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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 ~~May 1, 2017,~~April 30, 2018, the registrant had ~~67,660,712~~102,380,238 shares of common stock, $0.001 par value per share, outstanding.

	March 31,			December 31,			March 31,			December 31,
	2017			2016			2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	3,576		$	8,924		$	8,479		$	11,645
Restricted cash equivalent		251			251			251			251
Accounts receivable, less allowance of $1,219 in 2017 and $1,209 in 2016		9,220			9,784
Accounts receivable, less allowance of $997 in 2018 and $802 in 2017								9,739			10,124
Inventory, net		14,693			13,523			13,401			12,298
Prepaid expenses and other current assets		1,576			1,505			1,714			1,732
Total current assets		29,316			33,987			33,584			36,050
Property, plant, and equipment, net		4,465			4,478			3,424			3,674
Goodwill		2,926			2,926			2,926			2,926
Other assets		333			550			450			334
Total assets	$	37,040		$	41,941		$	40,384		$	42,984
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	9,183		$	9,125		$	5,785		$	5,109
Accrued liabilities		5,163			5,778			5,119			5,609
Customer deposits		94			101			41			27
Deferred revenue, current portion		2,666			3,010			2,187			2,625
Total current liabilities		17,106			18,014			13,132			13,370
Lines of credit								1,823			—
Deferred income taxes, net		813			798			106			104
Deferred revenue, long-term		20			23			8			11
Loan payable, long-term								111			—
Warranty accrual, long-term		487			773			124			70
Other liabilities, long-term		248			268			143			169
Total liabilities		18,674			19,876			15,447			13,724
Commitments, contingencies, and subsequent event (Notes 8 and 12)
Commitments, contingencies, and subsequent event (Notes 10 and 14)
Stockholders' equity:
Preferred stock, par value $0.001 per share; 1,000,000 shares authorized; 88,494 shares issued in 2017 and 2016, respectively; no shares outstanding in 2017 and 2016, respectively		—			—
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 67,660,712 and 67,565,951 shares issued and outstanding in 2017 and 2016, respectively		68			68
Preferred stock, par value $0.001 per share; 1,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively								—			—
Common stock, par value $0.001 per share; 200,000,000 shares authorized, 102,380,238 and 102,339,682 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively								102			102
Additional paid-in-capital		201,577			201,198			225,524			224,910
Accumulated other comprehensive loss		(846	)		(876	)		(492	)		(576	)
Accumulated deficit		(182,433	)		(178,325	)		(200,197	)		(195,176	)
Total stockholders' equity		18,366			22,065			24,937			29,260
Total liabilities and stockholders' equity	$	37,040		$	41,941		$	40,384		$	42,984

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2017			2016			2018			2017
Products and services revenue	$	10,842		$	10,979		$	10,017		$	10,842
License fees and royalty revenue		32			31			3			32
Net revenue		10,874			11,010			10,020			10,874
Cost of revenue		6,921			7,366			6,987			6,921
Gross profit		3,953			3,644			3,033			3,953
Operating expenses:
Sales and marketing		4,184			3,804			3,891			4,184
General and administrative		2,416			2,267			3,037			2,416
Engineering and development		1,429			1,886			1,289			1,429
Total operating expenses		8,029			7,957			8,217			8,029
Loss from operations		(4,076	)		(4,313	)		(5,184	)		(4,076	)
(Loss) gain on foreign currency transactions		(1	)		71
Interest income, net		9			17
Gain (loss) on foreign currency transactions								207			(1	)
Interest expense (income), net								(12	)		9
Non-operating income, net		8			88			195			8
Loss before income tax provision		(4,068	)		(4,225	)		(4,989	)		(4,068	)
Income tax provision		40			40			32			40
Net loss		(4,108	)		(4,265	)		(5,021	)		(4,108	)
Other comprehensive income items:
Other comprehensive income item:
Foreign currency translation adjustment		30			99			84			30
Comprehensive loss	$	(4,078	)	$	(4,166	)	$	(4,937	)	$	(4,078	)

Net loss per share:
Basic	$	(0.06	)	$	(0.07	)	$	(0.05	)	$	(0.06	)
Diluted	$	(0.06	)	$	(0.07	)	$	(0.05	)	$	(0.06	)
Shares used in the calculation of net loss per share:
Basic		67,583			58,228			102,347			67,583
Diluted		67,583			58,228			102,347			67,583

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2017			2016			2018			2017
Cash Flows from Operating Activities:
Net loss	$	(4,108	)	$	(4,265	)	$	(5,021	)	$	(4,108	)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Depreciation and amortization		290			212			264			290
Provision (recovery) for bad debts, net		10			(15	)
Provision for bad debts, net								200			10
Provision for inventory excess and obsolescence		225			—			—			225
Amortization of discounts on lines of credit								4			—
Amortization of debt issuance costs								7			—
Stock-based compensation		379			834			701			379
Deferred income taxes		15			15			2			15
Earned interest income, net		(9	)		(16	)		(1	)		(9	)
Changes in operating assets and liabilities:
Accounts receivable		564			(1,126	)		186			564
Inventory		(1,395	)		(1	)		(1,103	)		(1,395	)
Prepaid expenses and other current assets		146			(31	)		(34	)		146
Customer deposits		(7	)		46			14			(7	)
Accounts payable and accrued liabilities		(885	)		(155	)		460			(885	)
Deferred revenue		(347	)		(270	)		(441	)		(347	)
Net cash and cash equivalents used in operating activities		(5,122	)		(4,772	)		(4,762	)		(5,122	)
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment		(208	)		(343	)		(102	)		(208	)
Net cash and cash equivalents used in investing activities		(208	)		(343	)		(102	)		(208	)
Cash Flows from Financing Activities:
Principal payments under capital lease obligation		(43	)		(43	)		(46	)		(43	)
Net cash and cash equivalents used in financing activities		(43	)		(43	)
Borrowings under lines of credit								1,823			—
Payments of debt issue costs								(74	)		—
Payments of equity offering costs								(81	)		—
Proceeds from exercise of stock options								2			—
Net cash and cash equivalents provided by (used in) financing activities								1,624			(43	)
Effect of exchange rate changes		25			86			74			25
Decrease in cash and cash equivalents		(5,348	)		(5,072	)
Cash and cash equivalents, beginning of period		8,924			11,699
Cash and cash equivalents, end of period	$	3,576		$	6,627
Decrease in cash, cash equivalents and restricted cash								(3,166	)		(5,348	)
Cash, cash equivalents and restricted cash, beginning of period								11,896			9,175
Cash, cash equivalents and restricted cash, end of period							$	8,730		$	3,827
Supplemental cash flow disclosure - Cash Paid:
Interest paid	$	1		$	1		$	—		$	1
Income taxes paid	$	7		$	33		$	24		$	7
Supplemental cash flow disclosure - Non-cash:
Accrued capital expenditures and tenant improvement allowance	$	174		$	70		$	4		$	174

BIOLASE, Inc. (“BIOLASE” and, together with its consolidated subsidiaries, the “Company”), incorporated in Delaware in 1987, is a medical device company that develops, manufactures, markets, and sells laser systems in dentistry and medicine and also markets, sells, and distributes dental imaging equipment, including ~~cone beam digital x-rays and~~ three-dimensional CAD/CAM intra-oral ~~scanners.~~scanners and digital dentistry software.

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, ~~2016~~2017 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments and the elimination of all material intercompany transactions and balances, necessary to fairly present the information set forth therein. These unaudited, interim, consolidated financial statements do not include all the footnotes, presentations, and disclosures normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements. Certain amounts have been reclassified to conform to current period presentations.

The consolidated results of operations for the three months ended March 31, ~~2017~~2018 are not necessarily indicative of the results for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, ~~2016,~~2017, included in ~~the Company’s~~BIOLASE’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 filed with the Securities and Exchange Commission (the “SEC”) on March ~~10, 2017~~14, 2018 (the ~~“2016~~“2017 Form 10-K”).

The Company incurred a loss from operations, incurred a net loss, and used cash in operating activities for the three months ended March 31, ~~2017.~~2018. The Company ~~has~~ also suffered recurring losses from operations during the three years ended December 31, ~~2016.~~2017. The Company’s recurring losses, level of cash used in operations, and potential need for additional capital, ~~and the~~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.

On ~~April 18, 2017, the Company completed a private placement with several institutional~~March 6, 2018, BIOLASE and ~~individual investors, and certain~~two of its ~~directors and officers, under~~wholly-owned subsidiaries entered into a Business Financing Agreement (the “Business Financing Agreement”) with Western Alliance Bank (“Western Alliance”), which ~~the Company sold an aggregate~~provides for borrowings of ~~80,644 shares of BIOLASE Series D Participating Convertible Preferred Stock, par value $0.001 per share (“Preferred Stock”), and warrants (the “Warrants”) to purchase~~ up to ~~an aggregate~~$6.0 million. The Company had approximately $1.8 million of ~~3,925,871 unregistered shares~~borrowings outstanding under these lines of ~~BIOLASE common stock at an exercise price~~credit as of ~~$1.80 per share (the “Exercise Price”), subject to customary anti-dilution adjustments. Each share~~March 31, 2018. See Note 9 – Lines of Preferred Stock converts automatically into shares of BIOLASE common stock upon receipt of stockholder approval and was initially convertible into 100 shares of common stock, reflecting a conversion price equal to $1.24 per share, which is the closing price of BIOLASE common stock quoted on the NASDAQ Capital Market on April 10, 2017. The shares of Preferred Stock have no other conversion rights. The Warrants become exercisable on October 18, 2017 and expire five years after the date of issuance or, if earlier, five business days after the Company delivers notice that the closing price per share of BIOLASE common stock exceeded the Exercise Price Credit for ~~20 consecutive trading days during the exercise period. Gross proceeds from the sale were approximately $10.5 million.~~additional information.

As of March 31, ~~2017,~~2018, the Company had working capital of approximately ~~$12.2~~$20.5 million. The Company’s principal sources of liquidity as of March 31, ~~2017~~2018 consisted of approximately ~~$3.8~~$8.7 million in cash and cash equivalents, and restricted cash and ~~$9.2~~$9.7 million of ~~net~~ accounts receivable.

