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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 [Fee Required] For the fiscal year ended December 31, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required] For the transition period from
_______________ to _______________
Commission File Number 0-19627
BIOLASE TECHNOLOGY, INC.
(Name of small business issuer in its charter)
DELAWARE 87-0442441
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
981 CALLE AMANECER, SAN CLEMENTE, CALIFORNIA 92673
(Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER: (714) 361-1200
--------------------------------
Securities registered under Section 12(b) of the Act:
NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of class)
--------------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities and 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Revenues of the issuer for the fiscal year ended December 31, 1996 were
$691,829.
As of March 14, 1997, the aggregate market value of the voting stock
held by non-affiliates of the issuer was $46,995,670.
As of March 14, 1997, the issuer had 13,392,449 shares of common stock
outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(CHECK ONE): Yes No X
--- ---
The issuer hereby incorporates by reference, into Part III of this Form
10-KSB, its definitive proxy statement to be filed with the Commission not
later than 120 days after the end of the fiscal year covered by this Form
10-KSB.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Societe Endo Technic, S.A., ("SET") was formed in Marseilles, France in
1984 to develop and market various endodontic and laser products. In 1986, SET
founded a Massachusetts corporation, Endo Technic Corporation, as its U.S. sales
subsidiary. SET corporate headquarters were moved to the United States in 1987,
and all of the assets of Endo Technic Corporation were transferred to another
wholly owned California subsidiary of SET, Societe Endo Technic, Inc. In July
1987, 77% of the capital stock of SET was acquired by Pamplona Capital Corp., a
Delaware corporation, originally organized as a "blind pool-blank check company"
to raise capital and seek one or more acquisitions. Pamplona Capital Corp.
changed its name several times until adopting in 1994 BioLase Technology, Inc.
("BioLase" and together with its consolidated subsidiaries, the "Company"). The
Company's foreign subsidiary, SET, dissolved in March 1994. The Company acquired
certain assets of SET in the dissolution, including inventory, fixed assets,
trademarks, French medical device regulatory approvals and all of the
outstanding stock of Societe Endo Technic, Inc.
Until the end of fiscal year 1991, the Company's principal products were
the Canal Finder System(TM), a semi-automated endodontic (root canal) handpiece,
and other endodontic products. In August 1991, the Company completed development
of the Laser-35(TM), a 25-Watt, Nd:YAG (neodymium: yttrium aluminum garnet)
dental laser system, and in February 1992, commenced the first deliveries of the
Laser-35(TM) manufactured by the Company. In the first quarter of 1993, the
Company completed development of a second generation of Nd:YAG dental laser
systems, the Nylad(TM) series with 6, 12 or 20-Watt systems, and commenced
shipments in June 1993. In 1993, the Company commenced development of Elmer(TM),
a 6-Watt, Er,Cr:YSGG (erbium, chromium: yttrium scandium gallium garnet)
specialized laser which incorporated proprietary technology that served as the
forerunner for the Company's new hydro-kinetic tissue cutting system, the
Millennium(TM). In 1995, the Company commenced design of its Millennium(TM)
system, which incorporates its patent-pending hydro-kinetic technology. This
technology incorporates the use of electromagnetic energy laser pulses to
rapidly energize and transform small atomized water droplets into smaller,
high-speed cutting particles. The design of the Millennium(TM) was completed in
late 1996 at which point the Company commenced its marketing efforts in Europe.
In 1994, the United States Patent Office granted the Company a patent
covering a portable, hand-held laser tooth brushing instrument currently under
the final stages of development, with an anticipated market introduction in
mid-1997. (The preceding sentence constitutes a forward looking statement
[hereinafter identified as "FLS"]. Each of the forward looking statements in
this Annual Report on Form 10-KSB 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 1 under "Forward Looking
Statements".) In 1995, BioLase released LaserSpray(TM), a laser accessory which
allows the Company to market its proprietary Target Tissue Cooling System(TM)
(TTCS(TM)) technology to users of laser systems not manufactured by the Company.
More recently, the Company commenced development of FlavorFlow(TM), a system
which sanitizes and alters the flavor and scent of fluids typically administered
during medical and dental treatments.
The Company is developing a group of biomaterials under the trade names
PerioFil(TM), PerioSeal(TM), LaserBond(TM) and EndoPlas(TM) for use in
periodontics, endodontics and general dentistry; release of these biomaterials
to the market is anticipated in 1998. (FLS)
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LASER BACKGROUND
The term "laser" is an acronym for Light Amplification by Stimulated
Emission of Radiation. A laser is an apparatus that stimulates the atoms in a
core material (such as a gas or crystal) to emit packets of light, then
amplifying and focusing the light in a single beam. Laser light, which consists
of a single wavelength (color) of light, differs from light emitted from an
ordinary light bulb as a result of greater concentration and intensity. Lasers
are typically classified by the element or compound that emits light when
energized, such as carbon dioxide (CO2), neodymium: yttrium aluminum garnet
(Nd:YAG), argon, ruby and erbium.
Lasers were first developed for research, industrial and military uses
and, more recently, have been adapted for many medical and dental applications.
The benefits of lasers in medical and dental applications are generally believed
to include reduced pain, reduced infection, more rapid healing, reduced
bleeding, reduced scarring, increased precision and time-effective procedures.
Lasers are also used in a wide variety of medical fields including dermatology,
plastic surgery, ophthalmology, gynecology, urology, otolaryngology (ear, nose
and throat), gastrointestinal tract ailments, and general surgery.
Medical and dental lasers are highly specialized tools with a specific
system generally designed for a particular application or set of applications.
The most important factors in developing a laser system for a specific
application are the wavelength of the laser, its pulse length, energy per pulse,
the method of delivery of the laser to the tissue, and the method, if any, of
cooling the tissue. In developing its laser systems for a variety of medical and
dental applications, BioLase addresses these and other factors.
A particular complication that has required attention in the development
of lasers for medical and dental applications is the temperature sensitivity of
vital tissue, bone, tooth enamel and dentin. Typically, temperature increases in
excess of 5 degrees centigrade have been demonstrated to cause irreversible
deterioration in vital tissue. BioLase's patented Target Tissue Cooling
System(TM) (TTCS(TM)), incorporated into all of its laser systems, is intended
to enable the user to apply focused energy levels on hard tissue (i.e. bone,
enamel, dentin), and avoid damage to surrounding soft tissue by cooling with an
air-water spray the area contiguous to the region being lased. TTCS(TM) is also
available as an accessory to be installed on lasers manufactured by other
companies.
BioLase has recently developed its Hydro-Kinetic Tissue Cutting System(TM)
which involves a new use of laser technology. The hydro-kinetic technology
combines the Company's TTCS(TM) with its erbium laser system to generate
electromagnetic energy pulses that rapidly energize and transform atomized water
droplets into microscopic high-speed water particles capable of precisely
removing hard tissue, such as tooth, bone and cartilage at very high speeds.
MEDICAL AND DENTAL LASER PRODUCTS
Millennium(TM) -- Mobile Floor System. The Millennium(TM) (19"H x 24"W x
18"D) consists of a flexible fiber-optic delivery system and mobile floor
hydro-kinetic tissue cutting system. The system contains an erbium laser, power
supply, internal cooling system, control panel and Hydro-Kinetic Tissue Cutting
System(TM) modules. The BioLase Hydro-Kinetic Tissue Cutting System(TM) uses
electromagnetic energy laser pulses to rapidly energize and transform small
atomized water droplets into smaller, high-speed cutting particles. The
Hydro-Kinetic Tissue Cutting System(TM) employs safe, biocompatible water
particles as its cutting agent. Through the unique water usage of the
Hydro-Kinetic Tissue Cutting System(TM), the Millennium(TM) provides the
clinician with an instrument capable of cutting both hard and soft human tissue.
BioLase commenced marketing the Millennium(TM) to international markets in the
second half of 1996, with
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initial shipments to Germany under a three-year purchase commitment scheduled
for the second quarter of 1997. (FLS)
LaserBrush(TM). In 1996, BioLase commenced the development of a laser
based toothbrush that utilizes the Company's patented technology, called the
LaserBrush(TM), for the consumer market. The LaserBrush(TM), to be used with
specially formulated toothpastes, is designed to bring laser based technology
for cleaning and whitening teeth into the consumer's home. (FLS) The
LaserBrush(TM) is about the size of other motorized tooth brushing instruments,
but utilizes optical energy and specifically developed toothpaste compounds to
illuminate and identify bacteria, neutralize certain bacteria, clean and whiten
teeth. (FLS) The Company's development of LaserBrush(TM) is in the final stages
with a launch of the product anticipated in mid-1997. (FLS) The Company's
marketing strategy will focus on the selective replacement of the traditional
toothbrush with the LaserBrush(TM) at a price competitive with other motorized
toothbrushes. (FLS)
LaserSpray(TM). LaserSpray(TM) is a laser accessory which allows BioLase
to market its proprietary Target Tissue Cooling System(TM) and delivery system
to owners of lasers manufactured by other companies. The Target Tissue Cooling
System(TM) has applications for all medical and dental lasers. The
LaserSpray(TM) device allows the practitioner to deliver a coolant spray of air
and water to tissue sites during surgical interventions. Thermal effects
resulting from high temperatures can be significantly reduced when the
LaserSpray(TM) cooling system is used during application of laser energy.
Nylad(TM) Series and Laser-35(TM) -- Mobile Floor Systems. The Nylad
6(TM), Nylad 12(TM) and Nylad 20(TM) (24"H x 18"W x 23"D) consisted of mobile
floor systems, each containing a Nd:YAG 6, 12 or 20-Watt laser, appropriate
power supply and cooling system, a computerized console to regulate intensity
and pulse characteristics, and the TTCS(TM). The Laser-35(TM) (42"H x 16"W x
22"D) consisted of a mobile floor system containing a Nd:YAG (neodymium: yttrium
aluminum garnet) 25-Watt laser, appropriate power supply and cooling system, a
computerized console to regulate intensity and pulse characteristics and the
TTCS(TM). The Company has discontinued the manufacturing of its Nylad(TM) series
and its Laser-35(TM), though it continues to support those systems that exist in
the market, both domestic and abroad, with the fabrication and distribution of
replacement parts that are utilized by its service department, its distributors'
service departments and other technically qualified service affiliates.
