Irvine-based Biolase Inc. has revised its credit agreement with Comerica Bank after falling out of compliance with loan covenants.
Comerica reduced Biolase’s domestic credit line to $4 million from a previous high of $6 million, according to a Securities and Exchange Commission filing. The company, which makes lasers used by doctors and dentists in the U.S. and Europe, retains a $4 million international credit line.
The SEC filing said the amendment to the loan from Dallas-based Comerica “revised certain financial covenants,” including one that involved an undisclosed figure for Biolase’s minimum earnings before interest, taxes, depreciation and amorti- zation.
“Biolase is now entering what has traditionally been its strongest revenue period of the year—September to December—and finalizing [the amendment] provides us with the flexibility to continue our growth,” Chief Executive Federico Pignatelli said in a release.
Biolase also issued warrants to Comerica that would allow the bank to buy up to 100,000 shares of stock at a price of $2 a share. Those warrants will expire in September 2018, Biolase said in the release.
Biolase also has filed papers with the SEC to sell $5 million worth of common stock, preferred stock and warrants. It said net proceeds from that offering would “primarily fund general and administrative expenses.”
The company had a loss of about $3 million on $57.4 million in sales in 2012. Its loss was narrowed from the prior two years, while sales were up about 16% from the year prior.
Sales have continued to increase this year, with revenue of nearly $29 million in the first two quarters and losses totaling about $5.1 million for the period.
The device maker amended its credit deal with Comerica roughly two weeks after it waged a spirited campaign against short sellers that the company contends caused a share collapse after it disclosed in another SEC filing that it wasn’t in compliance with a provision in its bank loan.
Biolase shares fell 34% on Aug. 14, a day after it said Comerica agreed to waive the company’s noncompliance with a condition saying that Biolase couldn’t have earnings before interest, taxes, depreciation and amortization of less than $500,000.
Biolase shares remain up by 5% since the start of the year despite the recent slide, with a recent market value of about $66.5 million.
Short Seller
Biolase’s revelations prompted a pair of critical mid-August articles by Richard Pearson, a former investment banker and writer of the Mox Reports blog on investor website Seeking Alpha. Pearson identified himself as a short seller in his articles.
Pearson contended in his first article that Biolase “is now in the middle of a near-term solvency crisis” that was revealed via its second-quarter report and its earnings call, and that it didn’t have money to repay the bank $6 million that was due.
Pearson’s second article claimed that Biolase “took the unusual step of halting its own stock while it arranged to put out a series of positive press releases to boost the price back up.”
He listed several “facts which indicate a liquidity crisis,” including continuing losses—Biolase has posted five consecutive quarters of losses since the loan deal was signed in May 2012—and a cash burn rate he claimed was $3 million per quarter.
Pignatelli Responds
Biolase and Pignatelli had their own critiques of Pearson’s articles.
Pignatelli said in a press release that Pearson’s articles contained “several inaccurate and therefore misleading statements on [the] website about Biolase and its current financial position, including assertions that Biolase … is on the brink of insolvency.”
The chief executive added that he believed that the comments “were intentionally directed to create uncalled-for anxiety amongst our shareholders with the intent to drive our stock price down.”
Pignatelli also said he believed there was a large amount of “naked shorting” taking place in Biolase’s stock. Naked shorting is when investors sell stocks without first borrowing the shares or ensuring that they can be borrowed.
