<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Page 1 of 26
Sequentially Numbered
Pages, Exhibit Index
Located at Page 15 of 26
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 1996.
------------------
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from to .
-------- --------
Commission File Number
0-19627
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BIOLASE TECHNOLOGY, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 87-0442441
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
981 Calle Amanecer, San Clemente, CA 92673
(Address of Principal Executive Offices)
(714) 361-1200
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 X No
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Common Stock, $.001 par value 13,127,949
- ----------------------------- ----------------------------
Title Class Number of Shares Outstanding
at November 15, 1996
Transitional Small Business Disclosure Format
(Check one): Yes No X
--- ---
<PAGE> 2
BIOLASE TECHNOLOGY, INC.
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART 1. Financial Information
ITEM 1. Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of
Operations 4
Consolidated Statement of
Stockholders' Equity 5
Consolidated Statements of Cash
Flows 6
Notes to Consolidated Financial
Statements 7
ITEM 2. Management's Discussion and Analysis or
Plan of Operation 10
PART II. Other Information
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities 14
ITEM 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security 15
Holders
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
SIGNATURE PAGE 16
</TABLE>
Page 2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
- ------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 124,510 $ 1,565,655
Accounts receivable, less allowance of $52,968 in 1996
and $64,617 in 1995 32,053 64,622
Inventories, net of reserves of $469,859 in 1996
and $491,335 in 1995 427,852 390,928
Prepaid expenses and other current assets 159,055 170,232
------------ ---------------
Total Current Assets 743,470 2,191,437
Property, plant and equipment, less accumulated depreciation
of $1,002,204 in 1996 and $885,902 in 1995 212,253 289,016
Patents and licenses, less accumulated amortization
of $327,614 in 1996 and 1995 28,860 10,070
Other assets 20,221 21,270
------------ ---------------
Total Assets $ 1,004,804 $ 2,511,793
============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $ 6,786 $ 22,324
Accounts payable 139,075 41,880
Accrued expenses 371,173 404,752
Accrued costs related to dissolution of
foreign subsidiary 66,805 109,748
Other current liabilities 132,805 89,000
------------ ---------------
Total Current Liabilities 716,644 667,704
------------ ---------------
Stockholders' Equity:
Preferred stock, $.001 par value,
1,000,000 shares authorized; none issued -- --
Common stock, $.001 par value, 50,000,000 shares
authorized; 11,321,191 and 11,241,164 issued and
outstanding in 1996 and 1995, respectively 11,321 11,241
Additional paid-in capital 24,288,977 24,169,018
Accumulated deficit (24,012,138) (22,336,170)
------------ ---------------
Net Stockholders' Equity 288,160 1,844,089
------------ ---------------
Total Liabilities and Stockholders' Equity $ 1,004,804 $ 2,511,793
============ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE> 4
Item 1. Financial Statements (continued).
- ------------------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 132,098 $ 440,855 $ 436,850 $ 1,032,687
Cost of sales 118,937 247,907 390,832 706,302
------------ ------------ ------------ ------------
Gross profit 13,161 192,948 46,018 326,385
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 150,438 115,831 467,586 430,136
General and administrative 189,661 194,731 599,485 621,047
Engineering and development 239,972 132,411 666,900 685,815
Litigation and settlement costs 3,209 13,230 6,790 27,811
------------ ------------ ------------ ------------
Total operating expenses 583,280 456,203 1,740,761 1,764,809
------------ ------------ ------------ ------------
Loss from operations (570,119) (263,255) (1,694,743) (1,438,424)
Other income:
Interest income, net 1,881 6,825 18,775 8,514
------------ ------------ ------------ ------------
Net loss $ (568,238) $ (256,430) $ (1,675,968) $ (1,429,910)
============ ============ ============ ============
Loss per share of common stock $ (0.05) $ (0.02) $ (0.15) $ (0.15)
============ ============ ============ ============
Weighted average shares outstanding 11,321,054 10,618,529 11,291,659 9,382,773
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE> 5
Item 1. Financial Statements (continued).
- ------------------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL NET
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 11,241,164 $ 11,241 $ 24,169,018 ($22,336,170) $ 1,844,089
Exercise of stock options 80,026 80 119,959 - 120,039
Issuance of shares for fractional
interest on reverse split 1 - - - -
Net loss - - - (1,675,968) (1,675,968)
------------------------------------------------------------------------
Balance at September 30, 1996 11,321,191 $ 11,321 $ 24,288,977 ($24,012,138) $ 288,160
========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE> 6
Item 1. Financial Statements (continued).
- ------------------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,675,968) $(1,429,910)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 116,302 140,187
Provision for bad debts - 332
Provision for inventory write-off - 7,373
Earned escrow shares of common stock - 29,374
Changes in operating assets and liabilities:
Accounts receivable 32,569 (229,228)
Inventories (36,924) 316,251
Prepaid expenses and other assets 12,226 (146,989)
Accounts payable 97,195 (59,784)
Accrued expenses 33,226 (19,113)
Accrued costs related to dissolution of foreign subsidiary (42,943) (17,526)
Other current liabilities (23,000) (14,651)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (1,487,317) (1,423,684)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (39,539) (31,999)
Additions to patents and licenses (18,790) (5,980)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (58,329) (37,979)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (15,538) (15,716)
Proceeds from issuance of common stock for cash - 1,292,707
Proceeds from exercise of stock options 120,039 61,650
Proceeds from exercise of stock purchase of warrants - 790,952
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 104,501 2,129,593
----------- -----------
Increase (decrease) in cash and cash equivalents (1,441,145) 667,930
Cash and cash equivalents at beginning of period 1,565,655 1,162,041
----------- -----------
Cash and cash equivalents at end of period $ 124,510 $ 1,829,971
=========== ===========
Supplemental cash flow disclosure:
Cash paid during the period for interest $ 3,024 $ 11,432
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6
<PAGE> 7
BIOLASE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
Note 1
The accompanying unaudited consolidated financial statements of BioLase
Technology, Inc. (the "Company") have been prepared in accordance with the
instructions to Form 10-QSB and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included.