The Company has patented and patent-pending technology related to the
Millennium(TM) series, Laser-35(TM) and Nylad(TM) series systems (hereinafter
referred to collectively as the "BioLase laser systems"), including the U.S.
patent issued on the TTCS(TM), and additional U.S. and foreign patents and
patent-pending technologies related to LaserSpray(TM), LaserBrush(TM) and
FlavorFlow(TM).
The BioLase laser systems are designed to be used in medical and dental
procedures, including those which involve the removal of bone, cementum or
dental root material. Using conventional methods, the cutting of hard
mineralized tissue normally involves mechanical removal of material utilizing
files and hand drills which can result in trauma to surrounding tissue. The
BioLase laser systems are designed to cut mineralized surfaces without trauma to
the surrounding tissue, and in less time than traditional methods.
Any marketing of the BioLase laser systems in the United States for use in
hard-tissue applications would require regulatory approval. (FLS) No assurances
can be given that any such regulatory approval will be granted.
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The Company believes that soft tissue such as the gums or tooth pulp may
be cut more cleanly with laser systems than by using conventional cutting tools.
Properly executed laser-cut tissue generally has clean, cauterized cuts without
microscopic tearing of cell structure, as is normally experienced with
conventional cutting tools.
The BioLase laser systems are also useful in the removal of cysts and
granulomas, which are types of infections found in the gums, or inside or under
the tooth. Such infections can be difficult to remove by conventional means, and
often require removal of the tooth. The BioLase laser systems are designed to
accept a narrow optical fiber that can be inserted through the root canal,
allowing the cyst or granuloma to be removed with a high degree of sterility and
little trauma to the surrounding tissue.
The Company's Millennium(TM) series, utilizing its patent-pending
hydro-kinetic technology, has a much broader spectrum of applications than
conventional laser systems. Other medical disciplines presently being explored
for utilization of this proprietary technology include ophthalmology,
dermatology and plastic/cosmetic surgery. (FLS) Any marketing of the
Millennium(TM) series in the United States for use in ophthalmology,
dermatological or plastic/cosmetic surgery applications would require regulatory
approval. (FLS) No assurances can be given that any such regulatory approval
will be granted.
During the three years ended December 31, 1996, 1995, and 1994, the
Company expended approximately $984,000, $927,000 and $1,351,000, respectively,
on engineering and development. Such expenditures were directed to its
LaserBrush(TM) in 1996, its hydro-kinetic technology in 1996, 1995 and 1994, and
other laser-related products in all three years.
The Company anticipates focusing its strategic development for the near
term on dental, endodontic and dermatological areas, but believes that its
patented and patent pending technologies have significant medical uses outside
these areas as well. (FLS)
FLAVORFLOW(TM) FLUID CONDITIONING SYSTEM
As a result of recently proposed medical fluid mandates of the U.S.
Federal Government, BioLase has been developing the FlavorFlow(TM) fluid
conditioning system, a system utilizing patent-pending technology that sanitizes
and alters the flavor and scent of fluids typically administered and the scent
of air present during medical and dental treatments. FlavorFlow(TM) is designed
to overcome the foul tastes and odors which patients typically associate with
pain and discomfort and which contribute to negative clinical experiences. When
the FlavorFlow(TM) system is utilized to sterilize fluids being delivered, the
possibility of parasitic (such as potentially lethal cryptosporidium) and
bacterial infection being introduced through the fluids used during medical and
dental interventions would be significantly reduced. The Company anticipates
that the FlavorFlow(TM) fluid conditioning system will be available for sale in
1997. (FLS)
CANAL FINDER SYSTEM
Endodontic procedures (root canals) involve removing pulp and dentin
material from the root of the tooth, typically by drilling through the crown of
the tooth and inserting flexible micro-files in the tooth canal. The
practitioner must file the inside cavity, with ever-increasing size
instrumentation, to enlarge the canal and remove debris. Since most human tooth
canals are highly curved and conventional files are flat and inflexible, they
tend to remove excess dentin material from the inside of curves, while leaving
the outside of curves unworked. In addition, conventional files tend to push
debris deeper into the canal, rather than pulling out debris, which can lead to
the growth of a cyst or granuloma.
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The Company has developed its patented Canal Finder System(TM) ("CFS")
designed to be used in endodontic root-canal procedures for locating and shaping
root canals. The CFS handpiece embodies a patented automated technique that is
geared to impart lengthwise vibratory motion to the file, with no rotation.
There is a clutch action that allows the file to stop working when too great a
resistance is met, so that if a curve is not being negotiated the file will not
create its own canal. The clutch action and the non-rotational movement of the
file are also designed to minimize the damage resulting from files breaking in
the root canal, which often requires the tooth to be removed. The proprietary
CFS files are engineered to have a maximized cutting angle on the outside of a
curve, and a minimized cutting angle on the inside of a curve, to compensate for
a file's natural tendency to straighten canals. The cutting-tooth angles are
also engineered to cut only on withdrawal, and to migrate debris up and out of
the tooth, rather than to compact debris at the base of the canal. CFS files are
rounded at the tip to enhance the file's ability to follow a tightly curved
canal without forming a ledge or groove. Management believes that the principal
advantages of the CFS are, first, that the system is designed to adapt
automatically to the resistance placed on the file and, second, the CFS allows
root canals to be done substantially faster than other traditional techniques.
The CFS allows the dentist to stock fewer instruments, since the CFS can
complete a given procedure using fewer files and can ease filing canals. The
Company believes that CFS shapes and cleans root canals better than conventional
techniques, thus reducing tooth trauma and assuring a more successful root-canal
procedure with less risk of infection.
OTHER ENDODONTIC PRODUCTS
The Company offers a full range of proprietary and non-proprietary
endodontic products used by dentists and endodontic specialists. Proprietary
products include an irrigation/washing device, reamers, filling compounds, an
endodontic storage and sterilization system, and patented filing instruments.
The Company also distributes a variety of non-proprietary products (such as
gutta percha and paper points) to provide a full endodontic product line for its
dental and endodontic customers.
By offering a wide assortment of products to the dentist and endodontist,
management believes it is better positioned to cross-sell products, increase its
sales per sales call, and provide a full-service image to its customers. The
Company has an ongoing development effort, and may develop additional products
for which patents may be applied. (FLS)
BIOMATERIALS
Biomaterials are natural or synthetic materials that are compatible with
living tissue and are suitable for surgical implanting into the human body. The
Company's biomaterials, under the trade names PerioFil(TM), PerioSeal(TM),
EndoPlas(TM) and LaserBond(TM), for use in endodontics, periodontics and general
dentistry, are currently in the product development stage. PerioFil(TM) and
PerioSeal(TM) are being developed to permit bone regeneration and tissue welding
without interference of soft tissue and may permit the dentist to avoid the
second surgical intervention typically associated with certain other
biomaterials. (FLS)
PerioFil(TM) is a thin, transparent film of synthetic collagen and other
biocompatible compounds. PerioSeal(TM) is a thin, semi-transparent synthetic
membrane of collagen, hydroxyapatite and other biocompatible compounds. Both
PerioFil(TM) and PerioSeal(TM) are being developed to provide protection and
comfort for dentin and bone from the migration of epithelium following
periodontal surgery as it slowly dissolves in the human body. (FLS)
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EndoPlas(TM) is an endodontic enhancing biomaterial that, when energized
by certain laser wavelengths, enlarges the root canal. The benefits achieved
when utilizing EndoPlas(TM) include reduced trauma to the canal wall, increased
patient comfort and reduced chair time compared to conventional root canal
therapy. The reduction in trauma to the wall and surrounding tissue leads to
fewer post-operative complications as well.
LaserBond(TM) is a patented paste formulation that can be used to seal
pits, fissures and cracks that develop in the tooth structure. When activated
with the Laser-35(TM) and Nylad(TM) series laser systems, LaserBond(TM) fuses to
the tooth structure and acts as a filling material. The Company's patents cover
any such filling materials involving hydroxyapatite, which constitutes 90% of
dental enamel and bone tissue. The hydroxyapatite-based filling material can be
successfully laser-fused with the natural hydroxyapatite in the enamel and
dentin to form a solid crystalline bond and thus become an integral part of the
tooth.
Upon completion of the Company's testing, certain formulations of the
biomaterials will be marketed. The Company intends to submit applications to the
Food and Drug Administration ("FDA") for clearance to market these biomaterials
in the United States; however, no applications have been submitted to date. The
approval process can be expensive and time-consuming, and no assurance can be
given that any agency will grant approval for the sale of the Company's products
for routine clinical applications, or that the length of time the approval
process will require will not be extensive. (FLS) See "Description of Business -
Government Regulation."
MANUFACTURING
The Company, as a medical device manufacturer, is required by the FDA to
comply with Good Manufacturing Practice ("GMP") regulations. As a result, the
Company's manufacturing processes must meet certain standards regarding quality
assurance and documentation. See "Description of Business - Government
Regulation".
The Company fabricates certain proprietary components of the
Millennium(TM) series, Laser-35(TM), and Nylad(TM) series laser systems, and
inspects, tests and packages all components prior to inclusion within a finished
product or shipment as a replacement part. By designing and manufacturing its
proprietary products, the Company believes it can better control quality, limit
outside access to its proprietary technology, control costs and manage
manufacturing process changes more efficient and effectively.
Each laser system is assembled and tested by trained production personnel.
After assembly of a laser is complete, it undergoes pre-shipment testing,
including extended periods of continuous operation.
The Company contracts with various non-affiliated companies to manufacture
certain of its laser componentry and other non-laser products under private
label, according to the Company's specifications. At present, all laser and
non-laser products manufactured by third parties are sent to the Company's
headquarters in San Clemente, California for quality control, final assembly if
necessary, and shipment to customers or distributors.
Approximately 95% of the Company's non-laser products are manufactured in
the United States, and the Company has identified multiple suppliers for most
all of its components. A change in certain laser system componentry, however,
would require a new approval by a qualified medical device testing body and
could impair the Company's ability to distribute its systems in many European
countries requiring such an approval.
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Product repairs are currently performed by the Company's distributors and
technically qualified service affiliates overseas and by Company personnel and
technically qualified service affiliates in the United States.