In order for the Company to continue operations beyond the next 12 months and be able to discharge its liabilities and commitments in the normal course of business, the Company must increase sales of its products directly to end-users and through distributors, establish profitable operations through the combination of increased sales and decreased expenses, generate cash from operations or obtain additional funds when needed. The Company intends to improve its financial condition and ultimately improve its financial results by increasing revenues through expansion of its product offerings, continuing to expand and develop its 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 its advanced medical technologies, and reducing expenses.

Additional capital requirements may depend on many factors, including, among other things, continued losses, 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, or enter into aan additional line of credit facility. As discussed in Note 9, on March 6, 2018, BIOLASE entered into the Business Financing Agreement, providing for a secured line of credit. The Company cannot provide ~~assurances~~assurance that it will be able to successfully consummate any ~~such~~ equity or debt financings, or enter into any ~~such~~other line of credit facility in the ~~future or~~future. The Company also cannot provide assurance 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~~the Company’s stockholders.

The preparation of these consolidated financial statements in conformity with ~~accounting principles generally accepted in the United States of America (“U. S. GAAP”)~~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.

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 is contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the ~~2016~~2017 Form 10-K. Management believes that there have been no significant changes during the three months ended March 31, ~~2017~~2018 in the Company’s critical accounting policies from those disclosed in Item 7 of the ~~2016~~2017 Form 10-K.

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 nonperformance 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 reflect input other than quoted prices included in Level 1 that are observable, either directly or through collaboration with observable market data, other than Level 1. Level 3 inputs are unobservable due to little or no corroborating market data.

The Company’s financial instruments, consisting of cash, ~~and~~ cash equivalents and restricted cash, accounts receivable, accounts payable, and accrued liabilities, approximate fair value because of the short maturity of these items.

Changes to ~~U.S.~~ 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”).~~Codification.

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.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”), as part of its simplification initiative. The standard requires inventory within the scope of ASU 2015-11 to be measured using the lower of cost and net realizable value. The changes apply to all types of inventory, except those measured using the-last-in-first-out method or the retail inventory method. ASU 2015-11 applies to all entities and is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The Company adopted ASU 2015-11 as of January 1, 2017. The adoption of ASU 2015-11 did not have a material effect on the Company’s consolidated financial statements.

In November 2015, FASB issued ASU 2015-17, Income Taxes (Topic 740) (“ASC 2015-17”). Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this ASU require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this ASU apply to all entities that present a classified statement of financial position. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years with early adoption permitted. The Company adopted ASU 2015-17 as of January 1, 2017. The adoption of ASU 2015-17 did not have a material effect on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”). The updated standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The standard requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Early adoption is permitted. The Company adopted ASU 2016-09 as of January 1, 2017, and made the accounting policy election to estimate the number of awards expected to vest for stock-based compensation expense. The adoption of ASU 2016-09 and related accounting policy election did not have a material effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”)~~, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP.~~. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle, and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.

The standard is effective for annual periods beginning after December 15, 2017, and interim periods ~~therein, using either~~therein.

ASU 2014-09 supersedes existing guidance on revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The objective of the ~~following transition methods: (i)~~new standard is to provide a ~~full retrospective approach reflecting~~single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets. The underlying principle is that an entity will recognize revenue to depict the ~~application~~transfer of goods or services to customers at an amount that the ~~standard~~entity expects to be entitled to in exchange for those goods or services. The guidance also requires a number of disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows. The guidance can be applied retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with ~~the option to elect certain practical expedients or (ii)~~ a ~~retrospective approach with the~~ cumulative effect adjustment to retained earnings for initial application of ~~initially adopting ASU 2014-09 recognized~~the guidance at the date of initial adoption ~~(which includes additional footnote disclosures)~~(modified retrospective method). The Company ~~will adopt~~adopted the new standard effective January 1, 2018 using the modified retrospective method applied to those contracts that were not completed or substantially completed as of January 1, 2018. The timing and measurement of revenue recognition under the new standard is not materially different than under the old standard. The adoption of the new standard did not have an impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”). The updated standard addresses eight specific cash flow issues with the objective of reducing diversity in practice. ASU 2016-15 is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted. The Company adopted ASU 2016-15 as of January 1, 2018. The adoption of ASU 2016-15 did not have an impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”). The updated standard requires that a statement of cash flows explain the change during the ~~year ending~~period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for public business entities for annual reporting periods beginning after December ~~31,~~15, 2017, including interim periods within those annual reporting periods. The Company adopted ASU 2016-18 as of January 1, 2018. The ~~expected~~ adoption ~~method and implementation analysis~~ of ASU ~~2014-09 is~~2016-18 did not have a material effect on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718) (“ASU 2017-09”). The updated standard clarifies when an entity must apply modification accounting to changes in the ~~early stages and the~~terms or conditions of a share-based payment award. ASU 2017-09 is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted. The Company ~~expects to~~adopted ASU 2017-09 as of January 1, 2018. The adoption of ASU 2017-09 did not have ~~further information following the second quarter of 2017. The FASB has issued and may issue in the future, interpretive guidance, which may impact~~a material effect on the Company’s ~~implementation analysis.~~consolidated financial statements.

In February 2016, FASB issued ASU 2016-02, ~~Leases.~~Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of its pending adoption of ~~the new standard~~ASU 2016-02 on its consolidated financial statements.

In ~~August 2016, the~~July 2017, FASB issued ASU ~~2016-15, Statement~~2017-11 (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of ~~Cash Flows (Topic 230)~~the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU ~~2016-15”~~2017-11”). The ~~updated~~new standard ~~addresses eight specific cash flow issues~~simplifies the accounting for certain financial instruments with down round features. Part I of ASU 2017-11 changes the ~~objective~~classification analysis of ~~reducing diversity~~certain equity-linked financial instruments, such as warrants and embedded conversion features, such that a down round feature is disregarded when assessing whether the instrument is indexed to an entity’s own stock under Subtopic 815-40, Contracts in ~~practice.~~Entity’s Own Equity. As a result, a down round feature, by itself, no longer requires an instrument to be remeasured at fair value through earnings each period, although all other aspects of the indexation guidance under Subtopic 815-40 continue to apply. Part II of ASU ~~2016-15~~2017-11 recharacterizes the indefinite deferral of certain provisions of Topic 480, Distinguishing Liabilities from Equity, (currently presented as pending content in the Codification) as a scope exception. No change in practice is expected as a result of these amendments. The new standard is effective for ~~public business entities for annual reporting periods~~fiscal years beginning after December 15, ~~2017, including interim periods within those annual reporting periods.~~2018, Early adoption is permitted. The amendments in Part II have no accounting impact and therefore do not have an associated effective date. The Company is ~~assessing~~currently evaluating the impact of ~~the~~its pending adoption of ASU ~~2016-15~~2017-11 on ~~the Company's~~its consolidated financial statements.

NOTE ~~3—STOCK-BASED AWARDS AND PER SHARE INFORMATION~~3 – REVENUE RECOGNITION

Revenue for sales of products and services is derived from contracts with customers. The products and services promised in 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 services. 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 reserves. For further information on warranty, see Note 8 – Accrued Liabilities.

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% of net revenue for the three-month period ended March 31, 2018. The majority of the Company’s revenue recognized at a point in time is for the sale laser systems, imaging 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% of net revenue for the three-month period ended March 31, 2018. The majority of the Company’s revenue that is recognized over time relates to training and extended warranties.

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.

Revenue is recorded for extended warranty 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 training as the customer attends a training program or upon the expiration of the obligation.

The Company also has contracts that include both the product sales and training as performance obligations. In those cases, the Company records revenue for product 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 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.

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 in the periods ended March 31, 2018 and December 31, 2017.

The amount of revenue recognized during the period that was included in the opening contract liability balance related to undelivered elements was $502,000, related to extended warranty contracts was $648,000 and deferred royalties was $3,000.

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 for the periods indicated (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 for the periods indicated (in thousands):

The Company acts as the principal in all its imaging equipment distribution sales. The Company takes possession and control of the equipment before they are sold and transferred to the customer. The Company provides the equipment and any related services directly to the customer. The Company has inventory risk before the equipment is transferred to a customer. The Company purchases and obtains the goods before obtaining a contract with a customer. The Company also has discretion in establishing the price sold to the customer for the equipment.

The percentages of the Company’s sales by product line were as follows for the periods indicated:

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.

For the period ended March 31, 2018, the Company elected the following practical expedients:

In accordance with Subtopic 340-40 "Other Assets and Deferred Costs - Contracts with Customers,” the Company elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less.

The Company has made an accounting policy election to exclude all taxes by governmental authorities from the measurement of the transaction price.

The Company currently has one stock-based compensation 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, 2016) (the “2002 Plan”), which will expire on May 5, 2019. Persons eligible to receive awards under the 2002 Plan include officers, employees, and directors of the Company, as well as consultants. As of March 31, ~~2017,~~2018, a total of ~~15,550,000~~15.6 million shares of BIOLASE common stock have been authorized for issuance under the 2002 Plan, of which ~~3,651,829~~4.0 million shares of BIOLASE common stock have been issued pursuant to options that were exercised and restricted stock units (“RSUs”) that were settled in common stock, ~~8,420,559~~10.8 million shares of BIOLASE common stock have been reserved for outstanding options and unvested RSUs, and ~~3,477,612~~0.8 million shares of BIOLASE common stock remain available for future grants.

The Company recognized stock-based compensation expense of ~~$379,000~~$0.7 million and ~~$834,000,~~$0.4 million, for the three months ended March 31, 2018 and 2017, ~~and 2016,~~ respectively, based on the grant-date fair value. Stock-based compensation expense for the three months ended March 31, 2018 and 2017 includes the reversal of ~~$428,000~~$0.0 million and $0.4 million, respectively, resulting from the reassessment of certain performance based equity awards. The net impact of stock-based compensation expense to earnings was $(0.01), and $(0.01) per basic and diluted share for the three months ended March 31, ~~2017~~2018 and ~~2016,~~2017, respectively. At March 31, ~~2017,~~2018, the Company had approximately ~~$5.3~~$3.3 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements. The Company expects that cost to be recognized over a weighted-average period of ~~2.4~~2.0 years.