The Company's consolidated financial statements have been presented on the
basis that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company reported net losses of $2,023,822, $3,050,333 and
$7,549,262 for the years ended December 31, 1995, 1994, and 1993 respectively, a
net loss of $1,675,968 for the nine-month period ended September 30, 1996, and
has an accumulated deficit of $24,012,138 at September 30, 1996, which raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon its
ability to obtain outside financing through either debt or equity financing and,
ultimately, a movement to profitability through increased sales, continued
engineering development, and on-going cost containment. The Company's focus has
been realigned to emphasize the marketing of its hydro-kinetic tissue cutting
systems (the Millennium(TM) series), laser systems and endodontic products, and
continued development of biomaterial products and cost-effective laser
technologies for medical and dental surgical applications.
On October 16, 1996, the Company completed a private placement (the
"Offering") which resulted in net proceeds of approximately $4,400,000.
Although the proceeds received from the Offering provide the Company with the
working capital necessary to market its Millennium(TM) series and to complete
the development of its LaserBrush(TM), a hand-held laser toothbrush, the
Company's current business plan anticipates a shortfall in working capital to
occur in early 1999. (FLS) Financing the development of the Millennium(TM)
series and other dental instruments and operations of the Company has been
achieved principally through private placements of common stock and the exercise
of stock options and warrants. During the three years ended December 31, 1995,
the Company has raised approximately $9,776,000 of equity funds. Management
believes that significant capital resources will be utilized to complete the FDA
approval process to allow use of the Company's laser and hydro-kinetic products
for domestic hard-tissue medical, dental and cosmetic surgical applications and
to fund the Company's working capital needs in 1999. (FLS) The Company
anticipates obtaining the necessary capital resources through the sale of equity
securities in either public offerings or private placements, or through debt
financing. (FLS) No assurance can be given, however, that the Company will be
able to obtain such capital resources. (FLS) The consolidated financial
statements do not include any adjustments that might result from the outcome of
the uncertainty regarding the Company's ability to continue as a going concern.
Operating results for the three and nine-month periods ended September 30,
1996 and 1995 are not necessarily indicative of the results to be expected for
the year ending December 31, 1996. These statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Form 10-KSB for the year ended December 31, 1995.
Page 7
<PAGE> 8
Note 2
<TABLE>
<CAPTION>
Inventories, net of reserves, (unaudited)
consist of the following: September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Raw materials $ 171,479 $ 178,669
Work-in-process - -
Finished goods 256,373 212,259
------------------ -----------------
$ 427,852 $ 390,928
================== =================
<CAPTION>
Note 3
- ------
Property, plant and equipment, (unaudited)
at cost, consist of the following: September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Leasehold improvements $ 149,282 $ 149,282
Equipment and computers 710,613 674,575
Furniture and fixtures 107,208 103,707
Demonstration units 247,354 247,354
------------------ -----------------
Total cost 1,214,457 1,174,918
Less, accumulated depreciation and amortization (1,002,204) (885,902)
------------------ -----------------
$ 212,253 $ 289,016
================== =================
</TABLE>
Note 4
Loss per share is based on the weighted average number of common shares
outstanding. Common stock equivalents, which consist of stock options, have been
excluded from per share calculations, as the effect of the assumed exercise of
these common stock equivalents is anti-dilutive at September 30, 1996 and 1995.
Note 5
As of December 31, 1995, the Company had net operating loss carryforwards
for federal and state purposes of approximately $20 million and $8.6 million,
respectively. The net operating loss carryforwards expire through 2010 and 2000,
respectively. The utilization of net operating loss carryforwards may be limited
under the provisions of Internal Revenue Code Section 382.
Note 6
On October 16, 1996, the Company completed a private placement (the
"Offering") pursuant to Regulation D promulgated under the Securities Act of
1933, as amended. In the Offering, the Registrant issued and sold 100 units,
each consisting of 1 share of its Series A 6% Redeemable Cumulative Convertible
Preferred Stock (the "Preferred Stock") and 5,000 Redeemable Common Stock
Purchase Warrants (the "Warrants") expiring 1998 which are exercisable under
certain conditions. Gross proceeds received from the Offering were
$5,000,000, and net proceeds, after commissions of $400,000 and estimated
expenses, were approximately $4,400,000.
Page 8
<PAGE> 9
Each share of Preferred Stock is convertible into a variable number of
shares of Common Stock which cannot exceed 18,182 shares. The Warrants may be
exercised under certain conditions to purchase Common Stock at $3.50 per share.
In connection with the Offering, the Company issued an additional 190,910 Common
Stock Purchase Warrants, expiring 1998, also exercisable at $3.50 per share.
At November 15, 1996, the Company had received Elections to Convert with
respect to 99 of the 100 shares of the Preferred Stock issued in conjunction
with the Offering, which resulted in an aggregate conversion to 1,800,018 shares
of Common Stock. The shares of Common Stock issued upon the conversion are
"restricted securities" as defined in Rule 144 promulgated under the Securities
Act of 1933, as amended. Accordingly, such shares may be resold only pursuant to
a registration statement under the Securities Act or in accordance with an
exemption from such registration requirement. The Company is obligated to file a
registration statement covering the resale of such shares of Common Stock.
The unaudited consolidated balance sheets of BioLase Technology, Inc. at
September 30, 1996 presented below reflect the consolidated financial position
of the Company on such date and such financial position as adjusted on a
proforma basis to give effect to the Offering.