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DENTISTRY
There are approximately 152,000 dentists in active practice in the United
States, and an additional 400,000 dentists in other countries where the Company
markets its products. According to U.S. government studies, as a result of
fluoridation of water and toothpaste and improved dental care, the incidence of
dental cavities decreased by 50% from 1960 to 1980. However, industry analysts
believe that, as the U.S. population grows and ages and more natural teeth are
retained, the demand for dental services will increase.
The practice of dentistry includes preventative restoration dentistry, as
well as subspecialties including endodontics (root canal procedures),
periodontics (treatment of gum disease), prosthodontics (replacement of teeth),
oral surgery and orthodontics. The Millennium(TM) series, Laser-35(TM) and
Nylad(TM) series, when coupled with their optical fiber contact handpieces, can
be used in a variety of areas such as the root canal or the periodontal pocket.
The Millennium(TM) series, Laser-35(TM) and Nylad(TM) series are believed by the
Company to be particularly suited for use in endodontics and periodontics, as
well as general dentistry. See "Description of Business - Government Regulation"
regarding FDA clearance requirements for medical devices.
Plaque and Periodontal Disease. Plaque is a sticky, colorless film of
bacteria that forms on teeth. If not removed regularly, it can cause cavities or
gum (periodontal) disease. Most adults have periodontal disease, which can exist
without symptoms for years. When plaque is allowed to build up in the crevice
between tooth and gum, it eventually separates the gum from the tooth root. As
the gum pulls away, the bone underneath deteriorates. The resulting
periodontitis causes tooth loss in 70% of all adults, according to the American
Academy of Periodontology.
When plaque hardens, it becomes tartar, a rough, porous material that can
be removed only by professional cleaning. Although tartar itself is not believed
to cause periodontal disease, the presence of tartar makes plaque harder to
remove. The Millennium(TM) series, Laser-35(TM) and Nylad(TM) series laser
systems are designed to assist in the removal of both plaque and tartar as well
as inflammatory tissue associated with periodontal disease. See "Description of
Business - Government Regulation" regarding FDA clearance requirements for
medical devices.
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Root Canals. Root canals are often necessary when decay has penetrated to
the pulp of the tooth (the tissue in the center of the tooth containing nerves
and blood vessels) and causes infection. The inflammation, in turn, causes
swelling, which strangles the pulp by cutting off the blood supply, thus killing
the tissue. Since a dead nerve usually becomes abscessed, spreading infection to
nerves in outer coverings or roots, the removal of the nerve (a root canal) is
the only way to prevent serious side effects (swelling, pain, etc.)
and save the tooth.
Conventional treatment of root canals typically requires three
appointments with the dentist, during which the dentist, working through an
opening in the tooth's crown, sterilizes and packs the pulp chamber and root
canals with molded fillings. If a tooth is badly infected, the tooth may be left
open for a day to drain. Time between appointments can range from a day to two
to three weeks, depending on scheduling and the severity of problems. Root
canals typically cost $200 to $850 per tooth (depending on the number of canals
in the tooth) for the procedure itself, plus x-rays and other costs, according
to recent dental surveys, but are less expensive than tooth removal and
replacement. Clinical studies suggest that 25% of conventional root canals
become re-infected within 6 to 24 months of the root-canal procedure, resulting
in having to reopen or remove the tooth. Since lasers have been shown in
clinical studies to reduce bacteria levels on the surface of lased tissue, the
use of a laser to prepare a root canal can, in management's estimation, allow
root-canal procedures to be done with fewer visits and reduced risk of
subsequent infection. See "Description of Business - Government Regulation"
regarding FDA clearance requirements for medical devices.
MARKETING
The Company markets its laser products through distributors throughout the
world and markets its endodontic product line via telemarketing in the United
States and through distributors in the international market. The Company
currently distributes its products in the United States, Europe, Middle East and
Far East and is actively working to expand its worldwide network.
The Company seeks third-party endorsements from respected physicians,
dentists, specialists, professional associations and universities. By inviting
selected entities to conduct independent evaluations, the Company believes that
those entities will become influential independent supporters of the Company's
products. (FLS) Management believes that the perceived benefits of the Company's
products to dentists, physicians and patients will result in positive
word-of-mouth publicity for the Company. (FLS)
The Company attends regional and national trade shows and sponsors
seminars to promote its Millennium(TM) series, as well as its other products.
Health professionals often participate in seminars and in some regions are
required to engage in continuing certified education regarding advancements in
the dental and medical fields. Management believes that establishing lasers as a
competitive marketing advantage for dentists and physicians will be important in
creating substantial sales growth. (FLS)
The Company's long-term marketing strategy is based on the belief that the
consuming public will come to demand the use of laser and hydro-kinetic
technologies in medical and dental treatments. (FLS) The public is becoming
increasingly aware of the benefits of lasers in dental, ophthalmological,
gynecological, dermatological, cosmetic and general surgical applications. (FLS)
The Company believes that the consuming public will be a key factor in
increasing demand for laser and hydro-kinetic technologies within the medical
and dental professions. (FLS)
The Company expects to commence marketing of its LaserBrush(TM) and
FlavorFlow(TM) products in 1997. (FLS) Distribution of the LaserBrush(TM) will
include direct marketing through the
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use of infomercials scheduled for release in mid-1997, while the Company intends
to market its FlavorFlow(TM) through major catalog houses in the United States
and through medical and dental distributors internationally. (FLS)
At present, the Company maintains adequate inventories to supply current
orders of its laser and non-laser products, and no significant amount of backlog
exists for such products.
CUSTOMERS
The Company's customers include distributors, dentists, medical doctors
and hospitals. With the introduction of the Company's LaserBrush(TM) scheduled
for mid-1997, the Company's customer base will consist of consumers as well.
During fiscal 1996, Dental-Fachhandel, the Company's previous German
distributor, accounted for approximately 20% of the Company's sales. Two
distributors, Dental-Fachhandel and Graham Field Asia Co. Ltd., accounted for
approximately 41% and 17%, respectively, of the Company's sales during fiscal
1995. During fiscal 1994, two distributors, Letec, GmbH and Flagship Medical,
Inc. accounted for approximately 43% and 12%, respectively, of the Company's
sales. No other customers accounted for more than 10% of the Company's sales
in 1996, 1995 or 1994.
COMPETITION
The medical and dental laser marketplace is currently extremely
competitive, with several wavelengths competing for acceptance and a number of
manufacturers competing for sales to that segment of the health-care community
which is positioned to purchase laser products. In the past, the Company's
principal competitors have been American Dental Technology, Inc., a manufacturer
of a Nd:YAG laser, Sunrise Technologies, Inc., a manufacturer of a series of
Nd:YAG lasers and a holmium laser, and Luxar Corporation, the manufacturers of a
line of CO[INFERIOR 2] lasers. Several companies, such as HGM, Inc. and Ion
Laser Technology, Inc., manufacture Argon lasers adapted from the industrial
field, and other companies, including KaVo, Inc. and Premier Laser Systems, have
developed erbium lasers. A number of the Company's competitors have
substantially greater financial resources and engineering, development,
manufacturing and marketing capabilities.
The Company is not aware of any medical or dental laser product that can
cut through bone, enamel and dentin as effectively as Millennium(TM) series, or
that can be used efficiently on a wide range of applications. BioLase laser
systems may be utilized in over 80% of existing dental procedures such as root
canals, gingival surgery and tooth bonding. The Company believes that a wide
range of applications is essential to provide a sufficient cost justification to
the physician or dentist to generate product demand. (FLS) The Company believes
that its patent protection, and pending patent protection, should provide a
competitive advantage to the Company over the next several years. (FLS) However,
there can be no assurance that technology superior to that of the Company will
not be developed or that the Company's patent and patent-pending protection will
be upheld.
Besides medical and dental laser competition, the BioLase laser systems
compete with conventional non-laser methodologies. These traditional methods
have been proven and tested, require no special education for established
physicians and dentists, and require less capital investment than the BioLase
laser systems.
GOVERNMENT REGULATION
The Company's products are subject to significant government regulation in
the United States and other countries. To clinically test, manufacture and
market products for human
11
<PAGE> 12
diagnostic and therapeutic use, the Company must comply with mandatory
regulations and safety standards established by the FDA and comparable state and
foreign regulatory agencies. Typically, products must meet regulatory standards
as safe and effective for their intended use prior to being marketed for human
applications. The clearance process is expensive and time consuming, and no
assurance can be given that any agency will grant clearance for the sale of the
Company's products for routine clinical applications, or that the length of time
the process will require will not be extensive.
There are two principal methods by which FDA regulated devices may be
marketed in the United States. One method is under Section 510(k) of the Food,
Drug and Cosmetics Act where applicants must demonstrate that the device for
which clearance is sought is substantially equivalent to a device marketed in
interstate commerce prior to May 28, 1976. The FDA's stated intention is to
review 510(k)s as quickly as possible, generally within 90 days; however, the
complexity of a submission or a requirement for additional information will
typically extend the review period beyond 90 days. Domestic marketing of the
product must be deferred until written clearance is received from the FDA. In
some instances, an Investigational Device Exemption ("IDE") is required for
clinical trials for a 510(k) notification.
On May 9, 1991, the FDA granted the Company clearance to market its
Laser-35(TM) for soft tissue cutting. On July 28, 1992, the Nylad(TM) series
lasers also received clearance by the FDA for soft tissue cutting. The Company
also received clearance from the FDA for its LaserSpray(TM) tissue cooling
system in 1995. The Company has received clearance to market its erbium laser
technology for certain soft tissue cutting applications and is actively pursuing
clearance to market its Hydro-Kinetic Tissue Cutting System (the
"Millennium(TM)" series) for certain applications within the dental,
dermatological and orthopedic fields of medicine.
The alternative method by which the FDA will allow regulated devices into
commercial distribution in the United States is under a Pre-Market Approval
("PMA"). A PMA application is required for a Class III medical device that does
not qualify for consideration under Section 510(k). The review period for a PMA
application is fixed at 180 days, but the FDA typically takes much longer to
complete its review. Currently, the Company does not have PMA applications
pending for any of its products.