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

	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2017		2016		2018		2017
Cost of revenue	$	40	$	70	$	57	$	40
Sales and marketing		73		134		80		73
General and administrative		193		551		467		193
Engineering and development		73		79		97		73
	$	379	$	834	$	701	$	379

The stock option fair values, under the 2002 Plan, were estimated using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2017			2016			2018			2017
Expected term	5.8 years			6.3 years			5.9 years			5.8 years
Volatility		79.43	%		86.30	%		81.4	%		79.4	%
Annual dividend per share	$	—		$	—		$	—		$	—
Risk-free interest rate		1.98	%		1.42	%		2.46	%		1.98	%

A summary of option activity under the 2002 Plan for the three months ended March 31, ~~2017~~2018 is as follows (in thousands, except per share data):

Weighted Average

Weighted

Remaining

Aggregate

Average

Contractual

Intrinsic

Shares

Exercise Price

Term (Years)

Value(1)

Options outstanding, December 31, 2016

6,612

$
2.06

7.70

$
178

Granted at fair market value

611

$
1.55

Exercised

—

Forfeited, cancelled, or expired

(206
)

$
2.14

Options outstanding at March 31, 2017

7,017

$
2.02

7.72

$
160

Options exercisable at March 31, 2017

3,582

$
2.42

6.29

$
71

Vested options expired during the quarter
ended March 31, 2017

63

$
2.91

						Weighted Average
				Weighted		Remaining		Aggregate
				Average		Contractual		Intrinsic
	Shares			Exercise Price		Term (Years)		Value(1)
Options outstanding, December 31, 2017		6,737		$	1.80		7.21	$	—
Granted at fair market value		2,519			0.42
Exercised		(6	)		0.42
Forfeited, cancelled, or expired		(471	)		3.58
Options outstanding at March 31, 2018		8,779		$	1.40		7.43	$	—
Options exercisable at March 31, 2018		4,264		$	1.88		5.62	$	—
Vested options expired during the quarter ended March 31, 2018		920		$	2.79

(1) The intrinsic value calculation does not include negative values. This can occur when the fair market value on the reporting date is less than the exercise price of the grant.

A summary of unvested stock option activity under the 2002 Plan for the three months ended March 31, ~~2017~~2018 is as follows (in thousands, except per share data):

				Weighted					Weighted
				Average Grant					Average Grant
	Shares			Date Fair Value		Shares			Date Fair Value
Unvested options at December 31, 2016		3,259		$	1.16
Unvested options at December 31, 2017							3,283		$	0.95
Granted		611		$	1.05		2,519		$	0.29
Vested		(304	)	$	1.10		(630	)	$	0.83
Forfeited or cancelled		(131	)	$	1.23		(38	)	$	1.19
Unvested options at March 31, 2017		3,435		$	1.15
Unvested options at March 31, 2018							5,134		$	0.69

Cash proceeds, along with fair value disclosures related to grants, exercises, and vested options under the 2002 Plan are as follows for the three months ended March 31 (in thousands, except per share amounts):

	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2017		2016		2018		2017
Proceeds from stock options exercised	$	—	$	—	$	2	$	—
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 during period	$	1.05	$	0.67	$	0.29	$	1.05
Total fair value of shares vested during the period	$	334	$	708	$	520	$	334

(1) Excess tax benefits received related to stock option exercises are presented as financing 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 market price of the stock on the date of grant.

Effective ~~February 6, 2017,~~January 25, 2018, the Compensation Committee of the BIOLASE board of directors (the “Board”) ~~issued 611,000~~awarded 1.8 million non-qualified stock options to purchase shares of BIOLASE common stock to certain employees of the Company. These awards were ~~issued~~valued at ~~$1.55~~$0.42 per share, the closing market price of BIOLASE common stock on the grant date, and expire 10 years from the grant date. ~~Vesting periods for~~The options are as follows: (i) for the 586,000 options awarded to existing employees, one-half vest on the first anniversary of award date and one-half vest on the second anniversary of the award date and (ii) for the 25,000 options awarded to new employees, 25% vest on February 6, 2018 and the remainder vest ratably over the 36-month period, commencing on ~~March 6,~~February 25, 2018.

~~On March 13, 2017, and as amended on April 19, 2017, in connection with the hiring of a new Vice President of Sales, the Compensation Committee of~~Effective January 26, 2018, the Board ~~awarded non-qualified stock options~~issued 200,000 RSUs to ~~purchase 400,000 shares of BIOLASE common stock.~~the Company’s President and Chief Executive Officer. This award was ~~issued~~valued at ~~$1.17~~$0.40 per share, the closing market price of BIOLASE common stock on the grant date, and expires 10 years from the grant date. Vesting periods for the options are as follows: (i) two-fifths of the total grant is subject to time vesting with 25% vesting as of March 13, 2018 and the remaining 75% vesting ratably monthly over a 36-month period commencing on March 13, 2018, and (ii) three-fifths of the total grant is subject to specific 2017 and 2018 performance criteria, with vesting upon satisfaction of the applicable performance criteria.

On March 27, 2017, in connection with the hiring of a new Senior Vice President and Chief Financial Officer, the Compensation Committee of the Board awarded non-qualified stock options to purchase 600,000 shares of BIOLASE common stock. This award was issued at $1.28 per share, the closing market price of BIOLASE common stock on the grant date, and expires 10 years from the grant date. Vesting periods for the options are as follows: (i) two-thirds of the total grant is subject to time vesting with 25% vesting as of March 27, 2018 and the remaining 75% vesting ratably monthly over a 36-month period commencing on March 27, 2018, and (ii) one-third of the total grant is subject to specific 2017 and 2018 performance criteria, with vesting upon satisfaction of the applicable performance criteria. This award was forfeited upon the departure of the Senior Vice President and Chief Financial Officer in May 2017.

~~Effective February 6, 2017, the Compensation Committee of the Board approved the grant of the following awards:~~

80,000 RSUs were awarded to an employee of the Company as part of the employee’s 2017 compensation. These awards were valued at $1.55 per share, the closing market price of BIOLASE common stock on the grant date, and vest as follows: (i) 30,000 of the RSUs vest on March 14, 2017, (ii) 20,000 of the RSUs vest on September 14, 2017, and (iii) 30,000 of the RSUs vest on May 10, 2018.

1,000,000 stock-settled RSUs were awarded to the Company’s President and Chief Executive Officer as part of his 2017 compensation. These RSUs were valued at $1.55 per share, the closing market price of BIOLASE common stock on the grant date. These RSUs vest as follows: (i) one-quarter of the RSUs vest on February 6, 2019, (ii) one-eighth of the RSUs vest on February 6, 2020, (iii) one-eighth of the RSUs vest on February 6, 2021, and (iv) one-half of the RSUswill vest upon the achievement of specific ~~interim and~~ annual Company performance criteria.

A summary of unvested RSU activity under the 2002 Plan for the three months ended March 31, ~~2017~~2018 is as ~~follows:~~follows (in thousands, except per share amounts):

The Company issues warrants to acquire shares of BIOLASE common stock as approved by the Board. A summary of warrant activity for the three months ended March 31, ~~2017~~ 2018 is as ~~follows:~~follows (in thousands, except exercise price amounts):

Weighted

Average

Shares

Exercise Price

Warrants outstanding, December 31, 2016

11,406,260

$
3.64

Granted or Issued

—

$
—

Exercised

—

$
—

Forfeited, cancelled, or expired

—

$
-

Warrants outstanding at March 31, 2017

11,406,260

$
3.64

Warrants exercisable at March 31, 2017

11,271,260

$
3.64

Vested warrants expired during the quarter
ended March 31, 2017

—

$
—

			Weighted
			Average
	Shares		Exercise Price
Warrants outstanding, December 31, 2017		6,126	$	1.93
Granted or Issued		258	$	0.47
Exercised		—	$	—
Forfeited, cancelled, or expired		—	$	—
Warrants outstanding at March 31, 2018		6,384	$	1.87
Warrants exercisable at March 31, 2018		6,249	$	1.82
Vested warrants expired during the quarter ended March 31, 2018		—	$	—

On March 6, 2018, in connection with the execution of the Business Financing Agreement, the Company issued to Western Alliance warrants (the “Western Alliance Warrants”) to purchase up that 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 Western Alliance Warrants are fully vested and exercisable. The 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 $0.47 per share, which was the closing market price of BIOLASE common stock on March 6, 2018. See Note 9 – Lines of Credit for further discussion.

Basic net income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted-average number of shares of BIOLASE common stock outstanding for the period. In computing diluted net income (loss) per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities.

Outstanding stock options, ~~restricted stock units~~RSUs and warrants to purchase approximately ~~22,927,127~~18.8 million shares were not included in the calculation of diluted loss per share for the three months ended March 31, ~~2017,~~2018, as their effect would have been anti-dilutive. For the same ~~2016~~2017 period, anti-dilutive outstanding stock options and warrants to purchase ~~15,227,739~~22.9 million shares were not included in the computation of diluted loss per share.

Inventory is valued at the lower of cost or ~~market, with cost determined using the first-in, first-out method,~~net realizable value and is comprised of the following (in thousands):

	March 31,		December 31,		March 31,		December 31,
	2017		2016		2018		2017
Raw materials	$	5,021	$	4,837	$	3,709	$	3,953
Work-in-process		2,532		2,261		1,604		1,162
Finished goods		7,140		6,425		8,088		7,183
Inventory, net	$	14,693	$	13,523	$	13,401	$	12,298

Inventory is net of a provision for excess and obsolete inventory totaling ~~$1.9~~$1.7 million and ~~$1.7~~$1.9 million as of March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Property, plant, and equipment, net is comprised of the following (in thousands):

	March 31,			December 31,			March 31,			December 31,
	2017			2016			2018			2017
Building	$	199		$	196		$	229		$	220
Leasehold improvements		2,003			2,003			2,006			2,005
Equipment and computers		6,170			6,163			6,887			6,883
Furniture and fixtures		599			599			634			634
Construction in progress		1,857			1,590			1,186			1,182
		10,828			10,551			10,942			10,924
Accumulated depreciation and amortization		(6,517	)		(6,225	)		(7,695	)		(7,426	)
		4,311			4,326			3,247			3,498
Land		154			152			177			176
Property, plant, and equipment, net	$	4,465		$	4,478		$	3,424		$	3,674

Depreciation and amortization expense related to property, plant, and equipment totaled ~~$290,000~~$0.3 million and ~~$198,000~~$0.3 million for the three months ended March 31, 2018 and 2017, ~~and 2016,~~ respectively.

The cost basis of assets held under capital lease was $378,000 and the accumulated depreciation related to assets held under capital lease was $264,000 as of March 31, 2017. For additional information on the capital lease, see Note 8 – Commitments and Contingencies.