<TABLE>
<CAPTION>
September 30, 1996 (unaudited)
-------------------------------------------------
Actual Adjustments Pro Forma
---------- ---------- ----------
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 124,510 $ 4,600,000 $ 4,724,510
Accounts receivable, less allowance of $52,968 32,053 32,053
Inventories, net of reserves of $469,859 427,852 427,852
Prepaid expenses and other current assets 159,055 (73,000) 86,055
============ ============ ============
Total current assets 743,470 4,527,000 5,270,470
Property, plant and equipment, less accumulated depreciation
of $1,002,204 212,253 212,253
Patents and licenses, less accumulated amortization of $327,614 28,860 28,860
Other assets 20,221 20,221
------------ ------------ ------------
Total assets $ 1,004,804 $ 4,527,000 $ 5,531,804
============ ============ ============
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long-term debt $ 6,786 $ $ 6,786
Accounts payable 139,075 139,075
Accrued expenses 371,173 127,000 498,173
Accrued costs related to dissolution of foreign subsidiary 66,805 66,805
Other current liabilities 132,805 132,805
------------ ------------ ------------
Total current liabilities 716,644 127,000 843,644
============ ============ ============
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000 shares
authorized; 100 Series A shares issued on a proforma basis - - -
Common stock $.001 par value, 50,000,000 shares
authorized; 11,321,191 shares issued and outstanding 11,321 11,321
Additional paid-in-capital 24,288,977 4,400,000 28,688,977
Accumulated deficit (24,012,138) (24,012,138)
------------ ------------ ------------
Net stockholders' equity 288,160 4,400,000 4,688,160
------------ ------------ ------------
Total liabilities and stockholders' equity $ 1,004,804 $ 4,527,000 $ 5,531,804
============ ============ ============
</TABLE>
Page 9
<PAGE> 10
Note 7
Since November 12, 1992, the Company's Common Stock has been authorized for
inclusion on the Nasdaq SmallCap Market ("NASDAQ"). The Company's Common Stock
is quoted on such system under the symbol "BLTI". Requirements for continued
quotation on NASDAQ include maintenance of total assets of at least $2,000,000
and stockholders' equity of at least $1,000,000. At September 30, 1996, the
Company was not in compliance with these requirements. The completion of the
Offering on October 16, 1996 brought the Company's total assets and
stockholders' equity into compliance with the NASDAQ continuing listing
requirements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS - FISCAL THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30,
1996 COMPARED WITH COMPARABLE 1995 PERIODS:
Consolidated sales for the three and nine-month periods ended September 30,
1996 were $132,000 and $437,000, respectively, representing decreases of
$309,000 and $596,000, respectively, from the $441,000 and $1,033,000 reported
during the same periods in 1995. The Company's laser division reported sales for
the 1996 third quarter of $42,000, a decrease of $301,000 from the $343,000
reported for the same period in 1995. The Company's endodontic division sales
for the three and nine-month periods ended September 30, 1996 were comparable to
those reported for the same periods in 1995.
The decreases in sales within the laser division are due principally to
reduced laser unit shipments to Germany, the primary user market for the
Company's laser-based systems, reflecting a pending product introduction and the
Company's desire to restructure its distribution arrangements in Germany,
partially motivated by a desire to obtain a more experienced German distributor
for the Company's new hydro-kinetic tissue cutting system, the Millennium(TM)
series, which addresses a much broader market than the Company's previous laser
systems. (The preceding sentence constitutes a forward looking statement
[hereinafter identified as "FLS"]. Each of the forward looking statements in
this Quarterly Report on Form 10-QSB is subject to various factors that could
cause actual results to differ materially from the results anticipated in such
forward looking statement, as more fully discussed in this Item 2 under "Forward
Looking Statements".) The Company shipped its first production unit of
Millennium(TM) to Germany for clinical evaluation and demonstration purposes
during the third quarter of 1996. As a result of such evaluation and
demonstration, additional features have been added to the Millennium(TM) series
design, and the Company anticipates finalization of a new German distribution
agreement in December, 1996. (FLS) Initial sales of the Company's new
Millennium(TM) series to a German distributor are anticipated in the first
quarter of 1997. (FLS) No assurance can be given that the Company will enter
into a new distribution arrangement for the German market or that any such
arrangement will be advantageous to the Company or will result in the sale of
any significant number of Millennium(TM) systems or any other of the Company's
laser-based systems. Domestically, the Company does not anticipate a significant
increase in sales for its laser division unless and until it receives regulatory
clearance to market its laser and hydro-kinetic systems for certain hard-tissue
and other applications. (FLS) The Company has commenced clinical trials with its
Millennium(TM) series utilizing its hydro-kinetic technology to obtain clinical
data for its hard-tissue application to the Food and Drug Administration
("FDA"). The Company is in the process of applying for FDA approvals relating to
dermatology and cosmetic surgery utilizing its hydro-kinetic technology. (FLS)
Consolidated gross profits were only $13,000 during the three-month period
ended September 30, 1996, down $180,000 from the $193,000 reported for the same
period in 1995. Consolidated gross profits for the nine-month period ended
September 30, 1996 decreased $280,000 to $46,000 from the $326,000 reported in
the same period of 1995. These decreases are due principally to the reduction in
sales of the
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<PAGE> 11
laser division. Product contribution margins in the 1996 and 1995 periods are
similar; the disproportionate reduction in gross profits compared to sales is
due principally to the lower absorption in 1996 of fixed overhead costs, which
arises out of lower sales volume.
The consolidated net loss for the three-month period ended September 30,
1996 was $568,000 compared to $256,000 for the same period in 1995, an increase
of $312,000; the consolidated net loss position increased $246,000 to $1,676,000
during the nine-month period ended September 30, 1996 from a consolidated net
loss of $1,430,000 reported for the same period in 1995. The increase in the net
loss for the third quarter of 1996 compared to the same period in 1995 is due
principally to lower sales volume coupled with an increase in operating expenses
related primarily to an increase in engineering and development costs associated
with the refinements of the Company's hydro-kinetic technology. The increase in
consolidated net loss for the nine-month period ended September 30, 1996 as
compared to the same period in 1995 is due principally to the reduction in
consolidated sales volume.
Consolidated sales and marketing expenses for the three and nine-month
periods ended September 30, 1996 increased $34,000 and $38,000, respectively, to
$150,000 and $468,000, respectively, from the $116,000 and $430,000 reported for
the same periods in 1995. The increases are due principally to the Company's
decision to commence promotion of its hydro-kinetic technology and products
coupled with the commencement of advertising of the Company's endodontic
supplies in various professional journals. The Company anticipates an increased
level in sales and marketing expenses to support the launching of its
Millennium(TM) systems to continue through 1997. (FLS) Increased marketing and
advertising expenses are anticipated to continue during the fourth quarter of
1996 and the first quarter of 1997 in the Company's endodontic division as it
develops a direct sales force utilizing independent representatives. (FLS)
Consolidated general and administrative expenses for the three-month period
ended September 30, 1996 were comparable to those reported during the same
period in 1995. For the nine-month period ended September 30, 1996, consolidated
general and administrative expenses decreased by $22,000 to $599,000 from the
$621,000 reported during the same period in 1995. The decrease is due
principally to substantial reductions in the Company's general insurance
premiums from those experienced during the same period in 1995 partially offset
by increased promotional expenses and legal costs related to intellectual
property matters. See Part II, Item 1 - Legal Proceedings.
Consolidated engineering and development expenses increased $108,000 to
$240,000 during the three-month period ended September 30, 1996 from the
$132,000 reported during the same period in 1995. The increase is due
principally to the efforts devoted to completing the design of its hydro-kinetic
tissue cutting system, the Millennium(TM) series, and the procurement of
material to manufacture six prototypes to be used for clinical evaluation.