The FDA typically requires clinical testing to determine safety and
efficacy of the Company's laser systems for hard tissue applications. To conduct
human clinical testing, typically the FDA must approve an Investigational Device
Exemption ("IDE"). The Company received its first IDE in 1992 to conduct a
multicenter study for an apicoectomy (cutting of the tooth root) procedure; a
second IDE was approved on June 10, 1993 for a multicenter study for a dental
cleaning and scaling procedure, and a third IDE was approved on August 27, 1993
for a multicenter study for root canals. The Company abandoned the apicoectomy
IDE in 1996 and is uncertain as to whether it will amend its root canal IDE or
abandon the study altogether. (FLS)
The Company has recently commenced clinical studies in the U.S. related to
certain hard tissue applications utilizing its hydro-kinetic technology in its
attempt to obtain clearance from the FDA to market its Millennium(TM). During
1996, it successfully completed clinical studies in Germany for both soft and
hard tissue applications resulting in its obtaining clearance to market its
Millennium(TM).
The FDA also imposes various requirements on manufacturers and sellers of
products it regulates under its jurisdiction, such as labeling, manufacturing
practices, record keeping and reporting. The FDA also may require post-marketing
practices, record keeping and reporting requirements. There can be no assurance
that the appropriate approvals from the FDA will be granted, that the process to
obtain such approvals will not be expensive or lengthy, or that the
12
<PAGE> 13
Company will have sufficient funds to pursue such approvals. The failure to
receive requisite approvals for the Company's products or processes, when and if
developed, or significant delays in obtaining such approvals, would prevent the
Company from commercializing its products as anticipated and could have a
materially adverse effect on the business of the Company. (FLS)
The Company is also subject to regulation under the Radiation Control for
Health and Safety Act (the "Safety Act") administered by the National Center for
Devices and Radiological Health ("CDRH") of the FDA. These regulations require a
laser manufacturer to file new product and annual reports, to maintain quality
control, product testing and sales records, to distribute appropriate operation
manuals, to incorporate certain design and operating features in lasers sold to
end-users and to certify and label each laser sold to end-users as one of four
classes of lasers (based on the level of radiation from the laser). In addition,
various warning labels must be affixed to the product and certain protective
devices must be installed, depending upon the class of product. Under the Safety
Act, the Company is also required to register with the FDA as a medical device
manufacturer and is subject to inspection on a routine basis by the FDA for
compliance with Good Manufacturing Practice ("GMP") regulations. The GMP
regulations impose certain procedural and documentation requirements upon the
Company relevant to its manufacturing, testing and quality control activities.
The CDRH is empowered to seek fines and other remedies for violations of these
regulatory requirements. The Company believes that it is currently in
substantial compliance with these regulations.
Various state dental boards are considering the adoption of restrictions
on the use of lasers by dental hygienists. In addition, dental boards in
California, Maryland and Ohio are considering educational regulations regarding
the use of dental lasers. The scope of these educational regulations is not yet
known and, depending on final requirements, could have either a favorable or
adverse effect on sales of BioLase series of laser systems. Substantial
restrictions on the use of lasers by dental hygienists will adversely effect the
sale of BioLase laser systems within the dental field of medicine.
Foreign sales of the Company's laser systems are subject to the regulatory
requirements of the recipient country or, if applicable, the harmonized
standards of the European Community. These vary widely among the countries and
may include technical approvals, such as electrical safety, as well as the
demonstration of clinical efficacy. The Company is currently working to meet
foreign country regulatory requirements for certain of its products and there
can be no assurance that additional approvals will be obtained. The Company has
recently been notified that it has been granted the "CE" mark evidencing
compliance with quality, safety and performance requirements mandated by the
Medical Device Directive adopted by the European Community. The Medical Device
Directive is the latest standard of medical device safety and performance which
has been adopted by the fourteen member states of the European Community and
requires that all medical device products be compliant by June, 1998 to continue
marketing within the member states.
The FDA and other governmental agencies, both in the United States and in
foreign countries, may adopt additional rules and regulations that may affect
the Company's ability to develop and market its products. There can be no
assurances that the Company's existing products will meet any future legislative
acts or requirements.
13
<PAGE> 14
EMPLOYEES
As of March 14, 1997, the Company employed 21 people on a full-time basis.
<TABLE>
<S> <C>
Administrative 5
R&D/Manufacturing 12
Sales/Customer Service 4
</TABLE>
The Company's employees are not represented by a labor union, and the
Company has experienced no work stoppage. The Company believes that its employee
relations are good.
FORWARD LOOKING STATEMENTS
The forward looking statements contained in this Annual Report on Form
10-KSB, including those contained in Item 6 "Management's Discussion and
Analysis or Plan of Operation", 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 Annual Report on Form 10-KSB
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
both 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 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.
14
<PAGE> 15
ITEM 2. DESCRIPTION OF PROPERTY
PROPERTIES
The Company's principal facility is located at 981 Calle Amanecer, San
Clemente, California where the Company leases approximately 23,000 square feet.
This lease expires in the year 2000. In addition, a sales office is located at
8029 Forsyth Boulevard, Suite 201, Clayton, Missouri where the Company leases
approximately 600 square feet. This lease is on a month-to-month rental
agreement. The Company believes that its facilities are sufficient for its
current needs.
ITEM 3. LEGAL PROCEEDINGS
A suit entitled Dental World, Inc. v. BioLase Technology, Inc., f/k/a
Laser Medical Technology, Inc. filed September 18, 1995 in the United States
District Court for the Southern District of Texas has been settled. The
compliant sought damages in excess of $250,000 based upon claims of negligence,
product liability, breach of express and implied warranties, and violation of
the consumer provisions of the Texas Deceptive Trade Practices Act, arising out
of the Company's April 1992 sale of a Laser-35 to the plaintiff. On March 3,
1997, the Company agreed to pay the plaintiff $50,000 and the plaintiff
agreed to return the subject Laser-35 to the Company.
On April 26. 1995, the Company was named as an additional defendant in
Hazel Lafern Moore v. David A. Pyner, D.D.S., Florida Dental Team, P.A.,
Princeton Medical Management Southeast, Inc. and Laser Endo Technic, Inc.,
initially filed in the 17th Judicial Circuit in and for Broward County, Florida
on April 21, 1994. The plaintiff alleges that she underwent laser dental surgery
with a laser allegedly produced by the Company and seeks unspecified damages
from the Company on theories of product liability, based on allegations that the
laser was defective by reason of design, manufacture and lack of product
warnings. The Company has answered the complaint, denying the majority of
plaintiff's material factual allegations and asserting various affirmative
defenses. The Company is vigorously contesting liability. The case has not yet
been set for trial, and discovery is ongoing. The Company believes that
liability, should there be any resulting from plaintiff's claims, would be
covered by insurance. (FLS)
Trans Leasing International v. Elie M. Makhoul v. Laser Endo Technic
Corporation, was filed July 6, 1994 in the Circuit Court of Cook County,
Illinois, Municipal Department, First District. This action involves a
third-party claim against the Company in a suit in which a dentist, who was the
lessee of a dental laser system manufactured by the Company, had been sued for
breach of the equipment lease by the financing institution that was the lessor.
The theories of the third-party plaintiff include common law fraud, violation of
the Consumer Fraud and Deceptive Business Practices Act, and intentional and
negligent misrepresentations. The third-party claim against the Company in this
action is for $78,408 in compensatory damage, $15,000 in lost profits, $50,000
in punitive damages, and attorney's fees and related costs. The Company intends
to defend against the claims vigorously. The case has been inactive since the
third-party plaintiff filed for protection under the U.S.
Bankruptcy Law on July 10, 1995.
The Company does not believe that these lawsuits or any other lawsuits to
which it is a party will have a material adverse effect on the Company's results
of operations or its financial condition. (FLS)
15
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since November 12, 1992, the Company's common stock has been authorized
for inclusion on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"). The Company's common stock has been quoted daily on
such system under the symbol "BLTI". The following table sets forth, for the
periods indicated, the high and low sales prices for the common stock as
reported by NASDAQ. The prices represent quotations between dealers, without
adjustment for retail mark up, mark down or commission, and do not necessarily
represent actual transactions. The following quotations should not be construed
to imply that an established trading market for the common stock exists.
1996 and 1995 Quarterly Stock Price Data
<TABLE>
<CAPTION>
High Low
---- ---
1996
- ----
<S> <C> <C>
1st Quarter 3 7/8 2 1/8
2nd Quarter 5 9/16 3 1/8
3rd Quarter 4 5/8 2 1/2
4th Quarter 4 3/4 2 5/16
1995
- ----
1st Quarter 2 1/8 5/8
2nd Quarter 1 3/8 1/2
3rd Quarter 4 3/8 7/8
4th Quarter 4 1 3/4
</TABLE>
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 (the "Act"). 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. No underwriters were involved in the
transaction.
Each share of Preferred Stock is convertible into a variable number of
shares of common stock which could not 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 (the "Agent Warrants"), expiring 1998, also exercisable
at $3.50 per share. On November 15, 1996, 99 of the 100 shares of the Preferred
Stock issued in conjunction with the Offering were converted into common stock,
resulting in an aggregate conversion to 1,800,018 shares of common stock.
16
<PAGE> 17
The offer and sale of the Preferred Stock, Warrants and Agent Warrants
were exempt from the registration requirements of the Act under sections 4(2)
and 4(6) as (i) a transaction by an issuer not involving a public offering, and
(ii) a transaction involving offers or sales by an issuer solely to accredited
investors that meet certain requirements under the Act. The issuance of the
underlying common shares on conversion of the Preferred Stock is exempt from the
registration requirements of the Act under section 3(a)(9) as an exchange of
securities by an issuer with its existing security-holders exclusively where no
commission or other remuneration was paid or given directly or indirectly for
soliciting such exchange. The certificates representing the securities so issued
have restrictive legends endorsed thereon reflecting the restrictions on
transferability arising out of the forgoing matters, and the Company has issued
"stop transfer" instructions to its transfer agent.
The Company has not paid any cash dividends on its common stock since its
incorporation and anticipates that, for the foreseeable future, earnings, if
any, will continue to be retained for use in its business.
As of March 14, 1997, the total number of record holders of the Company's
common stock was 293.