The Company conducted its annual impairment test of goodwill as of June 30, ~~2016~~2017 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 June 30, ~~2016~~2017 through the date of these consolidated financial statements that would trigger further impairment testing of the Company’s intangible assets and goodwill.

As of March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had goodwill (indefinite life) of $2.9 million. As of March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, all intangible assets have been fully amortized. There was no amortization expense for the three months ended March 31, 2018 or 2017. ~~Amortization expenses for the three months ended March 31, 2016 totaled $14,000.~~

	March 31,		December 31,		March 31,		December 31,
	2017		2016		2018		2017
Payroll and benefits	$	2,164	$	2,147	$	2,244	$	2,115
Warranty accrual, current portion		973		933		1,090		1,120
Taxes		493		638		441		544
Accrued professional services		946		782		695		584
Accrued capital lease obligations, current portion		117		159
Accrued insurance premium		206		906		197		870
Other		264		213		452		376
Total accrued liabilities	$	5,163	$	5,778	$	5,119	$	5,609

Changes in the initial product warranty accrual and the expenses incurred under the Company’s initial and extended warranties for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 are included within accrued liabilities on the Consolidated Balance Sheets and were as follows (in thousands):

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2017			2016			2018			2017
Initial warranty accrual, beginning balance	$	1,706		$	2,188		$	1,190		$	1,706
Provision for estimated warranty cost		(23	)		61			246			(23	)
Warranty expenditures		(223	)		(189	)		(222	)		(223	)
		1,460			2,060			1,214			1,460
Less warranty accrual, long-term		487			973			124			487
Total warranty accrual, current portion	$	973		$	1,087		$	1,090		$	973

~~Deferred revenue is comprised~~The Company’s Waterlase laser systems sold worldwide are covered by a warranty against defects in material and workmanship for a period of up to 16 months from the ~~following (in thousands):~~date of sale by the Company or a distributor to the end-user. The Company’s Diode systems sold worldwide are covered by a warranty against defects in material and workmanship for a period of up to 28 months from the date of sale by the Company or a distributor to the end-user.

On March 6, 2018, BIOLASE and two of its wholly-owned subsidiaries (such subsidiaries, together with BIOLASE, the “Borrower”) entered into the Business Financing Agreement. Pursuant to the terms and conditions of the Business Financing Agreement, Western Alliance has agreed to provide the Borrower a secured revolving line of credit permitting the Borrower to borrow or receive letters of credit up to the lesser of $6.0 million (the “Domestic Revolver”) (subject to a $6.0 million credit limit relating to domestic eligible accounts receivable (the “domestic credit limit”) and a $3.0 million credit limit relating to export-related (the “EXIM Revolver”) eligible accounts receivable (the “EXIM credit limit”)) and the borrowing base, which is defined as the sum of the domestic borrowing base (up to 75% of the Borrower’s eligible domestic accounts receivable less such reserves as Western Alliance may deem proper and necessary) and the export-related borrowing base (up to 85% of the Borrower’s eligible export-related accounts receivable less such reserves as Western Alliance may deem proper and necessary). The Business Financing Agreement expires on March 6, 2020, and the Borrower’s obligations thereunder are secured by a security interest in all of the Borrower’s assets.

As of March 31, 2018, the Company had outstanding borrowings totaling approximately $1.8 million, including $0.6 million subject to the domestic credit limit and $1.2 million subject to the EXIM credit limit. There were no restricted cash balances as of March 31, 2018. The Company’s obligations are generally secured by substantially all of the Company’s assets. The total amount available under the Business Financing Agreement as of March 31, 2018 was $2.8 million.

The Business Financing Agreement requires the Company to maintain compliance with certain financial and non-financial covenants, as defined therein. If a default occurs, Western Alliance may declare the amounts outstanding under the Business Financing Agreement immediately due and payable. As of March 31, 2018, the Company was in compliance with these covenants.

Amounts outstanding under the Business Financing Agreement bear interest at a per annum floating rate equal to the greater of 4.5% or the “Prime Rate” published in the Money Rates section of the Western Edition of The Wall Street Journal (or such other rate of interest publicly announced from time to time by Western Alliance as its “Prime Rate”), plus 1.5% with respect to advances made under the line of credit, plus an additional 5.0% during any period that an event of default has occurred and is continuing. The commitment fee under the Business Financing Agreement is 0.25% of the domestic credit limit and 1.75% of the EXIM credit limit and is payable on March 6, 2018 and each anniversary thereof. As of March 31, 2018, the interest rate on both the Domestic Revolver and EXIM Revolver was 6.25%.

Pursuant to the Business Financing Agreement, the Company paid the first of two annual commitment fees totaling $67,500, being 0.25% of the aggregate $6.0 million commitment for the Domestic Revolver and 1.75% of the aggregate $3.0 million commitment for the EXIM Revolver. The commitment fees and the legal costs associated with acquiring the credit facilities were capitalized and are being amortized on a straight-line basis as interest expense over the term of the Business Financing Agreement.

As additional consideration for the lines of credit, the Company also issued the Western Alliance Warrants. For additional information on the Western Alliance Warrants, see Note 4 – Stockholders�� Equity. The fair value of the Western Alliance Warrants was estimated using the Black-Scholes option-pricing model with the following assumptions: expected term of 10 years; volatility of 91.49%; annual dividend per share of $0.00; and risk-free interest rate of 2.88%; and resulted in an estimated fair value of $0.1 million, which was recorded as a liability and resulted in a discount to the credit facilities at issuance. The discount is being amortized on a straight-line basis to interest expense over the term of the Business Financing Agreement.

The Company leases its 57,000 square foot corporate headquarters and manufacturing facility located at 4 Cromwell, Irvine, California. In March 2015, the corporate headquarters and manufacturing facility lease was amended to extend the term through April 30, 2020, modify provisions for a tenant improvement allowance of up to ~~$398,000,~~$0.4 million, and adjust the basic rent terms. Future minimum rental commitments under operating lease agreements with non-cancelable terms greater than one year for the years ending December 31 are listed below. The Company also leases certain office equipment and automobiles under various operating lease arrangements.

In February 2015, the Company entered into a 30-month capital lease agreement for information technology equipment. ~~Future minimum~~In February 2018, the Company extended the agreement for information technology equipment for an additional lease ~~payments (using~~term of 18 months. In accordance with relevant accounting guidance, the renewal of this lease constituted a ~~1.6% interest rate) under~~new lease and is classified by the capital lease, together with the present value of the net minimum lease payments, for the year ending December 31, 2017 is $117,000. The current obligation with respect to the present value of net minimum lease payments of $117,000 is reflected in the Consolidated Balance Sheets classifiedCompany as an ~~accrued liability,~~ ~~and there was noremaining portion of the present value of net minimum lease paymentsclassified as a long-term obligation within capital lease obligations as of March 31, 2017.~~operating lease.

Future minimum rental commitments under lease agreements, including both operating and capital leases (principle and interest), with non-cancelable terms greater than one year for each of the years ending December 31 are as follows (in thousands):

2017	$	654
2018		735	$	731
2019		656		827
2020		218		283
2021				12
Thereafter		—		—
Total future minimum lease obligations	$	2,263	$	1,853

Certain members of management are entitled to severance benefits payable upon termination following a change in control, which would approximate ~~$1.8~~$1.7 million, in the aggregate, at March 31, ~~2017.~~2018. The Company also has agreements with certain employees to pay bonuses based on targeted performance criteria. As of March 31, ~~2017,~~2018, approximately ~~$67,000~~$0.1 million was accrued for performance bonuses, which is included in accrued liabilities in the Consolidated Balance Sheets.

The Company generally purchases components and subassemblies for its products from a limited group of third-party suppliers through purchase orders. As of March 31, ~~2017,~~2018, the Company had ~~$15.2~~$13.2 million of purchase commitments for which the Company has not received certain goods or services that are expected to be purchased within one year. These purchase commitments were made to secure better pricing and to ensure the Company will have the necessary parts to meet anticipated near-term demand. Although open purchase orders are considered enforceable and legally binding, the Company may be able to cancel, reschedule or adjust requirements prior to supplier fulfillment.

The Company discloses material loss contingencies deemed to be reasonably possible and accrues for loss contingencies when, in consultation with its legal advisors, management concludes that a loss is probable and reasonably estimable. The ability to predict the ultimate outcome of such matters involves judgments, estimates, and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates.

On April 24, 2012, CAO Group, Inc. (“CAO”) filed a lawsuit against ~~the Company~~BIOLASE in the District of Utah ~~for patent infringement of~~alleging that BIOLASE’s ezlase dental laser infringes on U.S. Patent No. 7,485,116 (the “116 Patent”) ~~regarding the Company’s ezlase dental laser.~~. On September 9, 2012, CAO ~~filed~~amended its ~~First Amended Complaint, which added~~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 stem from a press release that ~~the Company~~BIOLASE issued on April 30, 2012, which CAO claims contained false statements that are disparaging to CAO and its diode product. The ~~First Amended Complaint~~amended complaint seeks injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest. ~~On November 13, 2012, the Court~~

Until January 24, 2018, this lawsuit was stayed ~~the lawsuit for 120 days to allow the~~in connection with United States Patent and Trademark Office ~~(the “USPTO”)~~proceedings relating to consider the Company’s request for reexamination of the patent-in-suit. The USPTO granted the request to reexamine the asserted claims of the patent-in-suit and on February 28, 2013, the Court stayed the lawsuit until the termination of the reexamination proceedings. On April 23, 2013, the USPTO issued an office action rejecting all of the asserted claims over the prior art, and CAO responded to the office action. On August 28, 2013, the USPTO issued an Action Closing Procedure, rejecting all of CAO’s patent claims. CAO responded to the USPTO’s ruling and on December 10, 2013, the USPTO issued a Right of Appeal Notice, finally rejecting some claims of the 116 Patent, ~~while finding that other claims appeared to be patentable. The Company appealed the USPTO’s findings on January 9, 2014 and on~~which proceedings ultimately culminated in a January 27, 2014, the USPTO declined to reconsider the finding of certain claims as patentable and instructed the parties to proceed to appeal to the Patent Trial and Appeal Board (the “Patent Board”). On March 17, 2014, the Company filed its brief in support of its appeal of the USPTO’s2017 decision not to reject certain claims of the 116 Patent. On March 24, 2014, CAO filed its brief in support of its appeal of the USPTO’s decision to reject certain claims of the 116 patent. On April 18, 2014, the Company filed a respondent brief in opposition to the CAO’s appeal arguments. On May 30, 2014, both parties filed rebuttal briefs in support of their appeals. On June 30, 2014, the Company requested an oral hearing before the Patent Board. On July 1, 2014, the Patent Board noted that request and docketed the case for consideration. A hearing on reconsideration was held in November 2014. On July 1, 2015, the Patent Board issued a decision that was generally favorable to the Company. On July 31, 2015, CAO requested a rehearing of the decision. On November 27, 2015, the Patent Board issued its decision regarding CAO’s request for rehearing, partially granting CAO’s request. On January 27, 2016, CAO filed its Notice of Appeal toby the United States Court of Appeals for the Federal Circuit, ~~for review~~affirming the findings of the Patent ~~Board’s decision dated July 1, 2015~~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. The Utah matter has since been transferred to the Central District of California and the ~~Patent Board’s decision regarding CAO’s request for rehearing.~~two matters have been consolidated with the matter described below.

