | |||
Ending Balance | $ 14.76 | $ 14.76 |
Fair Value Disclosures Related to Grants, Exercises and Vested Options (Detail) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|||
Share-Based Payment Arrangement [Abstract] | ||||||
Proceeds from stock options exercised | $ 0 | $ 66 | $ 0 | $ 66 | ||
Intrinsic value of stock options exercised | [1] | $ 0 | $ 42 | $ 0 | $ 42 | |
Weighted-average fair value of options granted during period | $ 0 | $ 0.49 | $ 0 | $ 0.72 | ||
Total fair value of stock options vested during the period | $ 12 | $ 8 | $ 35 | $ 395 | ||
|
Summary of Unvested Restricted Stock Units (Detail) - Restricted Stock Units (RSUs) |
9 Months Ended |
---|---|
Sep. 30, 2022
$ / shares
shares
| |
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |
Beginning Balance | shares | 94,000 |
Granted | shares | 480,000 |
Vested | shares | (158,000) |
Forfeited or cancelled | shares | (5,000) |
Ending Balance | shares | 411,000 |
Unvested RSUs at December 31, 2021 | $ / shares | $ 15.64 |
Granted | $ / shares | 4.44 |
Vested | $ / shares | 7.45 |
Forfeited or cancelled | $ / shares | 16.63 |
Unvested RSUs at June 30, 2022 | $ / shares | $ 5.69 |
Summary of Warrant Activity (Detail) - Warrants |
9 Months Ended |
---|---|
Sep. 30, 2022
$ / shares
shares
| |
Class Of Warrant Or Right [Line Items] | |
Beginning Balance | shares | 17,996,000 |
Granted or Issued | shares | 2,132,000 |
Exercised | shares | (178,000) |
Forfeited, cancelled, or expired | shares | (785,000) |
Ending Balance | shares | 19,165,000 |
Warrants exercisable at September 30, 2022 | shares | 19,165,000 |
Vested warrants expired during the period ended September 30, 2022 | shares | (785,000) |
Beginning Balance | $ / shares | $ 19.98 |
Granted or Issued | $ / shares | 3.05 |
Exercised | $ / shares | 0 |
Forfeited, cancelled, or expired | $ / shares | 225.00 |
Ending Balance | $ / shares | 9.88 |
Warrants exercisable at September 30, 2022 | $ / shares | 9.88 |
Vested warrants expired during the period ended JSeptember 30, 2022 | $ / shares | $ 225.00 |
Components of Inventory (Detail) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Components of inventory, net of allowances | ||
Raw materials | $ 6,465 | $ 4,444 |
Work-in-process | 2,192 | 1,726 |
Finished goods | 7,770 | 6,759 |
Inventory | $ 16,427 | $ 12,929 |
Inventory - Additional Information (Detail) - USD ($) $ in Millions |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Inventory reduced by estimate for excess and obsolete amount | $ 1.3 | $ 1.0 |
Property, Plant, and Equipment - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Property, Plant and Equipment [Abstract] | ||||
Depreciation and amortization expenses | $ 0.1 | $ 0.1 | $ 0.4 | $ 0.3 |
Intangible Assets and Goodwill - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | |||||
Goodwill impairment loss | $ 0 | ||||
Intangible assets and goodwill impairment | 0 | ||||
Goodwill | $ 2,926 | $ 2,926 | $ 2,926 | ||
Amortization expense | $ 0 | $ 0 | $ 0 | $ 0 |
Components of Accrued Liabilities (Detail) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
Sep. 30, 2021 |
Feb. 28, 2021 |
---|---|---|---|---|
Payables and Accruals [Abstract] | ||||
Payroll and benefits | $ 3,017 | $ 3,969 | ||
Warranty accrual, current portion | 1,061 | 565 | $ 545 | |
Contingent Liability | 880 | 0 | ||
Accrued professional services | 633 | 275 | ||
Lease liability | 615 | 405 | ||
Taxes | 193 | 558 | ||
Accrued insurance premium | 13 | 600 | ||
Settlement accrual | 0 | 805 | ||
Other | 507 | 1,099 | ||
Accrued liabilities | $ 6,919 | $ 8,276 | $ 600 |
Changes in Initial Product Warranty Accrual and Expenses Under Initial and Extended Warranties (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
Movement in Standard Product Warranty Accrual | |||||
Balance, beginning of period | $ 1,233 | $ 551 | $ 1,086 | $ 1,132 | |