17
<PAGE> 18
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following table sets forth selected items from the Consolidated
Balance Sheets and the related Consolidated Statements of Operations as of and
for the three fiscal years ended December 31, 1996, 1995 and 1994, and should be
read in conjunction with the Company's audited consolidated financial statements
(including the notes thereto) included in Item 7 herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Statement of Operations Data:
<S> <C> <C> <C>
Sales $ 691,829 $ 1,152,182 $ 1,135,728
Gross Profit (Loss) $ 132,660 $ 311,020 $ (56,577)
Operating Expenses $ 2,621,652 $ 2,356,072 $ 3,917,943
Loss from Operations $ (2,488,992) $ (2,045,052) $ (3,974,520)
Loss Before Extraordinary Item $ (2,463,259) $ (2,023,822) $ (3,471,615)
Net Loss $ (2,463,259) $ (2,023,822) $ (3,050,333)
Loss per Share:
Loss Before Extraordinary Item $ (0.21) $ (0.21) (0.45)
Extraordinary Gain $ - $ - 0.05
Net Loss $ (0.21) $ (0.21) (0.40)
Weighted Average Number
of Shares Outstanding 11,531,527 9,850,961 7,671,118
As of December 31,
------------------
1996 1995
---- ----
Balance Sheet Data:
Working Capital $ 3,669,758 $ 1,523,733
Total Assets $ 4,689,344 $ 2,511,793
Long-Term Liabilities $ - $ -
Stockholders' Equity $ 3,913,980 $ 1,844,089
No common stock dividends were paid or declared during the three years
ended December 31, 1996.
</TABLE>
RESULTS OF OPERATIONS - 1996 AS COMPARED TO 1995
Sales for 1996 were $692,000, compared to $1,152,000 reported in 1995, a
decrease of $460,000, or 40%. The Company's laser division reported sales of
$290,000, a decrease of $447,000 from the $737,000 reported in 1995. The
Company's endodontic division reported sales in 1996 comparable to those
reported in 1995.
18
<PAGE> 19
The decrease in laser division sales reflects principally reduced laser
unit shipments to Germany, the primary user market for the Company's laser-based
systems, attributable to a pending product introduction and the Company's
establishing new distribution arrangements for the German market. These
arrangements were partially motivated by a desire to obtain a more experienced
German distributor in anticipation of the introduction of the Company's new
hydro-kinetic tissue cutting system, the Millennium(TM) series, which addresses
a broader market than the Company's previous laser systems. (FLS) The Company
shipped its first production unit of Millennium(TM) to Germany for clinical
evaluation and demonstration purposes during the third quarter of 1996.
Following such evaluation and demonstration, the Company executed a distribution
agreement with a major German dental equipment distributor for distribution of
the Millennium(TM). Minimum purchase commitments under the agreement are
$12,000,000 over a three-year period with shipments under the agreement expected
to commence in the second quarter of 1997. (FLS) 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 applications within the dental field and other
applications within the dermatological field. (FLS) The Company has commenced
clinical trials of its Millennium(TM) series to obtain clinical data for a
hard-tissue application to the Food and Drug Administration ("FDA"). The Company
plans to apply for FDA approvals relating to dermatology and cosmetic surgery
utilizing its hydro-kinetic technology as well. (FLS)
Gross profits were $133,000, or 19% of sales for 1996, compared to
$311,000, or 27% of sales, for 1995. The Company's laser division reported a
gross loss of $89,000 on sales of $290,000 for 1996 compared to a gross profit
of $84,000 on sales of $737,000 reported in 1995. The movement from a gross
profit to a gross loss position for the laser division was due principally to
the reduction in sales for 1996. While product contribution margins in 1996 for
the laser division were similar to those in 1995, the disproportionate reduction
in gross profit compared to sales was due principally to the lower absorption
during 1996 of fixed overhead costs as a result of the lower sales volume. The
Company's endodontic division reported gross profits in 1996 comparable to those
reported in 1995 on similar sales for both years.
Operating expenses increased $266,000, or 11%, to $2,622,000 in 1996, from
the $2,356,000 reported in 1995. Sales and marketing expenses in 1996 were
comparable to 1995 while general and administrative expenses increased $140,000,
or 17%, to $941,000 in 1996, compared to $801,000 reported in 1995. The Company
anticipates increased sales and marketing expenses during 1997 in support of the
planned launching of its Millennium(TM) series and LaserBrush(TM). (FLS) The
increase in general and administrative expenses is due principally to
promotional expenses incurred in communicating the Company's technology to the
investment, medical, dental and scientific communities and legal costs related
to contract and patent counsel, partially offset by reductions in the Company's
general insurance premiums. Engineering and development expenses were $984,000
in 1996, an increase of $57,000, or 6%, from the $927,000 reported in 1995. The
increase was due principally to costs related to engineering design and clinical
studies of its Millennium(TM) series. The Company is presently in the final
phase of its engineering design of its LaserBrush(TM) toothbrush and anticipates
the launching of its toothbrush in mid-1997. (FLS) Accordingly, increased
engineering and development costs are anticipated during 1997 in support of the
design and launching of the LaserBrush(TM) toothbrush and other product related
research. (FLS) Litigation and settlement costs increased $43,000 during 1996 to
$77,000, from $34,000 reported in 1995 due principally to the Company's decision
to settle a claim that was filed in 1995.
The Company's net loss for 1996 increased by $439,000, or 22%, from a net
loss of $2,024,000 in 1995, to a net loss of $2,463,000 in 1996. The loss per
share remained the same at $0.21 per share for 1996 as in 1995 due to the
increase in weighted average shares outstanding; 11,532,000 in 1996 compared to
9,851,000 in 1995.
19
<PAGE> 20
RESULTS OF OPERATIONS - 1995 AS COMPARED TO 1994
Consolidated sales for 1995 of $1,152,000 remained at similar levels to
those reported for 1994 of $1,136,000. Laser division sales for 1995 were
$737,000 compared to $810,000 reported in 1994, a decrease of $73,000, or 9%,
while sales for the endodontic division increased by $89,000, or 27%, from
$326,000 in 1994 to $415,000 in 1995. The decrease in sales of the laser
division was due to continued confusion present in both the international and
domestic laser markets with respect to technologies, particularly the inability
of dental practitioners to determine which wavelength technology would be best
suited for their respective practices. The increase in endodontic product sales
was due to the Company's focused marketing campaign for 1995, which included
advertisements in specific professional and trade journals, geographic mailing
campaigns and an increased presence at professional trade shows.
The Company's policy regarding commonly shared expenses is to allocate a
pool of such expenses, inclusive of depreciation and amortization, among cost of
sales, selling and marketing expenses, general and administrative expenses, and
engineering and development expenses. During the fourth quarter of 1994, the
Company recorded a charge of $959,000, representing a provision for the
impairment of the carrying value of its patents due to uncertainty regarding the
recoverability of such carrying value. One effect of this charge was to decrease
the amount of depreciation and amortization expense included within the pool of
shared expenses in periods subsequent to the charge. See Note 14 of Notes to
Consolidated Financial Statements included in Item 7.
Cost of sales as a percentage of sales for 1995 dropped to 73% from 105%
in 1994. The improvement in the cost of sales percentage was due primarily to
the reduction in manufacturing overhead during 1995 attributable to a reduction
in inventory levels during 1995. The allocation of depreciation and amortization
expense to cost of sales was $125,000 less in 1995 than in 1994, attributable
primarily to the 1994 recognition of patent impairment.
Sales and marketing expenses increased by $107,000, or 22%, from $488,000
in 1994 to $595,000 in 1995. The increase was a result of the Company's efforts
to achieve greater name recognition through increased advertising in
professional and trade journals, utilization of direct mailers and increased
participation at trade shows and professional organization conventions. This
increase was partially offset by a reduction of $37,000 in allocated
depreciation and amortization costs in 1995 as compared to 1994, attributable
primarily to the 1994 recognition of patent impairment.
General and administrative expenses in 1995 were $801,000 compared to
$1,008,000 in 1994, a decrease of $207,000, or 21%. The decrease was due
principally to reductions in operations resulting in reduced costs related to
personnel and professional services and a decrease of $50,000 in allocated
depreciation and amortization costs in 1995 as compared to 1994, attributable
primarily to the 1994 recognition of patent impairment. These decreases were
partially offset by an $82,000 increase to general insurance costs experienced
in 1995 and a $26,000 reduction in bad debt recoveries in 1995.
Engineering and development expenses decreased $424,000, or 31%, from
$1,351,000 in 1994 to $927,000 in 1995. The decrease in 1995 was due principally
to reductions in personnel and material utilization for engineering projects.
Also contributing to the decrease was a reduction of $37,000 in allocated
depreciation and amortization costs in 1995 as compared to 1994, attributable
primarily to the 1994 recognition of patent impairment.
20
<PAGE> 21
Litigation and settlement costs for 1995 decreased $78,000, or 70%, from
$112,000 in 1994 to $34,000 in 1995. The decrease was due principally to a
reduction in the number of minor law suits combined with the Company's decision
to administer more suits internally rather than engaging outside attorneys.
The Company's loss from operations for 1995 decreased $1,930,000, or 49%,
from a $3,975,000 loss in 1994 to a $2,045,000 loss in 1995, due principally to
factors previously mentioned in this section combined with continued efforts by
the Company to reduce its product costs and increase its operating efficiencies.
Other income in 1995 was $21,000 compared to $503,000 in 1994, a decrease
of $482,000, or 96%. The decrease was a due principally to a 1994 gain on the
dissolution of the Company's foreign subsidiary. This decrease was offset to
some extent by a $23,000 increase in net interest income in 1995.
The Company recognized an extraordinary gain of $421,000 in 1994 related
to an early extinguishment of debt that was not available in 1995.
The Company's net loss for 1995 decreased by $1,026,000, or 34%, from a
net loss of $3,050,000, or $0.40 per share in 1994, to a net loss of $2,024,000,
or $0.21 per share in 1995. The loss per share decreased by $0.19 in 1995 when
compared to 1994, of which, $0.13 per share related to the decrease in net loss
and $0.06 per share related to the change in weighted average shares
outstanding: 9,851,000 in 1995 as compared to 7,671,000 in 1994.