On January 23, 2018, CAO filed ~~its opening appeal brief on June 1, 2016, and~~a lawsuit against BIOLASE filed its responsive brief on July 25, 2016. CAO filed its reply brief on August 11, 2016. Oral argument before the Federal Circuit was held on January 11, 2017 and, on January 27, 2017, an order was entered by the Federal Circuit affirming all of the Patent Board’s findings. On February 9, 2017, the parties jointly filed a document with the court in the ~~Utah litigation notifying it~~Central District of ~~the Federal Circuit’s decision~~ California alleging that BIOLASE’s diode lasers infringe on U.S. Patent Nos. 8,337,097, 8,834,497, 8,961,040 and ~~requesting that the stay remain in place until a reexamination certificate issues.~~8,967,883. The ~~reexamination certificate is expected to issue in the next few months.~~complaint seeks injunctive relief, treble damages, attorneys’ fees, punitive damages, and interest.

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 months ended March 31, ~~2017~~2018 and ~~2016,~~2017, sales to customers in the United States accounted for approximately ~~63%~~57% and ~~58%~~63% of net revenue, respectively, and international sales accounted for approximately ~~37%~~43% and ~~42%~~37% of net revenue, respectively. No individual country, other than the United States, represented more than 10% of total net revenue during the three months ended March 31, ~~2017~~2018 or ~~2016.~~2017.

Net revenue by geographic location based on the location of customers was as follows (in thousands):

	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2017		2016		2018		2017
United States	$	6,843	$	6,401	$	5,693	$	6,843
International		4,031		4,609		4,327		4,031
	$	10,874	$	11,010	$	10,020	$	10,874

Property, plant, and equipment by geographic location was as follows (in thousands):

	March 31,		December 31,		March 31,		December 31,
	2017		2016		2018		2017
United States	$	4,161	$	4,176	$	3,088	$	3,347
International		304		302		336		327
	$	4,465	$	4,478	$	3,424	$	3,674

Revenue from the Company’s products for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 are as follows:

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2017			2016			2018				2017
Laser systems		61.9	%		62.3	%	$	5,703	57.0	%	$	6,729	61.9	%
Imaging systems		5.7	%		6.3	%		583	5.8	%		626	5.7	%
Consumables and other		15.6	%		16.1	%		2,034	20.3	%		1,692	15.6	%
Services		16.5	%		15.0	%		1,697	16.9	%		1,795	16.5	%
License fees and royalties		0.3	%		0.3	%		3	0.0	%		32	0.3	%
Total revenue		100.0	%		100.0	%	$	10,020	100.0	%	$	10,874	100.0	%

No individual customer represented more than 10% of the Company’s revenue for the three months ended March 31, ~~2017~~2018 or ~~2016.~~2017.

The Company maintains its cash and cash equivalent 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 March 31, ~~2017~~2018 or December 31, ~~2016.~~2017.

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.

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 months ended March 31, ~~2017~~2018 and ~~2016.~~2017. 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 months ended March 31, ~~2017~~2018 and ~~2016,~~2017, the Company recorded an income tax provision of ~~$40,000~~$32,000 and $40,000, respectively, resulting in an effective tax rate of ~~(1.0)%~~0.6% and ~~(0.9)%~~1.0%, respectively. The income tax provisions for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 were calculated using the discrete year-to-date method. The effective tax rate differs from the statutory tax rate of 34% 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.

On December 22, 2017, the U.S. federal government enacted the Tax Cuts and Jobs Act (the “2017 Tax Act”), which enacts a broad range of changes to the Internal Revenue Code of 1986, as amended. Many of the provisions of the 2017 Tax Act take effect for tax years beginning after December 31, 2017, including changes to the U.S. federal corporate tax rate to a flat 21%, significant additional limitations on the deductibility of interest and net operating losses, the allowance for the expensing of certain capital expenditures, and a number of changes impacting operations outside of the United States. The Company’s deferred tax assets and liabilities have been revalued at newly enacted rate in the year of enactment, the impact of which was mostly absorbed by the existing valuation allowance.

Effective April 10, 2018, Harold C. Flynn, Jr. resigned from the Board and ~~Warrant Transaction~~

Onthe Company’s President and Chief Executive Officer. The Company and Mr. Flynn entered into a Separation Agreement, dated as of April ~~18, 2017,~~30, 2018 (the “Separation Agreement”), which provides for Mr. Flynn’s general release of all claims against the Company ~~completed~~and contains various restrictive covenants, including a ~~private placement~~10-year non-disparagement provision and a two-year non-solicitation period. In consideration for Mr. Flynn’s entry into the Separation Agreement and Mr. Flynn’s continued compliance with ~~several institutional~~the terms of the Separation Agreement, Mr. Flynn is entitled to receive the following: (i) severance in an amount of $365,000, payable in equal installments on regular payroll dates beginning on the first regular payroll cycle following June 30, 2018 and ~~individual investors and certain of its directors and officers, under which the Company sold an aggregate of~~ ~~80,644~~ ~~shares of Preferred Stock and Warrants to purchase up to an aggregate of~~ ~~3,925,871~~ ~~unregistered shares of BIOLASE common stock at the Exercise Price,~~ending on December 28, 2018, (ii) Company-paid COBRA premiums for Mr. Flynn (and his eligible dependents) until April 9, 2019, subject to ~~customary anti-dilution adjustments. Each share~~Mr. Flynn’s timely election of ~~Preferred Stock converts automatically into shares~~COBRA continuation coverage, (iii) continued vesting of ~~BIOLASE common~~all of Mr. Flynn’s time-based stock options through April 9, 2020 and an extension of the time to exercise such options through December 31, 2021 and (iv) continued vesting of the time-based restricted stock unit award granted to Mr. Flynn on February 6, 2017 through February 6, 2019 (in the case of (iii) and (iv) subject to immediate vesting upon ~~receipt~~a change of ~~stockholder approval~~control). Any unvested stock options following April 9, 2020 will be cancelled and ~~was initially convertible into~~ ~~100~~ ~~shares of common~~will not vest, and any restricted stock ~~reflecting a conversion price equal to~~ ~~1.24~~ per share, which is the closing price of BIOLASE common stock quoted on the NASDAQ Capital Market on April 10, 2017. The shares of Preferred Stock have no other conversion rights. The Warrants become exercisable on October 18, 2017units that are unvested following February 6, 2019 will be canceled and expire five years after the date of issuance or, if earlier, five business days after the Company delivers notice that the closing price per share of BIOLASE common stock exceeded the Exercise Price for 20 consecutive trading days during the exercise period. Gross proceeds from the sale were approximately ~~$10.5 million.~~

The following information should be read in conjunction with the unaudited consolidated financial statements and related notes of BIOLASE, Inc. (“BIOLASE”) and its consolidated subsidiaries (together with BIOLASE, the “Company,” “we,” “our,” or “us”) 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 year ended December 31, ~~2015~~2017 filed with the Securities and Exchange Commission (the “SEC”) on March ~~10, 2017~~14, 2018 (the ~~“2016~~“2017 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”). Such forward-looking statements include any statements, predictions, or expectations regarding our plans to expand our product line and clinical applications, statements regarding the effects of seasonality on revenue, operating expenses, anticipated cash needs, needs for additional financing, plans to explore potential collaborations, ~~effects of engineering and development efforts, critical accounting policies, the impact of recent accounting pronouncements, recording tax benefits or other financial items in the future,~~ market opportunities, ~~strategies, expectations or objectives of management for future operations, our financial condition or prospects,~~ 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,” and similar expressions and variations or the negatives of these terms or other comparable terminology.

The forward-looking statements contained in this ~~Item 2~~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, 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:

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 ~~2016~~2017 Form 10-K. 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.

We are a medical device company that develops, manufactures, markets, and sells laser systems in dentistry and medicine and also markets, sells, and distributes dental imaging equipment, including ~~cone beam digital x-rays and~~three-dimensional CAD/CAM intra-oral ~~scanners.~~scanners and digital dentistry software. Our products advance the practice of dentistry and medicine for patients and health care professionals. Our proprietary dental laser 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. We have clearance from the FDA to market and sell our laser systems in the United States and also have the necessary registration to market and sell our laser systems in Canada, the European Union, and many other countries outside the United States. Additionally, our in-licensed imaging equipment and related products improve diagnoses, applications, and procedures in dentistry and medicine.

We offer two categories of laser system products: Waterlase (all-tissue) systems and Diode (soft-tissue) systems. Our flagship brand, the Waterlase, uses a patented combination of water and laser energy to perform most procedures currently performed using drills, scalpels, and other traditional dental instruments for cutting soft and hard tissue. We also offer our Diode laser systems to perform soft tissue, pain therapy, and cosmetic procedures, including teeth whitening. We have approximately ~~210~~245 issued and 9075 pending United States and international patents, the majority of which are related to Waterlase technology. From 1998 through March 31, ~~2017~~2018 we sold ~~approximately 34,200~~over 36,800 laser systems in over 90 countries around the world. Contained in this total are ~~over 11,900~~approximately 12,500 Waterlase systems, including approximately ~~7,800~~8,500 Waterlase MD, MDX, Express and iPlus systems.

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. We also believe there is a large market opportunity for digital radiography systems and CAD/CAM intra-oral scanners that improve practice efficiency and accuracy of diagnosis, leading to superior treatment planning, increased practice revenue, and healthier outcomes for patients.

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.

~~Consistent~~Effective April 4, 2018, we appointed Garrett Sato to the BIOLASE board of directors (the “Board”), who has more than 30 years of experience as a successful consultant and senior executive with companies in the dental industry and has served as a senior advisor and executive partner with private equity and investment banking firms.