Provision for estimated warranty cost | 1,255 | 832 | 2,715 | 1,129 | |
Warranty expenditures | (1,011) | (366) | (2,324) | (1,244) | |
Balance, end of period | 1,477 | 1,017 | 1,477 | 1,017 | |
Less: long-term portion of warranty accrual | 416 | 472 | 416 | 472 | $ 521 |
Current portion of warranty accrual | $ 1,061 | $ 545 | $ 1,061 | $ 545 | $ 565 |
Accrued Liabilities - Additional Information (Detail) - USD ($) $ in Millions |
9 Months Ended | |
---|---|---|
Sep. 30, 2022 |
Dec. 31, 2021 |
|
Accrued Liabilities [Line Items] | ||
Deferred payment outstanding | $ 0.2 | $ 0.2 |
Maximum | United States | Waterlase Laser Systems | ||
Accrued Liabilities [Line Items] | ||
Product warrant period | 1 year | |
Maximum | United States | Diode Systems | ||
Accrued Liabilities [Line Items] | ||
Product warrant period | 2 years | |
Maximum | International | Waterlase Systems And Diode Systems | ||
Accrued Liabilities [Line Items] | ||
Product warrant period | 24 months |
Debt - Summary of Principal Outstanding and Unamortized Discount (Detail) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Debt Instrument [Line Items] | ||
Non current term loans | $ 12,793 | $ 13,603 |
Term loan, net of discount | 0 | 0 |
Non current term loans, net of discount | 12,793 | 13,603 |
EIDL Loan | ||
Debt Instrument [Line Items] | ||
Non current term loans | 150 | 150 |
SWK Loan | ||
Debt Instrument [Line Items] | ||
Non current term loans | 13,300 | 14,300 |
Discount and debt issuance costs on SWK Loan | $ (657) | $ (847) |
Debt - Additional Information (Detail) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|---|
May 22, 2020 |
Apr. 13, 2020 |
Nov. 09, 2018 |
Apr. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Apr. 14, 2020 |
|
Debt Instrument [Line Items] | |||||||||
Interest expense | $ 400,000 | $ 600,000 | $ 1,300,000 | $ 1,700,000 | |||||
Weighted-average interest rate | 10.25% | 10.25% | |||||||
Credit Agreement Ninth Amendment | |||||||||
Debt Instrument [Line Items] | |||||||||
Loan principal amount | $ 1,000,000.0 | ||||||||
PPP Loan | |||||||||
Debt Instrument [Line Items] | |||||||||
Period For Review Of Forgiveness Of Loan | 6 years | ||||||||
Loan forgiveness description of period | The review may include the loan forgiveness application, as well as whether the Company received the proper loan amount. There can be no assurance as to the result of any such SBA review | ||||||||
EIDL Loan | |||||||||
Debt Instrument [Line Items] | |||||||||
Loan principal amount | $ 150,000,000 | ||||||||
Loan interest rate per annum | 3.75% | ||||||||
Loan periodic payment terms | installment payments, including principal and interest, are due monthly beginning in July 2021 and are payable through July 2050. In April 2021, the SBA announced that it was extending the first payment due date for all loans until 2022, or 24 months from the loan execution date. In March 2022, the SBA announced that it was extending the first payment due date for all loans an additional six months, or 30 months from the loan execution date. The Company is obligated to begin making payments on the EIDL Loan starting in November 2022. Fixed payments are first applied to any accrued interest. | ||||||||
Loan balance payment terms | payable through July 2050. | ||||||||
Extension of loan due date | 2022 | ||||||||
Note interest rate per annum | 3.75% | ||||||||
Pacific Mercantile Bank | PPP Loan | |||||||||
Debt Instrument [Line Items] | |||||||||
Loan interest rate per annum | 1.00% | ||||||||
Loan granted amount from bank | $ 2,980,000 | ||||||||
Note issued date | Apr. 13, 2020 | ||||||||
Note maturity date | Apr. 13, 2022 | ||||||||
Note interest rate per annum | 1.00% | ||||||||
Note payable commencing date | Nov. 01, 2020 | ||||||||
SWK Loan | |||||||||
Debt Instrument [Line Items] | |||||||||
Interest rate | 9.00% | ||||||||