FINANCIAL CONDITION
The Company's working capital needs have been financed by the issuance of
various equity securities through several private placement offerings over the
past three years, which generated net proceeds of $4,400,000, $1,293,000 and
$2,054,000 during the fiscal years ended December 31, 1996, 1995 and 1994,
respectively. Working capital at December 31, 1996 was $3,670,000, compared to
$1,524,000 at December 31, 1995, reflecting the relatively greater proceeds from
the sale of equity securities in 1996 than in 1995. The Company's current ratio
improved to 5.7 to 1 at December 31, 1996, compared to 3.3 to 1 at December 31,
1995.
Cash and cash equivalents at December 31, 1996 were $349,000, compared to
$1,566,000 at the end of the preceding year, a decrease of $1,217,000 which was
due principally to the 1996 investment of proceeds from the sale of equity
securities in United States Treasury Notes, $3,500,000 of which is shown as
marketable securities in the Company's balance sheet at December 31, 1996. Cash
used by operating activities was $2,151,000 in 1996, compared to $1,673,000 in
1995. The increase in cash used by operating activities is due principally to
the reduction in revenue combined with increases in operating expenses
experienced in 1996. Net cash used by investing activities increased $3,519,000
to $3,576,000 in 1996, from $57,000 reported in 1995. The increase was due
principally to a $4,000,000 purchase of United States Treasury Notes reduced by
the liquidation of $500,000 of such notes during 1996. Net cash provided by
financing activities increased $2,378,000 to $4,511,000 in 1996, from $2,133,000
in 1995. This increase was due principally to the increase in proceeds from
issuance of equity securities.
Current assets increased $2,254,000, or 103%, from December 31, 1995 to
December 31, 1996. The increase is due principally to the $3,500,000 balance of
United States Treasury Notes held by the Company combined with an $81,000
increase in accounts receivable. The increase was offset by a $1,217,000
reduction in cash and cash equivalents resulting primarily from the purchase of
marketable securities and a $97,000 reduction in prepaid expenses and other
21
<PAGE> 22
current assets, principally arising from the release of cash restricted in 1995
to collateralize a letter of credit for endodontic product purchases.
Current liabilities at December 31, 1996 increased $108,000, or 16%, from
the 1995 year-end due principally to a $147,000 increase in accrued costs and
expenses, attributable primarily to 1996 financing expenses, and a $68,000
increase in accounts payable, reflecting increases in 1996 fourth quarter
inventory purchases, partially offset by an $85,000 reduction in other current
liabilities, reflecting lower 1996 deposits on sales orders and contingent loss
reserves.
Property, plant and equipment decreased $95,000 at December 31, 1996, as
compared to the preceding year-end reflecting continuing depreciation and
amortization of $150,000, partially offset by capital expenditures aggregating
$55,000. Patents and licenses increased $21,000 at December 31, 1996 from the
preceding year-end due to capitalized costs related to various patent
applications.
Stockholders' equity at December 31, 1996 was $3,914,000 compared to
$1,844,000 at the prior year-end. In October, 1996, the Company completed a
private placement of 100 shares of its Series A 6% Redeemable Cumulative
Convertible Preferred Stock, receiving net proceeds of $4,400,000. 99 shares of
the preferred stock were subsequently converted into an aggregate 1,800,018
shares of the Company's common stock. During 1996, 88,766 stock options were
exercised resulting in net proceeds of $133,000.
LIQUIDITY
The Company remains dependent upon its ability to obtain outside financing
either through the issuance of additional shares of its common or preferred
stock or through borrowings until it achieves sustained profitability through
increased sales, product improvement through engineering, and cost containment.
(FLS) The Company's focus has been realigned to emphasize the marketing of its
hydro-kinetic systems (the Millennium(TM) series), LaserBrush(TM), other laser
and endodontic products, and continued development of biomaterial products and
cost-effective laser technologies for medical and dental surgical applications.
Based on the Company's current business plan, working capital should be
sufficient to enable the Company to meet its obligations through early 1999, at
which point, the Company would be dependent upon either the successful marketing
of its Millennium(TM) and its soon-to-be-released LaserBrush(TM) or additional
financing. (FLS) There are no assurances that the Company will be successful in
either marketing its new products or obtaining financing required to sustain its
operations. (FLS) If unsuccessful, the Company's ability to meet its obligations
and to continue operations could be impaired. (FLS) The consolidated financial
statements do not give effect to any adjustments that might be necessary if the
Company were unable to meet its obligations or continue operations. (FLS)
Financing the development of laser medical and dental instruments and
operations of the Company has been achieved principally through private
placements of common and preferred stock and the exercise of stock options and
warrants. During the three years ended December 31, 1996, the Company has raised
approximately $7,747,000 of equity funds. Management believes that significant
additional capital resources will be required to complete the FDA approval
process seeking authorization for the use of the Company's hydro-kinetic and
laser technologies for hard-tissue and dermatological applications and to fund
the Company's working capital in the event the marketing of its new products
does not generate sufficient profitability and cash flow by the end of 1998.
(FLS) The Company expects to generate the necessary capital resources either
through operating profits from new product sales or through the
22
<PAGE> 23
issuance of equity securities in either public offerings or private placements,
or through debt financing. (FLS)
On February 28, 1997, the Company completed a private placement in which
it issued and sold 200,000 shares of its common stock. Gross proceeds from the
private placement were $725,000 before direct expenses of approximately $5,000.
The shares of common stock issued in connection with the private placement are
"restricted securities" as defined in Rule 144 promulgated under the Securities
Act of 1933, as amended (the "Act"). Accordingly, such shares may be resold only
pursuant to a registration statement under the 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.
IMPACT OF CHANGING PRICES ON SALES AND INCOME
The Company attempts to minimize the impact of inflation on production and
operating costs through cost control programs and productivity improvements.
Over the past three years, the inflation rate has been relatively low.
Nonetheless, the Company has continued to incur increases in the cost of labor
and some materials, in the face of requests for price reductions from customers.
Due to intense competition, the Company in 1996 generally was not able to raise
prices to its customers to pass along the cost increases experienced. The
Company, however, shall continue to pursue price reductions from its material
vendors in an attempt to improve or maintain its margins. (FLS)
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company at December 31, 1996
and 1995 and for the three years ended December 31, 1996, 1995 and 1994, along
with the notes thereto, and the Report Of Independent Accountants and the
Independent Auditors' Report thereon, required to be filed in response to this
Item 7, begin at page F-1 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information called for by Item 9 of Part III is incorporated by reference
to the definitive Proxy Statement for the 1997 Annual Meeting of Stockholders to
be held May 20, 1997, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
23
<PAGE> 24
ITEM 10. EXECUTIVE COMPENSATION
Information called for by Item 10 of Part III is incorporated by reference
to the definitive Proxy Statement for the 1997 Annual Meeting of Stockholders to
be held May 20, 1997, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Item 11 of Part III is incorporated by reference
to the definitive Proxy Statement for the 1997 Annual Meeting of Stockholders to
be held May 20, 1997, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by Item 11 of Part III is incorporated by reference
to the definitive Proxy Statement for the 1997 Annual Meeting of Stockholders to
be held May 20, 1997, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following exhibits are being filed with this Annual Report on Form
10-KSB or are incorporated by reference therein in accordance with the
designated footnote references.
3. Articles of Incorporation and Bylaws
3.1 Restated Certificate of Incorporation, as amended. (2)
3.2 Amended and Restated Bylaws. (4)
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. (7)
4.4 Form of Participant Stock Purchase Warrant Certificate.
4.5 Form of Agent Stock Purchase Warrant Certificate.
10. Material Contracts
10.1 Premises Lease for 981 Calle Amanecer, San Clemente,
California. (1)
10.9 1992 Stock Option Plan. (1)
10.18 Amended and Restated 1993 Stock Option Plan. (2)
10.18a First Amendment to Amended and Restated 1993 Stock Option
Plan. (6)
10.19 Amended and Restated 1993 Stock Compensation Plan. (2)
10.20 Form of Stock Option Agreement under the 1993 Stock Option
Plan. (2)
10.21 Termination Agreement between the Company, Guy Levy and
Francois
24
<PAGE> 25
Levy dated February 23, 1994. (2)
10.22 Placement Agent Agreement between the Company and
EuroCapital, Ltd. dated July 22, 1995. (3)
10.23 Form of Subscription Agreement, non-U.S. sales. (3)
10.24 Placement Agent Agreement between the Company and
EuroCapital, Ltd. dated May 23, 1995. (4)
10.25 Amended and Restated 1993 Stock Option Plan. (4)
10.26* Distribution Agreement between the Company and Orbis High
Tech Dental GmbH
16.4 Letter dated December 7, 1995 from KPMG Peat Marwick LLP,
Certified Public Accountants. (5)
21 Subsidiaries (1)
23 Consents of Experts and Counsel
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
- ------------------
* Portions of this Agreement have been omitted pursuant to a
confidentiality request filed with the Securities and Exchange
Commission.
(1) Filed with the Company's Registration Statement on Form S-1 dated
October 9, 1992 and incorporated by reference.
(2) Filed with the Company's 1993 Annual Report on Form 10-K dated
April 14, 1994 and incorporated by reference.
(3) Filed with the Company's 1994 Third Quarter Report on Form 10-Q
dated November 17, 1994 and incorporated by reference.
(4) Filed with the Company's 1995 Second Quarter Report on Form 10-QSB
dated September 15, 1995 and incorporated by reference.
(5) Filed with the Company's Current Report on Form 8-K dated
December 7, 1995 and incorporated by reference.
(6) Filed with the Company's 1995 Annual Report on Form 10-KSB dated
May 6, 1996 and incorporated by reference.
(7) Filed with the Company's 1996 Third Quarter Report on Form 10-QSB
dated November 19, 1996 and incorporated by reference.
(B) REPORTS ON FORM 8-K
A Current Report on Form 8-K was filed with the Securities and
Exchange Commission on October 18, 1996, reporting the Registrant's
$5,000,000 equity financing pursuant to Regulation D promulgated under
Rule 505 of the Securities Act of 1933, as amended, and the proforma
effect thereof on Registrant's financial position.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, hereunto duly authorized.