Also consistent with our goal to focus our energies on worldwide competitiveness, strengthening our leadership, ~~and worldwide competitiveness~~ and increasing the amount of attention we pay to our professional customers and their patients, we have made strategic personnel additions to our senior management team. ~~In March 2017,~~

Effective April 10, 2018 and with the resignation of Harold C. Flynn, Jr. as President and Chief Executive Officer and as director, we appointed ~~a new~~John R. Beaver as our Interim Chief Executive Officer to focus on business performance improvement and continuing operational efficiencies. Mr. Beaver also serves as our Senior Vice President ~~of Sales for the Americas, with more than 24 years of experience in medical device sales~~ and ~~sales leadership in start-up, turnaround and high-growth environments.~~Chief Financial Officer.

In January 2017, we received FDA clearance for, and launched, Epic Pro, a powerful and innovative dental diode laser system, making it available for sale in the U.S., as well as in select countries in Europe, the Middle East and Asia. The Epic Pro, which offers more power than most diode lasers in dentistry, isDuring the first ~~product~~quarter of 2018, we bolstered efforts in Southern California to ~~be introduced resulting from our strategic development agreement with IPG Medical. The newest addition to~~significantly enhance the ~~Epic family of~~region’s oral health and dental ~~soft-tissue lasers, Epic Pro features several new innovations, such as a new super pulse technology for more precise, enhanced~~care by increasing awareness and education in laser tissue cutting; real-time automatic power control to enhance speed and consistency when performing surgery; and pre-initiated, bendable, disposable tips with new smart tip technology to ensure tip performance and quality. The Epic Pro laser system has FDA clearance for dental and surgical operations and is intended for use in contact and non-contact techniques for incision, excision, vaporization, ablation, hemostasis, or coagulation of intraoral and extra-oral soft tissue (including marginal and interdental gingiva and epithelial lining of free gingiva).

~~In February 2017, we launched the fifth-generation Waterlase Express all-tissue laser system. Waterlase Express represents the newest addition~~dentistry. We added local specialists to our ~~Waterlase portfolio~~staff to offer dentists more support in maximizing the use of ~~Er,Cr:YSGG all-tissue~~their lasers. ~~Waterlase Express was exhibited at~~In addition, we began to offer more educational courses, informational events and community activities to help ensure that dentists and their patients are provided with the ~~Chicago~~latest information in laser dentistry. In April 2018, we formed a Southern California Dental Society’s mid-winter meeting in February 2017. Designed for easy and intuitive operation, integrated learning, and portability, Waterlase Express is our next-generation Waterlase system. Waterlase Express has FDA clearance for commercial distribution, and is available for sale to dentists in the U.S. as well as select countries in Europe, the Middle East, Latin America and Asia.

On April 18, 2017, the Company completed a private placement with several institutional and individual investors, and certain of its directors and officers, under which the Company sold an aggregate of 80,644 shares of BIOLASE Series D Participating Convertible Preferred Stock, par value $0.001 per share (“Preferred Stock”), and warrants to purchase up to an aggregate of 3,925,871 unregistered shares of BIOLASE common stock at an exercise price of $1.80 per share, subject to customary anti-dilution adjustments. Each share of Preferred Stock converts automatically into shares of BIOLASE common stock upon receipt of stockholder approval and was initially convertible into 100 shares of common stock, reflecting a conversion price equal to $1.24 per share,Advisory Board, which is comprised of local dentistry veterans whose collective expertise serves as excellent resources to help propel the ~~closing price of BIOLASE common stock quoted on the NASDAQ Capital Market on April 10, 2017.~~ local market forward.

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 ~~2016~~2017 Form 10-K. There have been no significant changes during the three months ended March 31, ~~2017~~2018 in our critical accounting policies from those disclosed in Item 7 of the ~~2016~~2017 Form 10-K.

The following table sets forth certain data from our unaudited consolidated statements of operations expressed as percentages of net revenue:

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2017			2016			2018			2017
Products and services revenue		99.7	%		99.7	%		100.0	%		99.7	%
License fees and royalty revenue		0.3	%		0.3	%		—	%		0.3	%
Net revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue		63.6	%		66.9	%		69.7	%		63.6	%
Gross profit		36.4	%		33.1	%		30.3	%		36.4	%
Operating expenses:
Sales and marketing		38.5	%		34.6	%		38.8	%		38.5	%
General and administrative		22.2	%		20.6	%		30.3	%		22.2	%
Engineering and development		13.1	%		17.1	%		12.9	%		13.1	%
Total operating expenses		73.8	%		72.3	%		82.0	%		73.8	%
Loss from operations		(37.4	%)		(39.2	%)		(51.7	%)		(37.4	%)
Non-operating loss, net		0.1	%		0.8	%		1.9	%		0.1	%
Loss before income tax provision		(37.3	%)		(38.4	%)		(49.8	%)		(37.3	%)
Income tax provision		0.4	%		0.4	%		0.3	%		0.4	%
Net loss		(37.7	%)		(38.8	%)		(50.1	%)		(37.7	%)

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, these non-GAAP financial measures are more indicative of the Company’s ongoing core operating performance than their GAAP equivalents.

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 the Company may be different from similarly named non-GAAP financial measures used by other companies.

Management uses non-GAAP net loss (defined as net loss before interest, taxes, depreciation and amortization and stock-based compensation) in its evaluation of the Company’s core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Management believes that this non-GAAP financial information reflects an additional way of viewing aspects of our business that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our business. The following table contains a reconciliation of non-GAAP net loss to GAAP net loss attributable to common ~~shareholders~~stockholders (in thousands).

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2017			2016			2018			2017
GAAP net loss	$	(4,108	)	$	(4,265	)	$	(5,021	)	$	(4,108	)
Adjustments:
Interest income, net		(9	)		(17	)
Interest expense (income), net								12			(9	)
Income tax provision		40			40			32			40
Depreciation and amortization		290			212			264			290
Stock-based compensation		379			834			701			379
Non-GAAP net loss	$	(3,408	)	$	(3,196	)	$	(4,012	)	$	(3,408	)

Net Revenue: The following table summarizes our net revenues by category, including each category’s percentage of our total revenue, for the three months ended March 31, ~~2017~~2018 (the “First Quarter ~~2017”~~2018”) and the three months ended March 31, ~~2016~~2017 (the “First Quarter ~~2016”~~2017”), as well as the amount of change and percentage of change in each revenue category (dollars in thousands):

	Three Months Ended				Three Months Ended										Three Months Ended				Three Months Ended
	March 31,				March 31,				Amount			Percent			March 31,				March 31,				Amount			Percent
	2017				2016				Change			Change			2018				2017				Change			Change
Laser systems	$	6,729	61.9	%	$	6,864	62.3	%	$	(135	)		(2.0	%)	$	5,703	57.0	%	$	6,729	61.9	%	$	(1,026	)		(15.2	%)
Imaging systems		626	5.7	%		692	6.3	%		(66	)		(9.5	%)		583	5.8	%		626	5.7	%		(43	)		(6.9	%)
Consumables and other		1,692	15.6	%		1,775	16.1	%		(83	)		(4.7	%)		2,034	20.3	%		1,692	15.6	%		342			20.2	%
Services		1,795	16.5	%		1,648	15.0	%		147			8.9	%		1,697	16.9	%		1,795	16.5	%		(98	)		(5.5	%)
Total products and services		10,842	99.7	%		10,979	99.7	%		(137	)		(1.2	%)		10,017	100.0	%		10,842	99.7	%		(825	)		(7.6	%)
License fees and royalty		32	0.3	%		31	0.3	%		1			3.2	%		3	—	%		32	0.3	%		(29	)		(90.6	%)
Net revenue	$	10,874	100.0	%	$	11,010	100.0	%	$	(136	)		(1.2	%)	$	10,020	100.0	%	$	10,874	100.0	%	$	(854	)		(7.9	%)

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 stronger 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 revenue by geographic location based on the location of customers for the ~~three months ended March 31,~~First Quarter 2018 and First Quarter 2017, ~~and 2016,~~ as well as the amount of change and percentage of change in each geographic revenue category, were as follows (dollars in thousands):

	Three Months Ended				Three Months Ended										Three Months Ended				Three Months Ended
	March 31,				March 31,				Amount			Percent			March 31,				March 31,				Amount			Percent
	2017				2016				Change			Change			2018				2017				Change			Change
United States	$	6,843	62.9	%	$	6,401	58.1	%	$	442			6.9	%	$	5,693	56.8	%	$	6,843	62.9	%	$	(1,150	)		(16.8	%)
International		4,031	37.1	%		4,609	41.9	%		(578	)		(12.5	%)		4,327	43.2	%		4,031	37.1	%		296			7.3	%
Net revenue	$	10,874	100.0	%	$	11,010	100.0	%	$	(136	)		(1.2	%)	$	10,020	100.0	%	$	10,874	100.0	%	$	(854	)		(7.9	%)

The $0.9 million, or 8%, overall decrease in quarter-over-quarter net revenue resulted primarily from worldwide laser systems sales, which decreased by ~~$135,000,~~$1.0 million, or 2%15%, in the First Quarter ~~2017~~2018 compared to the First Quarter ~~2016.~~2017. Sales of our core laser products ~~improved 14%~~decreased by 36% domestically, while sales of our core laser products ~~internationally decreased~~increased by ~~15%. The decrease in quarter-over-quarter net revenue also resulted from decreases in imaging systems revenue and consumables and other revenue, which consists of~~ ~~consumable products such as disposable tips.~~7% internationally. Imaging systems revenue decreased marginally by ~~$66,000, or 10%, while consumables and other revenue decreased by $83,000, or 5%~~7%, in the First Quarter ~~2017~~2018 compared to the First Quarter ~~2016.~~

~~Partially offsetting decreases~~2017, driven by a decline in ~~laser systems,~~international imaging ~~systems and consumables and other revenue, was an increase to services~~sales. Services revenue, which consists of extended warranty service contracts, advanced training programs, and other ~~services. Services revenue increased~~services, decreased ~~$147,000,~~by $0.1 million, or 9%6%, in the First Quarter ~~2017~~2018 compared to the First Quarter ~~2016,~~2017, driven by a ~~10% increase~~6% decrease in domestic services revenue.