Repayments of lines of credit | $ 700,000 | ||||||||
Line of credit facility term | 5 years | ||||||||
Borrowings under lines of credit | $ 14,300,000 | ||||||||
Debt instrument, maturity term | 2025 | ||||||||
SWK Loan | LIBOR | |||||||||
Debt Instrument [Line Items] | |||||||||
Line of credit facility interest rate description | or another index that approximates LIBOR as close as possible if and when LIBOR no longer exists. |
Debt - Summary of Future Minimum Principal and Interest Payments (Detail) $ in Thousands |
Sep. 30, 2022
USD ($)
|
---|---|
Debt Disclosure [Abstract] | |
Remainder of 2022 | $ 0 |
2023 | 700 |
2024 | 2,800 |
2025 | 9,800 |
2026 | 0 |
2027 and thereafter | 150 |
Total future payments | 13,450 |
Remainder of 2022 | 357 |
2023 | 1,425 |
2024 | 1,242 |
2025 | 1,895 |
2026 | 9 |
2027 and thereafter | 89 |
Total future payments | $ 5,017 |
Leases - Information related to Right-of-use Assets and Liabilities (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Leases [Abstract] | ||||
Cash paid for operating lease liabilities | $ 84 | $ 62 | $ 219 | $ 185 |
Right-of-use assets obtained in exchange for new operating lease obligations | $ 0 | $ 0 | $ 562 | $ 48 |
Weighted-average remaining lease term | 2 years 10 months 24 days | 3 years 9 months 18 days | 2 years 10 months 24 days | 3 years 9 months 18 days |
Weighted-average discount rate | 12.30% | 12.30% | 12.30% | 12.30% |
Leases - Schedule of Maturities of Lease Liabilities (Detail) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Leases [Abstract] | ||
2022 | $ 831 | |
2023 | 826 | |
2024 | 644 | |
2025 | 144 | |
2026 and thereafter | 0 | |
Total operating lease liability | 2,445 | |
Less imputed interest | (402) | |
Total lease liabilities | 2,043 | |
Current operating lease liabilities | 615 | $ 405 |
Non current operating lease liability | $ 1,428 | $ 1,449 |
Leases - Future Minimum Rental Commitments Under Lease Agreements (Detail) $ in Thousands |
Sep. 30, 2022
USD ($)
|
---|---|
Leases [Abstract] | |
Remainder of 2022 | $ 205 |
2023 | 834 |
2024 | 822 |
2025 | 584 |
2026 and thereafter | 0 |
Total future minimum lease obligations | 2,445 |
Less imputed interest | (402) |
Total lease liabilities | $ 2,043 |
Commitments and Contingencies - Additional Information (Detail) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||||
---|---|---|---|---|---|---|---|---|---|
Feb. 28, 2021 |
Jan. 25, 2019 |
Jan. 31, 2019 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Mar. 31, 2019 |
Sep. 30, 2021 |
Dec. 31, 2021 |
Dec. 31, 2018 |
|
Commitment And Contingencies [Line Items] | |||||||||
Litigation settlement share issued | 20,000 | ||||||||
Contingent loss on patent litigation settlement | $ 0 | $ (29,000) | $ (190,000) | ||||||
Accrued liability | $ 600,000 | 6,919,000 | $ 8,276,000 | ||||||
Patent Litigation | |||||||||
Commitment And Contingencies [Line Items] | |||||||||
Contingent loss on patent litigation settlement | $ 300,000 | ||||||||
CAO Settlement Agreement | Patent Litigation | |||||||||
Commitment And Contingencies [Line Items] | |||||||||
Settlement agreement date | January 25, 2019 | ||||||||
Number of days litigation settlement to be paid in cash | 5 days | ||||||||
Litigation settlement in cash | $ 500,000 | ||||||||
Number of days litigation settlement shares to be issued | 30 days | ||||||||
Litigation settlement share issued | 20,000 | ||||||||
Number of days litigation settlement to be paid in value of stock consideration | 30 days | ||||||||
Settlement agreement, terms | The Company agreed (i) to pay to CAO, within five days of the Effective Date, $500,000 in cash, (ii) to issue to CAO, within 30 days of the Effective Date, 20,000 restricted shares of BIOLASE common stock (the “Stock Consideration”), and (iii) to pay to CAO, within 30 days of December 31, 2021, an amount in cash equal to the difference (if positive) between $1,000,000 and the value of the Stock Consideration on December 31, 2021. | ||||||||