BIOLASE TECHNOLOGY, INC.
a Delaware corporation
/s/ DONALD A. LA POINT
----------------------------------------
Donald A. La Point
President, Chief Executive Officer,
and Director
Date: April 11, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been duly signed below by the following persons on behalf of
the Registrant and in the capacities indicated on April 11, 1997.
Signatures Title
- ---------- -----
Principal Executive Officer:
/s/ DONALD A. LA POINT President, Chief Executive Officer,
- ----------------------------------- and Director
(Donald A. La Point)
Principal Financial and Accounting Officer:
/s/ STEPHEN R. TARTAMELLA Vice President, Chief Financial
- ----------------------------------- Officer, and Secretary
(Stephen R. Tartamella)
/s/ FEDERICO PIGNATELLI Director and Chairman of the Board
- -----------------------------------
(Federico Pignatelli)
/s/ GEORGE V. D'ARBELOFF Director
- -----------------------------------
(George V. d'Arbeloff)
26
<PAGE> 27
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
----------
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS
Report Of Independent Accountants F-2
Independent Auditors' Report F-3
Consolidated Balance Sheets As Of December 31, 1996 And 1995 F-4
Consolidated Statements of Operations For The Years Ended
December 31, 1996, 1995 And 1994 F-5
Consolidated Statements of Stockholders' Equity For The Years Ended
December 31, 1996, 1995 And 1994 F-6
Consolidated Statements of Cash Flows For The Years Ended
December 31, 1996, 1995 And 1994 F-7
Notes To Consolidated Financial Statements F-9
SCHEDULES
Schedules numbered in accordance with Rule 5.04 of Regulation S-X:
Report Of Independent Accountants S-1
Independent Auditors' Report S-2
II - Consolidated Valuation And Qualifying Accounts And Reserves S-3
</TABLE>
All Schedules, except Schedule II, have been omitted as the required information
is shown in the consolidated financial statements, or notes thereto, or the
amounts involved are not significant or the schedules are not applicable.
F-1
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
----------
The Board of Directors
BioLase Technology, Inc.
We have audited the accompanying consolidated balance sheets of BioLase
Technology, Inc. and its subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BioLase Technology,
Inc. and its subsidiary as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that BioLase Technology, Inc. will continue as a going-concern. As discussed in
Note 2 to the consolidated financial statements, the Company has suffered
recurring losses from operations and shows a need for continued funding that
raises substantial doubt about its ability to continue as a going-concern.
Management's plans in regard to these matters are also described in Note 2 to
the consolidated financial statements. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
March 4, 1997
F-2
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BioLase Technology, Inc.:
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of BioLase Technology, Inc. and
subsidiaries for the year ended December 31,1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of BioLase Technology, Inc. and subsidiaries for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that BioLase Technology, Inc. will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, the Company has suffered
recurring losses from operations and shows a need for continued funding that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2 to
the consolidated financial statements. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Orange County, California
March 17, 1995
F-3
<PAGE> 30
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 And 1995
----------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
A S S E T S:
Current assets:
Cash and cash equivalents $ 349,457 $ 1,565,655
Marketable securities 3,500,000 --
Accounts receivable, less allowance of $21,957 in 1996 and
$64,617 in 1995 145,463 64,622
Inventories, net of reserves of $485,154 in 1996 and $491,335
in 1995 376,479 390,928
Prepaid expenses and other current assets 73,723 170,232
------------ ------------
Total current assets 4,445,122 2,191,437
Property and equipment, net 194,078 289,016
Patents and licenses, less accumulated amortization of $327,614
in 1996 and 1995 31,215 10,070
Other assets 18,929 21,270
------------ ------------
Total assets $ 4,689,344 $ 2,511,793
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 109,582 $ 41,880
Accrued expenses 615,635 404,752
Accrued costs related to dissolution of foreign subsidiary 46,167 109,748
Capital lease obligation -- 22,324
Other current liabilities 3,980 89,000
------------ ------------
Total liabilities 775,364 667,704
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.001, 1,000,000 shares authorized:
Series A 6% Redeemable Cumulative Convertible Preferred
Stock, 1 share issued and outstanding at December 31, 1996 -- --
Common stock, par value, $.001, 50,000,000 shares authorized,
issued 13,129,949 in 1996 and 11,241,164 in 1995 13,130 11,241
Additional paid-in capital 28,700,279 24,169,018
Accumulated deficit (24,799,429) (22,336,170)
------------ ------------
Total stockholders' equity 3,913,980 1,844,089
------------ ------------
Total liabilities and stockholders' equity $ 4,689,344 $ 2,511,793
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 31
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1996, 1995 And 1994
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Sales $ 691,829 $ 1,152,182 $ 1,135,728
Cost of sales 559,169 841,162 1,192,305
------------ ------------ ------------
Gross profit (loss) 132,660 311,020 (56,577)
------------ ------------ ------------
Operating expenses:
Sales and marketing 618,964 594,651 487,785
General and administrative 941,332 801,013 1,008,370
Engineering and development 984,418 926,752 1,351,320
Litigation and settlement costs 76,938 33,656 111,618
Provision for patents -- -- 958,850
------------ ------------ ------------
Total operating expenses 2,621,652 2,356,072 3,917,943
------------ ------------ ------------
Loss from operations (2,488,992) (2,045,052) (3,974,520)
------------ ------------ ------------
Other income (expense):
Interest income (expense) 25,733 21,230 (1,500)
Gain on dissolution of foreign subsidiary -- -- 504,405
------------ ------------ ------------
Total other income (expense) 25,733 21,230 502,905
------------ ------------ ------------
Loss before extraordinary item (2,463,259) (2,023,822) (3,471,615)
Extraordinary gain on extinguishment of debt -- -- 421,282
------------ ------------ ------------
Net loss ($ 2,463,259) ($ 2,023,822) ($ 3,050,333)
============ ============ ============
Loss per share of common stock:
Loss before extraordinary gain ($0.21) ($0.21) ($0.45)
Extraordinary gain -- -- 0.05
------------ ------------ ------------
Net loss per share ($0.21) ($0.21) ($0.40)
============ ============ ============
Weighted average shares outstanding 11,531,527 9,850,961 7,671,118
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 32
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1996, 1995 And 1994
----------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Receivable
----------------- ------------------- Paid-In From
Shares Amount Shares Amount Capital Stockholders
------ ------ ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994 7,381,053 $7,381 $20,064,376 ($296,154)
Issuance of common stock for services 1,250 1 2,968 --
Private placements of common stock 979,800 980 2,053,153 --
Stock issued upon extinguishment of debt 50,000 50 74,950 --
Issuance of shares for fractional interest on 9 -- -- --
reverse split
Earned escrow shares -- -- -- 88,246
Write-off of receivable from stockholders -- -- (178,534) 178,534
Effect of dissolution of foreign subsidiary -- -- -- --
Net loss -- -- -- --
----- ------ ---------- ------- ----------- ---------
Balances at December 31, 1994 8,412,112 8,412 22,016,913 (29,374)
Private placements of common stock 2,300,000 2,300 1,290,407 --
Exercise of stock options 39,150 39 67,986 --
Exercise of stock purchase warrants 489,900 490 793,712 --
Issuance of shares for fractional interest on
reverse split 2 -- -- --
Earned escrow shares -- -- -- 29,374
Net loss -- -- -- --
----- ------ ---------- ------- ----------- ---------
Balances at December 31, 1995 11,241,164 11,241 24,169,018 --
Private placement of preferred stock 100 -- -- -- 4,400,000 --
Exercise of stock options -- -- 88,766 89 133,061 --
Conversion of preferred stock to common stock (99) -- 1,800,018 1,800 (1,800) --
Issuance of shares for fractional interest on
reverse split -- -- 1 -- -- --
Net loss -- -- -- -- -- --
----- ------ ---------- ------- ----------- ---------
Balances at December 31, 1996 1 $ -- 13,129,949 $13,130 $28,700,279 $ --
===== ====== ========== ======= =========== =========
</TABLE>
<TABLE>
<CAPTION>
Foreign
Currency
Accumulated Translation
Deficit Adjustment Total
------- ---------- -----
<S> <C> <C> <C>
Balances at January 1, 1994 ($17,262,015) $ 177,078 $ 2,690,666
Issuance of common stock for services -- -- 2,969
Private placements of common stock -- -- 2,054,133
Stock issued upon extinguishment of debt -- -- 75,000
Issuance of shares for fractional interest on
reverse split -- -- --
Earned escrow shares -- -- 88,246
Write-off of receivable from stockholders -- -- --
Effect of dissolution of foreign subsidiary -- (177,078) (177,078)
Net loss (3,050,333) -- (3,050,333)
------------ --------- -----------
Balances at December 31, 1994 (20,312,348) -- 1,683,603
Private placements of common stock -- -- 1,292,707
Exercise of stock options -- -- 68,025
Exercise of stock purchase warrants -- -- 794,202
Issuance of shares for fractional interest on
reverse split -- -- --
Earned escrow shares -- -- 29,374
Net loss (2,023,822) -- (2,023,822)
------------ --------- -----------
Balances at December 31, 1995 (22,336,170) -- 1,844,089
Private placement of preferred stock -- -- 4,400,000
Exercise of stock options -- -- 133,150
Conversion of preferred stock to common stock -- -- --
Issuance of shares for fractional interest on
reverse split -- -- --
Net loss (2,463,259) -- (2,463,259)
------------ --------- -----------
Balances at December 31, 1996 ($24,799,429) $ -- $ 3,913,980
============ ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 33
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1996, 1995 And 1994
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,463,259) $(2,023,822) $(3,050,333)
Adjustments to reconcile net loss to net cash used by
operating activities:
Gain on foreign subsidiary dissolution, including cash
surrendered of $19,403 -- -- (523,808)
Extraordinary gain on extinguishment of debt -- -- (421,282)
Earned escrow shares of common stock -- 29,374 88,246
Depreciation and amortization 149,746 183,442 432,043
Issuance of common stock for services -- -- 2,969
Provision for bad debts (5,900) 337 (10,335)
Provision for inventory write-off 37,663 24,500 23,460
Provision for patents -- -- 958,850
Changes in assets and liabilities:
Accounts receivable (74,941) (14,689) 129,388
Inventories (23,214) 228,664 (148,280)
Prepaid expenses and other assets 98,850 (46,762) 113,022
Accounts payable 67,702 (37,561) (114,199)
Accrued expenses 210,883 (16,633) (43,808)
Accrued costs related to dissolution of foreign subsidiary (63,581) (17,526) (53,041)
Other current liabilities (85,020) 18,000 (2,000)
----------- ----------- -----------
Net cash used by operating activities (2,151,071) (1,672,676) (2,619,108)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of marketable securities (4,000,000) -- --
Sale of marketable securities 500,000 -- --
Additions to property, plant and equipment (54,808) (47,041) (53,387)
Additions to patents and licenses (21,145) (10,070) (53,264)
----------- ----------- -----------
Net cash used by investing activities (3,575,953) (57,111) (106,651)
----------- ----------- -----------
Cash flows from financing activities:
Payments of capital lease obligations (22,324) (21,533) (134,814)
Proceeds from issuance of common stock, net -- 1,292,707 2,054,133
Proceeds from exercise of stock options 133,150 68,025 --
Proceeds from exercise of stock purchase warrants -- 794,202 --
Proceeds from issuance of preferred stock, net 4,400,000 -- --
----------- ----------- -----------
Net cash provided by financing activities 4,510,826 2,133,401 1,919,319
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (1,216,198) 403,614 (806,440)
Cash and cash equivalents at beginning of year 1,565,655 1,162,041 1,968,481
----------- ----------- -----------
Cash and cash equivalents at end of year $ 349,457 $ 1,565,655 $ 1,162,041
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 34
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For The Years Ended December 31, 1996, 1995 And 1994
----------
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Supplemental cash flow disclosure:
Cash paid during the year for interest $ 4,410 $ 13,312 $ 27,605
============ ============ ============
Noncash financing activities:
Issuance of common stock for debt $ -- $ -- $ 75,000
============ ============ ============
Conversion of preferred stock to common stock $ 4,356,000 $ -- $ --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 35
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 And 1994
----------
1. Summary Of Significant Accounting Policies:
BioLase Technology, Inc. (the "Company"), which changed its name from
Laser Medical Technology, Inc. in May 1994, was incorporated in
Delaware in February 1987 as Pamplona Capital Corp. ("Pamplona"). Also
in 1987, Pamplona acquired 77% of the outstanding shares of Societe
Endo Technic, S.A. ("SET"), a French corporation, which in turn had a
100%-owned subsidiary, Societe Endo Technic, Inc., doing business as
Endo Technic Corporation (a California corporation). In connection with
the dissolution of SET (Note 10), the Company purchased certain assets
of SET, including 100% of the stock of Societe Endo Technic, Inc., for
nominal consideration.