Increased costs related to clinical studies undertaken in connection with the
FDA approval process were incurred during the third quarter of 1996. The
nine-month period ended September 30, 1996 reflected a slight decrease of
$19,000 to $667,000 compared to the $686,000 reported for the same period in
1995. The decrease is due to reductions in engineering personnel since the first
quarter of 1995, offset by the aforementioned increased costs in engineering
design and regulatory expenses incurred in the third quarter of 1996. The
Company anticipates these increased costs to continue through the fourth quarter
of 1996 as it continues its efforts to obtain hard-tissue and other approvals
for the Millennium(TM) series. (FLS)
The Company is presently in the final engineering design phase of its
patented LaserBrush(TM), a hand-held toothbrush that will utilize optical energy
and specifically developed toothpaste compounds to illuminate, identify, and
destroy bacteria within the intra-oral cavity. (FLS) Completion of the design
and packaging of the LaserBrush(TM) is expected in early 1997 for release in the
second quarter of 1997. (FLS) The Company has recently begun the development of
FlavorFlow(TM), a water conditioning system that utilizes certain patent-pending
technology for sanitizing and altering the flavor and scent of fluids typically
administered during medical and dental surgical procedures. The Company
anticipates completion of the design and the related packaging in early 1997.
(FLS)
Page 11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES:
The Company's liquidity at September 30, 1996 had declined significantly
compared to December 31, 1995, due principally to the losses incurred. Working
capital decreased $1,497,000 while cash and cash equivalents declined
$1,441,000. Net cash used by operating activities for the nine-month period
ended September 30, 1996 increased $64,000 compared to the same period in 1995
and is due principally to the decrease in sales experienced in 1996. Net cash
used by investing activities for the nine-month period ended September 30, 1996
increased $20,000 over the same period in 1995 due to a slight increase in
capital expenditures combined with an increase in capitalized patent and
licensing costs related to the Company's patent-pending hydro-kinetic
technology. Net cash provided by financing activities was $2,025,000 lower for
the nine-month period ended September 30, 1996 than in the comparable 1995
period due principally to the absence in the first nine months of 1996 of
private placement and warrant exercise proceeds; $922,000 and $370,000 of
private placement proceeds were received in May and July of 1995, respectively;
$791,000 of warrant exercise proceeds were received in September, 1995. The
absence of such proceeds in 1996 was ameliorated to a minor extent by a $58,000
increase in proceeds received from the exercise of stock options.
The Company completed a $5,000,000 private placement on October 16, 1996
that resulted in net proceeds estimated at $4,400,000. See Part II, Item 2
Changes In Securities. Giving effect to the completion of that placement on a
proforma basis at September 30, 1996, the Company's cash and cash equivalents
would be $4,725,000, working capital would be $4,427,000 and net stockholders'
equity would be $4,688,000. See Note 6 of Notes to Consolidated Financial
Statements in Part I, Item 1.
The Company's consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. Its
viability as a going concern is dependent upon its ability to obtain outside
financing either through the issuance of additional shares of its Common Stock
or Preferred Stock, or through borrowings and, ultimately, a movement to
profitability through increased sales, continued engineering development, and
on-going cost containment. (FLS) The Company's focus has been realigned to
emphasize the marketing of its hydro-kinetic tissue cutting systems
(Millennium(TM) series), laser systems and endodontic products, and the
continued development of biomaterial products and cost-effective laser
technologies for medical, dental, dermatological and cosmetic surgical
applications.
Based on its current business plan, the Company believes that its working
capital will remain adequate to meet its obligations through fiscal 1998, by
which time it will need to obtain additional equity or debt financing. (FLS) The
Company intends to pursue additional equity or debt financing to meet that
anticipated need; however, there are no assurances that the Company will obtain
the financing required to sustain its operations or that interim activities will
not deplete working capital at a rate greater than that anticipated in the
current business plan. (FLS) If the Company is unsuccessful in arranging
necessary financing, its ability to meet its obligations would be impaired, and
it may be unable to continue operations. (FLS) Should this occur, it would be
necessary for the Company to undertake such other actions as may be appropriate
to preserve asset values. (FLS)
Financing the development of the Millennium(TM) series and other laser
instruments, and operations of the Company has been achieved principally through
private placements of common stock and the exercise of stock options and
warrants. During the three years ended December 31, 1995, the Company has raised
approximately $9,776,000 of equity funds. Management believes that significant
capital resources will be utilized to complete the FDA approval process to allow
use of the Company's laser and hydro-kinetic products for domestic hard-tissue
medical, dental and cosmetic surgical applications, and to fund the Company's
working capital needs in 1999. (FLS) The Company anticipates obtaining the
necessary capital resources through the sale of equity securities in either
public offerings or private placements, or through debt financing. (FLS) No
assurance can be given, however, that the Company will be able to obtain such
capital resources. (FLS)
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<PAGE> 13
FORWARD LOOKING STATEMENTS:
The forward looking statements contained in this Quarterly Report on Form
10-QSB are subject to various risks, uncertainties and other factors that could
cause actual results to differ materially from the results anticipated in such
forward looking statements. Included among the important risks, uncertainties
and other factors are those hereinafter discussed.
Few of the forward looking statements in this Quarterly Report on Form
10-QSB deal with matters that are within the unilateral control of the Company.
There is substantial government regulation of the manufacture and sale of
medical products, including many of the Company's products, by governmental
agencies in the United States and foreign countries. These governmental agencies
often have considerable discretion in determining whether and when to approve
the marketing of the Company's products that have not yet received such
approval.
The availability of equity and debt financing to the Company is affected
by, among other things, domestic and world economic conditions and the
competition for funds. Rising interest rates might affect the feasibility of
debt financing that is offered. Potential investors and lenders will be
influenced by their evaluations of the Company and its products and comparisons
with alternative investment opportunities.
The Company's products do not provide the exclusive means for accomplishing
an objective, and customers may choose alternative means. Many of the Company's
competitors have much greater financial resources and technical capabilities
than does the Company, which may enable such competitors to design and produce
superior products or to market their products in a manner that achieves
commercial success even in the face of technical superiority on the part of the
Company's products.