Litigation settlement amount in cash equal to difference between value of stock consideration | $ 1,000,000 | ||||||||
Contingent loss on patent litigation settlement | $ 1,500,000 | ||||||||
Payment for litigation settlement in cash | $ 500,000 | ||||||||
Loss on litigation settlement | $ (200,000) | ||||||||
Accrued liability | $ 800,000 |
Segment Information - Additional Information (Detail) - Customer |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Segment Reporting Information [Line Items] | ||||
Percentage of sales | 100.00% | 100.00% | 100.00% | 100.00% |
Customer Concentration Risk | Sales Revenue, Net | United States | ||||
Segment Reporting Information [Line Items] | ||||
Percentage of sales | 70.00% | 62.00% | 71.00% | 64.00% |
Geographic Concentration Risk | Sales Revenue, Net | International | ||||
Segment Reporting Information [Line Items] | ||||
Percentage of sales | 30.00% | 38.00% | 29.00% | 36.00% |
Number of customers which represented more than 10% of the Company's revenue | 0 | 0 | 0 | 0 |
Summary of Net Revenue by Geographic Location (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Segment Reporting Information [Line Items] | ||||
Total net revenue | $ 12,010 | $ 9,531 | $ 34,411 | $ 26,780 |
United States | ||||
Segment Reporting Information [Line Items] | ||||
Total net revenue | 8,413 | 5,939 | 24,290 | 17,024 |
International | ||||
Segment Reporting Information [Line Items] | ||||
Total net revenue | $ 3,597 | $ 3,592 | $ 10,121 | $ 9,756 |
Summary of Property, Plant and Equipment by Geographic Location (Detail) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|
Segment Reporting Information [Line Items] | ||
Property, plant, and equipment, net | $ 3,915 | $ 1,067 |
United States | ||
Segment Reporting Information [Line Items] | ||
Property, plant, and equipment, net | 3,687 | 797 |
International | ||
Segment Reporting Information [Line Items] | ||
Property, plant, and equipment, net | $ 228 | $ 270 |
Concentrations - Additional Information (Detail) - Customer |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
Dec. 31, 2021 |
|
Concentration Risk [Line Items] | |||||
Concentration Risk Percentage | 100.00% | 100.00% | 100.00% | 100.00% | |
Product Concentration Risk | Sales Revenue, Net | |||||
Concentration Risk [Line Items] | |||||
Number of customers which represented more than 10% of the Company's revenue | 0 | 0 | 0 | 0 | |
Product Concentration Risk | Account Receivable | |||||
Concentration Risk [Line Items] | |||||
Number of customers which represented more than 10% of the Company's accounts receivable | 0 | 0 | |||
Minimum | Product Concentration Risk | Sales Revenue, Net | |||||
Concentration Risk [Line Items] | |||||
Concentration Risk Percentage | 10.00% | 10.00% | 10.00% | 10.00% | |
Minimum | Customer Concentration Risk | Account Receivable | |||||
Concentration Risk [Line Items] | |||||
Concentration Risk Percentage | 10.00% | 10.00% |
Income Taxes - Additional Information (Detail) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
Income Tax Disclosure [Line Items] | ||||
Liability for unrecognized tax benefit, including related estimates of penalties and interest | $ 0 | $ 0 | $ 0 | $ 0 |
Income tax provision | 23,000 | 14,000 | 23,000 | 14,000 |
Income tax benefit | $ 17,000 | $ 7,000 | $ 17,000 | $ 7,000 |
Projected annual effective tax rate | 0.20% | 0.40% | 0.10% | 0.10% |
Statutory tax rate | 21.00% |
Subsequent Events (Additional Information) (Details) - shares shares in Thousands |
Apr. 28, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
---|---|---|---|
Subsequent Event [Line Items] | |||
Preferred stock, shares outstanding | 0 | 0 | |
Reverse stock split | one-for-twenty-five |
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