Partially offsetting decreases in laser systems revenue, imaging systems revenue and services revenue was an increase to consumables and other revenue. Consumables and other revenue, which consists of consumable products such as disposable tips, increased by $0.3 million or 20%, in the First Quarter 2018 compared to the First Quarter 2017.

Cost of Revenue and Gross Profit: The following table summarizes our cost of revenue and gross profit for the First Quarter ~~2017~~2018 and the First Quarter ~~2016,~~2017, as well as the amount of change and percentage of change (dollars in thousands):

	Three Months Ended				Three Months Ended										Three Months Ended				Three Months Ended
	March 31,				March 31,				Amount			Percent			March 31,				March 31,				Amount			Percent
	2017				2016				Change			Change			2018				2017				Change			Change
Net revenue	$	10,874	100.0	%	$	11,010	100.0	%	$	(136	)		(1.2	%)	$	10,020	100.0	%	$	10,874	100.0	%	$	(854	)		(7.9	%)
Cost of revenue		6,921	63.6	%		7,366	66.9	%		(445	)		(6.0	%)		6,987	69.7	%		6,921	63.6	%		66			1.0	%
Gross profit	$	3,953	36.4	%	$	3,644	33.1	%	$	309			8.5	%	$	3,033	30.3	%	$	3,953	36.4	%	$	(920	)		(23.3	%)

Gross profit as a percentage of revenue typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. The ~~9% improvement~~23% decline in gross profit as a percentage of revenue for the First Quarter ~~2017,~~2018, as compared to the First Quarter ~~2016,~~2017, reflected ~~a larger mix of domestic laser sales, specifically the Waterlase iPlus, which typically have higher product margins due to higher pricing.~~lower revenue resulting in unabsorbed fixed costs.

Operating Expenses: The following table summarizes our operating expenses as a percentage of net revenue for the ~~three months ended March 31,~~First Quarter 2018 and First Quarter 2017, ~~and 2016,~~ as well as the amount of change and percentage of change (dollars in thousands):

	Three Months Ended				Three Months Ended										Three Months Ended				Three Months Ended
	March 31,				March 31,				Amount			Percent			March 31,				March 31,				Amount			Percent
	2017				2016				Change			Change			2018				2017				Change			Change
Sales and marketing	$	4,184	38.5	%	$	3,804	34.6	%	$	380			10.0	%	$	3,891	38.8	%	$	4,184	38.5	%	$	(293	)		(7.0	%)
General and administrative		2,416	22.2	%		2,267	20.6	%		149			6.6	%		3,037	30.3	%		2,416	22.2	%		621			25.7	%
Engineering and development		1,429	13.1	%		1,886	17.1	%		(457	)		(24.2	%)		1,289	12.9	%		1,429	13.1	%		(140	)		(9.8	%)
Total operating expenses	$	8,029	73.8	%	$	7,957	72.3	%	$	72			0.9	%	$	8,217	82.0	%	$	8,029	73.8	%	$	188			2.3	%

The quarter-over-quarter total operating expenses are explained in the following expense categories:

Sales and Marketing Expense. Sales and marketing expenses in the First Quarter ~~2017~~2018 compared to the First Quarter ~~2016 increased~~2017 decreased by ~~$380,000,~~$0.3 million, or ~~10%~~7%, primarily due to ~~increases in~~decreased convention related expenses of ~~$253,000 and media, advertising, and printing expenses of $95,000. During~~$0.3 million. In the First Quarter 2017, we participated in ~~the Chicago Dental Society’s mid-winter meeting and~~ the International Dental Show in Cologne, Germany, which led to higher ~~convention related~~convention-related expenses and ~~increased media, advertising, and printing expenses.~~ travel expenditures. As we continue ~~into 2017,~~ we have maintained our focus on (i) enhancing customer acquisition, retention and global brand awareness, and (ii) rebuilding our sales and marketing team domestically and internationally. In strivingefforts to transform and ~~maintain~~drive to revenue growth, we expect sales and marketing expenses to ~~decrease~~increase as a percentage of revenue as a result of our Southern California Model Market initiatives for the remainder of ~~2017.~~2018.

General and Administrative Expense. General and administrative expenses in the First Quarter ~~2017~~2018 compared to the First Quarter ~~2016~~2017 increased by ~~$149,000,~~$0.6 million, or 7%26%, primarily due to ~~an increase of $278,000 in patent fees resulting from our efforts to protect our intellectual property and an increase in depreciation expense of $66,000, partially offset by a decrease in~~increased payroll and consulting-related expenses of ~~$239,000.~~$0.3 million, increased provision for doubtful accounts of $0.2 million and increased supplies expense of $0.1 million. The ~~decrease~~increase in payroll and consulting-related expenses ~~is comprised of increases in wages and salaries of $128,000, which~~ was ~~more than offset by a decrease~~primarily due to an increase in stock-based compensation expense of ~~$357,000 resulting from~~$0.3 million due to grants to current and new employees. In addition, during the First Quarter 2017, we had a reversal of stock-based compensation expense of $0.4 million related to the reassessment of certain performance based equity awards. We performed an analysis on our receivables and increased our provision for doubtful accounts by $0.2 million during the First Quarter 2018. We expect general and administrative expenses to ~~remain consistent~~decrease as a percentage of revenue through the remainder of ~~2017.~~2018.

Engineering and Development Expense. Engineering and development expenses in the First Quarter ~~2017~~2018 compared to the First Quarter ~~2016~~2017 decreased by ~~$457,000,~~$0.1 million, or ~~24%~~10%, primarily due to a ~~$344,000~~$0.1 million decrease in operating ~~supplies and an $157,000 decrease in payroll and consulting related expenses.~~ supplies. We expect ~~to maintain our investment in~~ engineering and development ~~activity~~expenses to decrease as ~~we continue our efforts on new product development for~~a percentage of revenue through the remainder of ~~2017.~~2018.

Gain (Loss) on Foreign Currency Transactions. We realized a $0.2 million gain on foreign currency transactions during the First Quarter 2018, compared to a $1,000 loss on foreign currency transactions during the First Quarter 2017, ~~compared to a $71,000 gain on foreign currency transactions during the First Quarter 2016,~~ due to exchange rate fluctuations between the U.S. dollar and other currencies, primarily the Euro.

Interest ~~Income,~~Expense (Income), Net. Interest expense during the First Quarter 2018 represented interest recognized from the amortization of the warrants issued to Western Alliance Bank (“Western Alliance”) in March 2018. See Note 9 – Lines of Credit for additional information. Interest income during the First Quarter 2017 represented interest recognized from the discounted present value of the settlement in connection with the patent infringement lawsuit against Fotona Proizvodnja Optoelektronskih Naprav D.D. and Fotona LLC (collectively, “Fotona”). We filed the lawsuit in Düsseldorf District Court in April 2012 alleging infringement with respect to the Fotona Fidelis dental laser system.~~Interest income, net totaled $9,000 for First Quarter 2017, as compared to $17,000 for First Quarter 2016.~~

Income Tax Provision. We use a discrete year-to-date method in calculating quarterly provision for income taxes. Our provision for income taxes was ~~$40,000~~$32,000 for the First Quarter ~~2017,~~2018, compared to a provision of $40,000 for the First Quarter ~~2016.~~2017. For additional information regarding income taxes, see Part I, Item I, Note 1113 – Income Taxes.

Net Loss. Our net loss totaled approximately $5.0 million for the First Quarter 2018 compared to a net loss of $4.1 million for the First Quarter ~~2017 compared to a net loss of $4.3~~2017. The $0.9 million, ~~for the First Quarter 2016. The $157,000,~~ or 4%22%, ~~decrease~~increase in net loss was primarily due to a ~~$445,000,~~$0.9 million, or 6%23%, reduction in ~~cost of revenue and a $309,000, or 9%, increase in~~ gross profit.

At March 31, ~~2017,~~2018, the Company had approximately ~~$3.8~~$8.7 million in cash, ~~and~~ cash equivalents ~~including~~and restricted ~~cash equivalents.~~cash. Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. The decrease in our cash, ~~and~~ cash equivalents and restricted cash of ~~$5.3~~$3.2 million at March 31, ~~2017~~2018 as compared to December 31, ~~2016,~~2017, was primarily due to cash used in operating and investing activities of $4.8 million and $0.1 million, respectively, partially offset by cash provided by financing activities of ~~$5.1 million, $208,000, and $43,000, respectively.~~$1.6 million. The ~~$5.1~~$4.8 million of net cash used in operating activities was primarily driven by the Company’s net loss of ~~$4.1~~$5.0 million for the ~~quarter ended March 31, 2017.~~First Quarter 2018.

The following table summarizes our change in cash, ~~and~~ cash equivalents and restricted (in thousands):

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2017			2016			2018			2017
Net cash flows used in operating activities	$	(5,122	)	$	(4,772	)	$	(4,762	)	$	(5,122	)
Net cash flows used in investing activities		(208	)		(343	)		(102	)		(208	)
Net cash flows used in financing activities		(43	)		(43	)
Net cash flows provided by (used in) financing activities								1,624			(43	)
Effect of exchange rate changes		25			86			74			25
Net change in cash and cash equivalents	$	(5,348	)	$	(5,072	)
Net change in cash, cash equivalents and restricted cash							$	(3,166	)	$	(5,348	)

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 First Quarter ~~2017,~~2018 totaled ~~$5.1~~$4.8 million and was primarily comprised of our net loss of ~~$4.1~~$5.0 million, partially offset by non-cash adjustments for ~~stock-based compensation~~depreciation and amortization expenses of ~~$379,000,~~$0.3 million, provision for bad debts of ~~$10,000, provision for inventory excess~~$0.2 million and ~~obsolescence of $225,000, depreciation and amortization~~stock-based compensation expenses of ~~$290,000, deferred income taxes of $15,000 and earned interest income, net of $9,000.~~$0.7 million. The ~~$1.9~~$0.9 million net decrease in our operating assets and liabilities was primarily due to an increase in inventory of $1.1 million, resulting from lower than projected sales and a decrease in deferred revenue of $0.4 million, resulting from the impact of implementing the new revenue recognition standard which provided for less deferred installation and deferred diode online training revenue, partially offset by a decrease in accounts payable and accrued liabilities of ~~$0.9~~$0.5 million related to the timing of our payments, ~~a decrease of $347,000 in deferred revenue resulting from less deferred services revenue, a decrease in customer deposits of $7,000~~ and ~~an increase in inventory of $1.4 million resulting from new product inventory, partially offset by~~ a decrease in accounts receivable of ~~$564,000~~$0.2 million related to the timing of our ~~collections and a decrease in prepaid expenses and other assets of $146,000.~~collections.