The Company's patents may not offer effective protection against
competitors. Competitors may be able to design around the Company's patents or
employ technologies not covered by such patents. In addition, the Company's
patents may be challenged, and even if such patents are upheld, the diversion of
financial and human resources associated with patent litigation could adversely
affect the Company. The Company may be found to be violating the patents of
others and forced to obtain a license under such patents or modify the design of
its products.
Rapid technological developments are expected to continue in the industries
in which the Company competes. The Company may not be able to develop,
manufacture and market products which meet changing user requirements or which
successfully anticipate or respond to technological changes on a cost-effective
and timely manner.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company was a real party in interest in an interference proceeding
in the United States Patent and Trademark Office which was concluded in
September, 1996. This proceeding entitled Vassiliadis v. Levy was initiated on
April 22, 1993, and arose out of patentt applications asserting conflicting
claims to the technology involved in cutting tooth tissue with laser radiation
in the presence of a cooling fluid. U.S. Patent No. 5,020,995 covering this
technology has been issued and is owned by the Company. The interference
proceeding resulted in a confirmation of the originality of certain technology
owned by the Company and the validity of certain patent claims directed to
procedures for cutting tooth tissue with laser radiation in the presence of
water. In addition, that patent continues to include a valid claim for methods
of removing tooth tissues from the wall of a tooth canal, which involves
delivering pulsed laser radiation to the wall of the tooth canal via an optical
fiber. The interference also resulted in the disallowance of certain dependent
claims within the patent; management believes that such disallowance
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<PAGE> 14
will not have a material adverse effect upon the Company, its proprietary
technology, its prospects or its results of operations. (FLS)
From time to time, the Company is involved in legal proceedings
incidental to its business. It is management's opinion that these actions,
individually and in the aggregate, will not have a material adverse effect on
the Company's financial condition, and that adequate provision has been made
for the resolution of such actions and proceedings.
ITEM 2. CHANGES IN SECURITIES.
On October 16, 1996, the Company sold and issued one hundred (100)
units (the "Units"), each consisting of one (1) share of its Series A 6%
Redeemablee Cumulative Convertible Preferred Stock (a "Share") and redeemable
stock purchase warrants expiring December 31, 1998 (the "Warrants") entitling
the holders thereof to purchase up to five thousand (5,000) shares of the
Company's Common Stock, $.001 par value per share ("Common Stock").
PacVest Associates, Inc. acted as the principal placement agent in
connection with the offer and sale of the Units. The Units were offered and
sold to "accredited investors", as defined in Rule 501 promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
The Units were offered and sold at a price of Fifty Thousand Dollars
($50,000) per Unit, which generated gross cash proceeds of Five Million Dollars
($5,000,000) from the sale of 100 Units. The Company paid a placement fee
equal to eight percent (8%) of the gross proceeds, or Four Hundred Thousand
Dollars ($400,000) with respect to the sale of the 100 Units. After placement
fees and other expenses, the Company reaalized net proceeds of approximately
Four Million Four Hundred Thousand Dollars ($4,400,000). In addition, the
Company issued to the principal placement agent and others involved in the
offering of the Units stock purchase warrants expiring December 31, 1998
entitling the holders thereof to purchase an aggregate of one hundred ninety
thousand nine hundred ten (190,910) shares of Common Stock at an exercise price
of Three Dollars and Fifty Cents ($3.50) per share.
The Units were offered and sold pursuant to the exemptions from the
registration requirements of the Securities Act afforded under Section 4(2) of
the Securities Act and Rule 505 promulgated under the Securities Act, based on
the fact that the Units were offered and sold solely to accredited investors.
During the thirty (30) days following October 16, 1996, each Share was
convertible into eighteen thousand one hundred eighty-two (18,182) shares of
Common Stock. Based on a nominal $50,000 conversion value of eachh Share, this
represents an effective conversion price of Two Dollars and Seventy-Five Cents
($2.75) per share of Common Stock. By November 15, 1996, ninety-nine (99) of
the one hundred (100) outstanding Shares had been converted into an aggregate
of one million eight hundred thousand eighteen (1,800,018) shares of Common
Stock. Commencing January 14, 1997, the remaining one (1) Share, which has a
nominal conversion value of Fifty Thousand Dollars ($50,000), may be converted
into shares of Common Stock at a conversion price (the "Formula Conversion
Price") equal to eighty percent (80%) of the average closing price of a share
of Common Stock in the principal market in which it then trades during the five
trading days immediately preceding the date on which the Shares are presented
for conversion; provided, however, that the Formula Conversion Price shall
neither exceed Five Dollars and Fourteen Cents ($5.14) nor be less than Two
Dollars and Seventy-Seven Cents ($2.77). For the first sixty (60) days
coommencing January 14, 1997, the Share is only partially convertible, and it
is fully convertible on and after March 15, 1997.
If the remaining outstanding Share is not previously converted, it will
be deemed to have been presented for conversion into Common Stock and to have
been converted on October 16, 1998 or at the option of the Company's Board of
Directors at an earlier time when a letter of intent or agreement between the
Company and one or more broker-dealers is in effect with a view towards an
underwritten public offering of Company securities. The Share is redeemable
under certain circumstances, and the
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<PAGE> 15
holder thereof is entitled to receive cumulative dividends at the rate of Seven
Hundred Fifty Dollars ($750) per quarter.
The Warrants entitle the holders thereof under specified conditions to
purchase shares of Common Stock at an exercise price of Three Dollars and Fifty
Cents ($3.50) per share through December 31, 1998. Under certain
circumstances, the Company may call the Warrants for redemption.
The Warrants are transferable only under very limited circumstances to
estates of holders who are natural persons and to successors by merger or
otherwise by operation of law to holders who are not natural persons. The
purchaser (or permitted successor) of each Unit shall be entitled to exercise
(i) one-third (1/3) of the Warrants constituting part of that Unit if such
purchaser remains the record holder through February 13, 1997 of the Share
constituting part of the Unit or all of the shares of Common Stock into which
such Share is converted; (ii) an additional one-third (1/3) of the such
Warrants if such purchaser remains the record holder through June 13, 1997 of
the Share constituting part of the Unit or all of the shares of Common Stock
into which such Share is converted; and (iii) the final one-third (1/3) of such
Warrants if such purchaser remains the record holder through October 11, 1997
of the Share constituting part of the Unit or all of the shares of Common
Stock into which such Share is converted.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
The following exhibit is being filed with this Quarterly Report on Form
10-QSB.
4. Instruments Defining the Rights of Holders, including Indentures
4.3 Certificate of Designations, Preferences and Rights of Series A 6%
Redeemable Cumulative Convertible Preferred Stock of BioLase
Technology, Inc.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On October 18, 1996, the Registrant filed a Current Report on Form 8-K
announcing its completion of a $5,000,000 private placement (the "Offering")
pursuant to Regulation D promulgated under the Securities Act of 1933, as
amended. Balance sheets at August 31, 1996, and as at August 31, 1996 on a
proforma basis to give effect to the Offering, were included with the Current
Report.
Page 15
<PAGE> 16
SIGNATURE PAGE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BIOLASE TECHNOLOGY, INC.
a Delaware Corporation
Date: November 19, 1996 /s/ Donald A. La Point
----------------------------------------
Donald A. La Point
President & Chief Executive Officer
Date: November 19, 1996 /s/ Stephen R. Tartamella
----------------------------------------
Stephen R. Tartamella
Vice President & Chief Financial Officer
Page 16
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF SERIES A REDEEMABLE CUMULATIVE
CONVERTIBLE PREFERRED STOCK OF
BIOLASE TECHNOLOGY, INC.
<PAGE> 2
Exhibit 4.3
CERTIFICATE OF
DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES A 6% REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK OF
BIOLASE TECHNOLOGY, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware:
BIOLASE TECHNOLOGY, INC., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article THIRD of its
Restated Certificate of Incorporation, and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, its Board
of Directors has adopted the following resolution creating a series of its $.001
par value Preferred Stock designated as Series A 6% Redeemable Cumulative
Convertible Preferred Stock:
RESOLVED, that a series of the class of authorized $.001 par value
Preferred Stock of the Corporation be hereby created, and that the designation
and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:
Section 1. Designation and Amount.
The shares of such series shall be designated as "Series A 6% Redeemable
Cumulative Convertible Preferred Stock" (the "Series A Preferred Stock") and the
number of shares constituting such series shall be one hundred (100).
Section 2. Dividends and Distributions.
The holders of Series A Preferred Stock shall be entitled to receive out of
funds legally available therefor cash dividends at the quarterly rate of Seven
Hundred Fifty Dollars ($750) per share, and no more. Such dividends shall be
cumulative, shall accrue on each share of Series A Preferred Stock from the date
of issuance thereof, whether or not earned or declared by the Board of
Directors, and shall be payable, on the last business day of each calendar
quarter in each year (each such date being referred to herein as a "Quarterly
Dividend Accrual Date"), commencing December 31, 1996. Dividends payable on
shares of Series A Preferred Stock for any period less than a full calendar
quarter shall be computed on the basis of the actual number of days elapsed and
a ninety (90) day quarter.
<PAGE> 3
No dividends or other distributions shall be made with respect to the
Common Stock or any other stock of the Corporation ranking junior with respect
to the payment of dividends to the Series A Preferred Stock until cumulative
dividends on the Series A Preferred Stock for all past dividend periods shall
have been declared and paid or set aside for payment.
Section 3. Voting Rights.
Except as otherwise required by law, the holder of each share of Series A
Preferred Stock shall have one vote with respect to such share, and such votes
shall be counted together with all other shares of stock of the Corporation
having general voting power and not separately as a class.
Section 4. Reacquired Shares.
Any shares of the Series A Preferred Stock converted, redeemed, purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired promptly upon the acquisition thereof and upon their retirement shall
return to the status of authorized but unissued shares of $.001 par value
Preferred Stock.
Section 5. Liquidation, Dissolution or Winding Up.
In the event of any voluntary or involuntary liquidation, dissolution or
other winding up of the Corporation, subject to the prior preferences and other
rights of any stock ranking senior to the Series A Preferred Stock, but before
any distribution or payment shall be made to the holders of stock ranking junior
to the Series A Preferred Stock, the holders of the Series A Preferred Stock
shall be entitled to be paid with respect to each share of Series A Preferred
Stock the sum of (A) Fifty Thousand Dollars ($50,000) and (B) an amount equal to
the difference calculated by subtracting (i) all dividends paid on such share of
Series A Preferred Stock since the issuance of such share from (ii) six percent
(6%) per annum on Fifty Thousand Dollars ($50,000) for the period from the date
of issuance of such share of Series A Preferred Stock through the date on which
such liquidation, dissolution or other winding up of the Corporation is finally
determined and no more, and in particular no further payment shall be made in
respect of any dividends previously accrued or declared but not yet paid. Such
payment shall be made in cash or property taken at its fair value as determined
by the Board of Directors, or both, at the election of the Board of Directors.
If such payment shall
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<PAGE> 4
have been made to the holders of the Series A Preferred Stock of all amounts to
which such holders shall be entitled and if payment shall have been made in
full to the holders of any stock ranking senior to or on a parity with the
Series A Preferred Stock, the remaining assets and funds of the Corporation
shall be distributed among the holders of stock ranking junior to the Series A
Preferred Stock, according to their respective shares and priorities. If, upon
any such liquidation, dissolution or other winding up of the affairs of the
Corporation, the net assets of the Corporation distributable among the holders
of all outstanding shares of the Series A Preferred Stock and of any stock on a
parity therewith shall be insufficient to permit the payment in full to such
holders of the preferential amounts to which they are entitled, then the entire
net assets of the Corporation remaining after the distributions to holders of
any stock ranking senior to the Series A Preferred Stock of the full amounts to
which they may be entitled shall be distributed among the holders of the Series
A Preferred Stock and of any stock on a parity therewith, ratably in proportion
to the full amounts to which they would otherwise be respectively entitled.
Neither the consolidation or merger of the Corporation into or with another
corporation, nor the sale of all or substantially all of the assets of the
Corporation to another corporation, shall be deemed to be a liquidation,
dissolution or winding up of the affairs of the Corporation within the meaning
of this Section 5.
In the case of a proposed voluntary liquidation, dissolution or other
winding up of the Corporation, the Corporation shall mail at least thirty (30)
days before such voluntary liquidation, dissolution or other winding up of the
Corporation is finally determined a notice to each holder of record of shares of
Series A Preferred Stock, addressed to the holder at the address of such holder
appearing on the books of the Corporation or given by the holder to the
Corporation for the purpose of notice or, if no such address appears or is
given, at the place where the principal executive office of the Corporation is
located. Such notice shall include (i) a description of the proposed voluntary
liquidation, dissolution or other winding up of the Corporation and (ii) an
statement of the date on which a final determination with respect thereto is
anticipated.