Cash used in investing activities for ~~the~~ First Quarter ~~2017~~2018 consisted of ~~$208,000~~$0.1 million of capital expenditures. The period-over-period decrease was primarily due to ~~First Quarter 2016~~the timing of our capital ~~expenditures of information technology equipment and a new enterprise resource planning system implementation.~~expenditures.

Net cash ~~used~~provided by financing activities for ~~the~~ First Quarter ~~2017 and the First Quarter 2016~~2018 of ~~$43,000~~$1.6 million resulted from proceeds received from borrowings under lines of credit of $1.8 million, partially offset by payments ~~on our capital lease obligations.~~of equity offering costs from 2017 of $0.1 million and payments of debt issuance costs of $0.1 million.

The ~~$25,000~~$0.1 million effect of exchange rate on cash for First Quarter ~~2017~~2018 was ~~primarily~~ due to a recognized gain on foreign currency transactions, primarily the Euro currency conversion rates ~~of the First Quarter 2017 compared to First Quarter 2016.~~during 2018.

As of March 31, ~~2017,~~2018, the Company had working capital of approximately ~~$12.2~~$20.5 million. Our principal sources of liquidity as of March 31, ~~2017~~2018 consisted of approximately ~~$3.8~~$8.7 million in cash, cash equivalents and restricted cash and ~~$9.2~~$9.7 million of net accounts receivable.

On March 6, 2018, BIOLASE and two of its wholly-owned subsidiaries entered into a Business Financing Agreement with Western Alliance, which provides for borrowings of up to $6.0 million. The Company had approximately $1.8 million of borrowings outstanding under these lines of credit as of March 31, 2018. See Note 9 – Lines of Credit for additional information.

In order 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 increase sales of our products directly to end-users and through distributors, establish profitable operations through the combination of increased sales and decreased expenses, generate cash from operations or obtain additional funds when needed. 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 fields sales force and distribution 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. Additional capital requirements may depend on many factors, including, among other things, continued losses, the rate at which our business grows, demands for working capital, manufacturing capacity, and any acquisitions that we may pursue. From time to time, we could be required, or may otherwise attempt, to raise capital, through either equity or debt offerings, or enter into aanother line of credit facility. As discussed above, on March 6, 2018, BIOLASE and two of its wholly-owned subsidiaries entered into a Business Financing Agreement with Western Alliance, which provides for borrowings of up to $6.0 million. We cannot provide assurance that we will be able to successfully consummate any ~~such~~ equity or debt financings or enter into any ~~such~~other line of credit facility 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 our stockholders.

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.

BIOLASE^®, ZipTip^®, ezlase^®, eztips^®, ~~MD Flow~~ComfortPulse^®, ~~ComfortPulse~~Waterlase^®, Waterlase Dentistry^®, Waterlase Express^®, iLase^®, iPlus^®, Epic^®, Epic Pro^®, WCLI^®, World Clinical Laser Institute^®, Waterlase MD^®, Waterlase Dentistry^®~~, Proprietary MD~~^®, and EZLase ~~It’s So Easy~~^® are registered trademarks of BIOLASE, and ~~Diolase™, HydroPhotonics™, LaserPal™, HydroBeam™, Occulase™, Diolase 10™, Body Contour™, Radial Firing Perio Tips™, Deep Pocket Therapy with New Attachment™, 2R™ , Comfortprep~~^™~~, Rapidprep~~^™~~, Bondprep~~^™, Occulase iPlus™, Flavorflow™, Occulase MD™, Epic Laser™, Epic™, Epic Pro™, Dermalase™, Deltalaser™, Delta™, iStarlaser™, iStar™, Biolase DaVinci Imaging™, Oculase™, Waterlase MDX™, Total Technology Solution™, Geyserlaser™, Geyser™, eplus™, elase™ and Galaxy BioMill™ are trademarksPedolase™ is a trademark of BIOLASE. All other product and company names are registered trademarks or trademarks of their respective owners.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our 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 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there has not been any change in our internal control over financial reporting during the quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The disclosure contained in the first ~~paragraph~~and second paragraphs of Part I, Item 1, Note 810 – Commitments and Contingencies—Litigation—Intellectual Property Litigation is hereby incorporated herein by reference.

There have been no material changes to the risk factors as disclosed in Part I, Item 1A “Risk Factors” in the ~~2016~~2017 Form 10-K.

~~On May 4, 2017, Mark J. Nelson, the Company’s Senior Vice President and Chief Financial Officer, resigned effective as of the close of business on May 4, 2017.~~

Incorporated by Reference

Exhibit

Description

Filed
Herewith

Form

Period
Ending/Date
of Report

Exhibit

Filing
Date

Description

Filed
Herewith

Form

Period
Ending/Date
of Report

Exhibit

Filing
Date

3.1.1

Restated Certificate of Incorporation, including, (i) Certificate of Designations, Preferences and Rights of 6% Redeemable Cumulative Convertible Preferred Stock of the Registrant; (ii) Certificate of Designations, Preferences and Rights of Series A 6% Redeemable Cumulative Convertible Preferred Stock of the Registrant; (iii) Certificate of Correction Filed to Correct a Certain Error in the Certificate of Designation of the Registrant; and (iv) Certificate of Designations of Series B Junior Participating Cumulative Preferred Stock of the Registrant.

S-1,
Amendment
No. 1

12/23/2005

3.1

12/23/2005

S-1,
Amendment
No. 1

12/23/2005

3.1

12/23/2005

3.1.2

Amendment to Restated Certificate of Incorporation

8-K

05/10/2012

3.1

05/16/2012

Amendment to Restated Certificate of Incorporation

8-K

05/10/2012

3.1

05/16/2012

3.1.3

Second Amendment to Restated Certificate of Incorporation

8-A/A

11/04/2014

3.1.3

11/04/2014

Second Amendment to Restated Certificate of Incorporation

8-A/A

11/04/2014

3.1.3

11/04/2014

3.1.4

Certificate of Elimination of Series B Junior Participating Cumulative Preferred Stock

8-K

11/10/2015

3.1

11/12/2015

Certificate of Elimination of Series B Junior Participating Cumulative Preferred Stock

8-K

11/10/2015

3.1

11/12/2015

3.1.5

Certificate of Designations, Preferences and Rights of Series C Participating Convertible Preferred Stock of the Registrant

8-K

08/08/2016

3.1

08/08/2016

Certificate of Designations, Preferences and Rights of Series C Participating Convertible Preferred Stock of the Registrant

8-K

08/08/2016

3.1

08/08/2016

3.1.6

Certificate of Elimination of Series C Participating Convertible Preferred Stock of the Registrant

8-K

04/18/2017

3.1

04/20/2017

Certificate of Elimination of Series C Participating Convertible Preferred Stock of the Registrant

8-K

04/18/2017

3.1

04/20/2017

3.1.7

Certificate of Designations, Preferences and Rights of Series D Participating Convertible Preferred Stock of the Registrant

8-K

04/18/2017

3.2

04/20/2017

Certificate of Designations, Preferences and Rights of Series D Participating Convertible Preferred Stock of the Registrant

8-K

04/18/2017

3.2

04/20/2017

3.1.8

Third Amendment to Restated Certificate of Incorporation

S-3

07/21/2017

3.4

07/21/2017

3.2

Sixth Amended and Restated Bylaws of the Registrant, adopted on June 26, 2014

8-K

06/26/2014

3.1

06/30/2014

Sixth Amended and Restated Bylaws of the Registrant, adopted on June 26, 2014

8-K

06/26/2014

3.1

06/30/2014

4.1

Form of Warrant (incorporated by reference to Exhibit B to the Securities Purchase Agreement filed as Exhibit 99.1 to the Current Report on Form 8-K filed on April 14, 2017)

8-K

04/11/2017

99.1

04/14/2017

Form of Warrant issued on March 6, 2018

10-K

12/31/2017

4.4

03/14/2018

10.1

Securities Purchase Agreement, dated April 11, 2017, among Biolase, Inc. and the investors listed on Schedule I thereto

8-K

04/11/2017

99.1

04/14/2017

Business Financing Agreement, dated as of March 6, 2018, by and among the Registrant, Western Alliance Bank, BL Acquisition Corp. and BL Acquisition II Inc.

10-K

12/31/2017

10.26

03/14/2018

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.

Delaware		87-0442441
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☐

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):	3
	Consolidated Balance Sheets as of March 31, ~~2017~~2018 and December 31, ~~2016~~2017	3
	Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, ~~2017~~2018 and March 31, ~~2016~~2017	4
	Consolidated Statements of Cash Flows for the three months ended March 31, ~~2017~~2018 and March 31, ~~2016~~2017	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1922
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2932
Item 4.	Controls and Procedures	2932
PART II	OTHER INFORMATION	32
Item 1.	Legal Proceedings	2932
Item 1A.	Risk Factors	29
~~Item 5~~	~~Other Information~~	2932
Item 6.	Exhibits	3033
Signatures		3235

	March 31,		December 31,
	2018		2017
Undelivered elements (training and product and support services; installation for 2017)	$	583	$	980
Extended warranty contracts		1,592		1,634
Deferred royalties		20		22
Total deferred revenue		2,195		2,636
Less long-term amounts:
Deferred royalties		8		11
Total deferred revenue - long-term		8		11
Total deferred revenue - current	$	2,187	$	2,625

		Three months ended
		March 31, 2018
Revenue recognized over time		$ 1,697
Revenue recognized at a point in time		8,323
Total		$ 10,020



	Shares
Unvested restricted stock units at December 31, 2017		1,789
Granted		223
Vested		(35	)
Forfeited or cancelled		—
Unvested restricted stock units at March 31, 2018		1,977

				BIOLASE, INC.
				(Registrant)

	~~May 4, 2017~~			~~/s/ HAROLD C. FLYNN, JR.~~
	~~Date~~			~~Harold C. Flynn, Jr.~~
			~~President and Chief Executive Officer~~
					~~(Principal Executive Officer)~~

May 4, ~~2017~~2018		By:		/s/ ~~MARK J. NELSON~~JOHN R. BEAVER
Date			~~Mark J. Nelson~~	John R. Beaver
				Interim Chief Executive Officer, Senior Vice
				President and Chief Financial Officer
						(Principal Executive Officer, Principal Financial
						Officer and Principal Accounting Officer)