Section 6. Conversion.
The Series A Preferred Stock shall be convertible into Common Stock as
follows:
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<PAGE> 5
(A) Optional Conversion. Subject to and upon compliance with the provisions
of this Section 6, the holder of any shares of Series A Preferred Stock shall
have the right at such holder's option, at any time or from time to time during
the first thirty (30) days following the initial issuance of shares of Series A
Preferred Stock but only during said thirty (30) day period, to convert any
share of Series A Preferred Stock into eighteen thousand one hundred eighty-two
(18,182) fully paid and nonassessable shares of Common Stock upon the terms
hereinafter set forth.
In addition, subject to and upon compliance with the provisions of this
Section 6 the holder of any shares of Series A Preferred Stock shall have the
right at such holder's option, at any time or from time to time on and after the
ninetieth (90th) day following the initial issuance of shares of Series A
Preferred Stock but not before the ninetieth (90th) day following such initial
issuance, to convert any shares of Series A Preferred Stock into fully paid and
nonassessable shares of Common Stock at the Conversion Price (as hereinafter
defined) in effect on the Conversion Date (as hereinafter defined) upon the
terms hereinafter set forth.
(B) Automatic Conversion. Each share of Series A Preferred Stock then
outstanding shall automatically be converted on the second (2nd) anniversary of
the initial issuance of shares of Series A Preferred Stock, without any further
act of the Corporation or the holders thereof, into fully paid and nonassessable
shares of Common Stock at the Conversion Price then in effect.
In addition, in the event (i) the Corporation has entered into a letter of
intent or agreement, conditional or unconditional, with one or more
broker-dealers with a view towards an underwritten public offering of Common
Stock or other securities of the Corporation pursuant to an effective
registration statement under the Securities Act of 1933, as amended, and (ii)
such letter of intent or agreement has not been terminated or suspended and
remains in force and effect, then the Corporation at the option of the Board of
Directors of the Corporation may effect the automatic conversion of all
outstanding shares of Series A Preferred Stock on the date that the Board of
Directors takes such action effecting automatic conversion. Upon the automatic
conversion of outstanding shares of Series A Preferred Stock, the Corporation
shall forthwith mail a notice to each holder of record of shares of Series A
Preferred Stock, addressed to the holder at the address of such holder appearing
on the books of the
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<PAGE> 6
Corporation or given by the holder to the Corporation for the purpose of
notice or, if no such address appears or is given, at the place where the
principal executive office of the Corporation is located. The notice shall
include (i) the class of shares automatically converted, (ii) the Conversion
Date on which the shares of Series A Preferred Stock were automatically
converted, (iii) the Conversion Price in effect on such Conversion Date and
(iv) the procedure to be followed to obtain the shares of Common Stock into
which such shares of Series A Preferred Stock have been automatically
converted.
(C) Conversion Price. Commencing on the ninetieth (90th) day following the
initial issuance of shares of Series A Preferred Stock, each share of Series A
Preferred Stock shall be convertible into a number of shares of Common Stock
equal to the quotient determined by dividing (i) the sum of (a) Fifty Thousand
Dollars ($50,000) and (b) an amount equal to the difference calculated by
subtracting (x) all dividends paid on the share of Series A Preferred Stock
being converted since the issuance of such share from (y) six percent (6%) per
annum on Fifty Thousand Dollars ($50,000) for the period from the date of
issuance of such share of Series A Preferred Stock through the Conversion Date
by (ii) the Conversion Price in effect on the Conversion Date. The "Conversion
Price" at which shares of Common Stock shall be so issuable upon conversion of
shares of Series A Preferred Stock shall be equal to eighty percent (80%) of the
average closing price of the Common Stock in the principal market in which it is
then traded, as determined by the Corporation's Board of Directors but if then
traded on a national securities exchange, the Nasdaq National Market System or
the Nasdaq SmallCap Market one of such markets must be determined to be such
principal market, for the five (5) trading days immediately preceding, but not
including, the Conversion Date; provided, however, that in no event shall the
Conversion Price either (a) exceed the one hundred thirty percent (130%) of the
average closing price of Common Stock in the principal market in which it is
then traded, as determined by the Corporation's Board of Directors, for the five
(5) trading days preceding, but not including, the date of the initial issuance
of shares of Series A Preferred Stock (the "Closing Average Price") or (b) be
less than the greater of (I) seventy percent (70%) of the Closing Average Price
and (II) Two Dollars ($2.00).
(D) Mechanics of Conversion. The holder of any shares of Series A Preferred
Stock may exercise the conversion right specified in Section 6(A) by
surrendering to the Corporation or any transfer agent of the Corporation for the
Series A
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<PAGE> 7
Preferred Stock the certificate or certificates for the shares to be converted,
accompanied by written notice, in a form designated by the Corporation and
available to such holder at the principal executive offices of the Corporation,
specifying the number of shares to be converted and providing representations
regarding compliance with applicable securities laws and regulations. Upon the
occurrence of an event specified in Section 6(B), the outstanding shares of
Series A Preferred Stock shall be converted automatically without any further
action by the Corporation or the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or
such transfer agent; provided that the Corporation shall not be obligated to
issue to any such holder certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing the shares of
Series A Preferred Stock deemed converted are delivered either to the
Corporation or such transfer agent. Conversion shall be deemed to have been
effected on the date when such written notice of an election to convert (in the
form designated by the Corporation) and certificates for the shares to be
converted are received by the Corporation or such transfer agent or on a date
specified in Section 6(B), as the case may be, and such date is referred
to herein as the "Conversion Date". As promptly as practicable thereafter (and
after surrender of the certificate or certificates representing the shares of
Series A Preferred Stock so being converted to the Corporation or such transfer
agent in the case of conversions pursuant to Section 6(B)), the Corporation
shall issue and deliver to or upon the written order of such holder a
certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled and a check or cash with respect to any
fractional interest in a share of Common Stock as provided in Section 6(E)
hereof. The person in whose name the certificate or certificates for Common
Stock are to be issued shall be deemed to have become a holder of record of
such Common Stock on the applicable Conversion Date. Upon conversion of only a
portion of the number of shares covered by a certificate representing shares of
Series A Preferred Stock surrendered for conversion (in the case of conversion
pursuant to Section 6(A) hereof), the Corporation shall issue and deliver to or
upon the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Series A Preferred Stock representing the unconverted
portion of the certificate so surrendered.
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<PAGE> 8
(E) Fractional Shares. No fractional shares of Common stock or scrip shall
be issued upon conversion of any shares of Series A Preferred Stock. If more
than one share of Series A Preferred Stock shall be surrendered for conversion
at any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series A Preferred Stock so surrendered. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series A Preferred Stock, the Corporation shall pay
a cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the Conversion Price.
(F) Conversion Adjustments. The number of shares of Common Stock issuable
upon conversion of shares of Series A Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall (a) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock; (b) subdivide
or reclassify the outstanding Common Stock into a greater number of
shares, or (c) combine or reclassify the outstanding Common Stock into a
smaller number of shares and such event shall have a record date during a
period over which the Conversion Price is being calculated, the closing price
of a share of Common Stock prior to such record date shall be proportionately
adjusted so that it applies to the number of shares of Common Stock which such
share would have represented had such record date occurred immediately prior to
the period over which the Conversion Price is being calculated.
(ii) In case of any consolidation with or merger of the
Corporation with or into another corporation, or in case of any sale, lease or
conveyance to another corporation of the assets of the Corporation as an
entirety or substantially as an entirety, each share of Series A Preferred
Stock shall, after the date of such consolidation, merger, sale, lease or
conveyance, be convertible into the number of shares of stock or other
securities or property (including cash) to which the Common Stock issuable (at
the time of such consolidation, merger, sale, lease or conveyance) upon
conversion of such share of Series A Preferred Stock would have been entitled
upon such consolidation, merger, sale, lease or conveyance; and in any such
case, if necessary, the provisions set forth herein with respect to the rights
and interests thereafter of the Series A Preferred Stock shall be appropriately
adjusted so as
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<PAGE> 9
to be applicable, as nearly as may reasonably be, to any shares of stock or
other securities or property thereafter deliverable on the conversion of the
shares of the Series A Preferred Stock.
(iii) All calculations under this Section 6(F) shall be made
to the nearest cent or to the nearest one hundredth (1/100) of a share, as the
case may be.
Section 7. Redemption.
(A) Conditions to Redemption. At any time on or after the one
hundred eightieth (180th) day following the initial issuance of shares
of Series A Preferred Stock, the shares of Series A Preferred Stock are subject
to redemption, out of funds legally available therefor, in whole or from time
to time in part, at the option of the Board of Directors of the Corporation.
(B) Redemption Price. The redemption price per share of Series
A Preferred Stock shall be the sum, payable in cash, of (A) Sixty Thousand
Dollars ($60,000) and (B) an amount equal to the difference calculated by
subtracting (i) all dividends paid on such share of Series A Preferred Stock
since the issuance of such share from (ii) six percent (6%) per annum on Fifty
Thousand Dollars ($50,000) for the period from the date of issuance of such
share of Series A Preferred Stock through the date of redemption and no more
(the "Redemption Price"), and in particular no further payment shall be made in
respect of any dividends previously declared but not yet paid.
(C) Selection of Shares for Partial Redemption. If only a
portion of the then outstanding shares of Series A Preferred Stock is to be
redeemed, the redemption shall be carried out prorata or, at the option of the
Board of Directors of the Corporation, the shares to be redeemed shall be
selected by lot.
(D) Mechanics of Redemption. Promptly following the
determination to redeem all or a portion of the outstanding shares of the
Series A Preferred Stock is made, the Corporation shall mail a notice of
redemption to each holder of record of shares of Series A Preferred Stock so to
be redeemed, addressed to the holder at the address of such holder appearing on
the books of the Corporation or given by the holder to the Corporation for the
purpose of notice or, if no such address appears or is given, at the place
where the principal executive office of the Corporation is locate. Such notice
shall be
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<PAGE> 10
given not later than twenty-eight (28) days prior to the date fixed for
redemption. The notice shall include (i) the class of shares or the part of
the class of shares to be redeemed, (ii) the date fixed for redemption, (iii)
the Redemption Price or the formula for determining the Redemption Price, and
(iv) the place at which the shareholders may obtain payment of the Redemption
Price upon surrender of their share certificates.
On the date fixed for the redemption, the shares of Series A Preferred
Stock called for redemption shall no longer be outstanding, and the holders
thereof shall cease to be shareholders of the Corporation with respect to the
shares so redeemed on the date fixed for redemption and shall be entitled
thereafter only to receive the Redemption Price without interest upon surrender
of the share certificate or certificates representing the shares so redeemed.
Section 8. Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Series A
Preferred Stock shall not have any preferences or relative, participating,
optional or other special rights, other than those specifically set forth in
this resolution (as such resolution may be amended from time to time) and in the
Corporation's Restated Certificate of Incorporation. The shares of Series A
Preferred Stock shall have no preemptive or subscription rights.
IN WITNESS WHEREOF, BIOLASE TECHNOLOGY, INC. has caused this CERTIFICATE OF
DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A 6% REDEEMABLE CUMULATIVE
CONVERTIBLE PREFERRED STOCK to be duly executed by its Vice President and
Secretary, and has caused its corporate seal to be affixed thereto this 20th day
of September, 1996.
BIOLASE TECHNOLOGY, INC.
By: /s/ Stephen R. Tartamella
--------------------------
Stephen R. Tartamella
Vice President & Secretary
-9-
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AT SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH
PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S QUARTERLY REPORT ON FORM
10-QSB AT AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996.
</LEGEND>
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 124,510
<SECURITIES> 0
<RECEIVABLES> 85,021
<ALLOWANCES> 52,968
<INVENTORY> 427,852
<CURRENT-ASSETS> 743,470
<PP&E> 1,214,457
<DEPRECIATION> 1,002,204
<TOTAL-ASSETS> 1,004,804
<CURRENT-LIABILITIES> 716,644
<BONDS> 0
0
0
<COMMON> 11,321
<OTHER-SE> 276,839
<TOTAL-LIABILITY-AND-EQUITY> 1,004,804
<SALES> 436,850
<TOTAL-REVENUES> 436,850
<CGS> 390,832
<TOTAL-COSTS> 390,832
<OTHER-EXPENSES> 666,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,023
<INCOME-PRETAX> (1,675,968)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,675,968)
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<EXTRAORDINARY> 0
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<NET-INCOME> (1,675,968)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
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