The Company's primary business is the development, manufacturing and
marketing of advanced laser products for dental and other surgical
applications, and the distribution of endodontic products manufactured
by third parties.
Principles Of Consolidation:
----------------------------
The consolidated financial statements include the accounts of BioLase
Technology, Inc. and its subsidiary after eliminating intercompany
accounts and transactions. Losses of SET which were otherwise allocable
to the minority interest, but which were cumulatively in excess of such
minority interest, were charged to the Company's results of operations
until the dissolution of SET in 1994 (Note 10).
Revenue Recognition:
--------------------
Sales and related cost of sales are recognized upon shipment of
products. The Company's laser products and endodontic handpieces are
generally under warranty against defects in material and workmanship
for a period of one year.
Cash Equivalents:
-----------------
The Company considers all highly liquid debt instruments with a
maturity of three months or less at the time of purchase to be cash
equivalents. Cash equivalents are carried at cost, which approximates
market.
At December 31, 1996 and 1995, the Company had approximately $161,000
and $1,533,000, respectively, of cash balances that were in excess of
the federally-insured limit of $100,000 per bank.
Continued
F-9
<PAGE> 36
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
1. Summary Of Significant Accounting Policies, Continued:
Marketable Securities:
----------------------
Marketable securities consist of United States government treasury
notes having maturities greater than three months at the time of
acquisition, which are readily saleable. Marketable securities are
carried at cost, which approximates market value.
Inventories:
------------
Inventories are valued at the lower of cost or market (determined by
the first-in, first-out method).
Property And Equipment:
-----------------------
Property and equipment, including property under capital lease
agreements, are carried at cost less accumulated depreciation and
amortization. Maintenance and repairs are expensed as incurred. Upon
sale or disposition of assets, any gain or loss is included in the
consolidated statement of operations.
The cost of property and equipment is generally depreciated using the
straight-line method over the estimated useful lives of the respective
assets, which are generally not greater than five years. Leasehold
improvements are amortized over the lesser of the estimated useful
lives of the assets or the related lease terms.
Patents And Licenses:
---------------------
Costs incurred to establish and successfully defend patents and
licenses and to acquire product and process technology are capitalized.
All amounts assigned to these patents and licenses are amortized on a
straight-line basis over an estimated eight-year useful life.
The Company has assigned a value to certain patents which were
transferred to the Company by a then significant stockholder equal to
the stockholder's cost basis of $10,100 per patent plus capitalizable
costs incurred after acquisition by the Company.
The continuing carrying value of patents is assessed based upon the
Company's operating experience, expected cash flows from related
products and other factors as deemed appropriate (Note 12).
Continued
F-10
<PAGE> 37
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
1. Summary Of Significant Accounting Policies, Continued:
Engineering And Development:
----------------------------
Company-sponsored engineering and development costs related to both
present and future products are expensed as incurred.
Estimates:
----------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Income Taxes:
-------------
The Company follows Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", which requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Stock-Based Compensation:
-------------------------
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting
for Stock-Based Compensation". SFAS No. 123 defines a fair value
based method of accounting for an employee stock option. Fair value of
the stock option is determined considering factors such as the exercise
price, the expected life of the option, the current price of the
underlying stock and its volatility, expected dividends on the stock,
and the risk-free interest rate for the expected term of the option.
Under the fair value based method, compensation cost is
Continued
F-11
<PAGE> 38
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
1. Summary Of Significant Accounting Policies, Continued:
Stock-Based Compensation, Continued:
------------------------------------
measured at the grant date based on the fair value of the award and is
recognized over the service period. Pro forma disclosures for entities
that elect to continue to measure compensation cost under the intrinsic
method provided by Accounting Principles Board No. 25 must include the
effects of all awards granted in fiscal years that begin after December
15, 1994.
Loss Per Share And Shares Outstanding:
--------------------------------------
Loss per share was determined by dividing the net loss by the weighted
average number of shares outstanding during the applicable period.
Common stock equivalents, which consist of stock options, have been
excluded from per share calculations, as the effect of these common
stock equivalents is anti-dilutive. The shares outstanding and other
share information have been adjusted for all periods presented to
reflect the one-for-four reverse stock split which occurred on February
15, 1994.
2. Basis Of Presentation:
The Company's consolidated financial statements have been presented on
the basis that it 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
$2,463,259, $2,023,822 and $3,050,333 for the years ended December 31,
1996, 1995 and 1994, respectively, and has an accumulated deficit of
$24,799,429 at December 31, 1996. These recurring losses and the need
for continued funding, discussed below, raise substantial doubt about
the Company's ability to continue as a going concern.
The Company remains 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 until it achieves
sustained profitability through increased sales, continued efforts of
engineering redesign, and cost curtailment. The Company's focus has
been realigned to emphasize the marketing of its laser-based
hydro-kinetic tissue cutting systems (the Millennium(TM) series),
LaserBrush(TM), other laser and endodontic products, and the
continued development of biomaterial products and cost-effective
laser technologies for medical and dental surgical applications.
Continued
F-12
<PAGE> 39
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
2. Basis Of Presentation, Continued:
Based on the Company's current business plan, working capital should be
sufficient to enable the Company to meet its obligations through early
1999, at which point, the Company would be dependent upon either the
successful marketing of its Millennium(TM) and its soon-to-be-released
LaserBrush(TM) or additional financing. There are no assurances that
the Company will be successful in either marketing its new products or
obtaining financing required to sustain its operations. If
unsuccessful, the Company's ability to meet its obligations and to
continue operations could be impaired. The consolidated financial
statements do not give effect to any adjustments that might be
necessary if the Company were unable to meet its obligations or
continue operations.
Financing the development of laser medical and dental instruments and
operations of the Company has been achieved principally through private
placements of preferred and common stock and the exercise of stock
options and warrants. During the three years ended December 31, 1996,
the Company has raised approximately $7,747,000 of equity funds.
Management believes that significant additional capital resources will
be required to complete the FDA approval process seeking authorization
for the use of the Company's hydro-kinetic and laser technologies for
hard-tissue and dermatological applications and to fund the Company's
working capital in the event the marketing of its new products does not
generate sufficient profitability and cash flow by the end of 1998. The
Company expects to generate the necessary capital resources through the
sale of its new products or through the issuance of equity securities
in either public offerings or private placements, or through debt
financing.
3. Inventories:
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw materials $ 96,823 $ 178,669
Finished goods 279,656 212,259
---------- ----------
$ 376,479 $ 390,928
========== ==========
</TABLE>
Continued
F-13
<PAGE> 40
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
4. Property And Equipment:
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Leasehold improvements $ 149,282 $ 149,282
Equipment and computers 725,882 674,575
Furniture and fixtures 107,208 103,707
Demonstration units 247,354 247,354
----------- -----------
1,229,726 1,174,918
Less, Accumulated depreciation and
amortization (1,035,648) (885,902)
----------- -----------
$ 194,078 $ 289,016
=========== ===========
</TABLE>
Included in property and equipment are assets held under capital leases
of approximately $1,027 in 1996 and $16,600 in 1995, net of accumulated
amortization.
5. Related Party Transactions:
Effective February 8, 1994, Dr. Guy Levy resigned as a member of the
Board of Directors. A settlement of Dr. Levy's employment agreement was
subsequently negotiated which resulted in the Company obtaining all
patents and patent-pending applications held by Dr. Levy related to the
Company's business and provided that Dr. Levy will not compete with the
Company for a period of three years. The Company paid Dr. Levy a lump
sum of $100,000 and issued 50,000 shares of the Company's common stock
having a market value of $75,000, subject to certain restrictions, for
payment in full of all royalties due or which may have become due with
respect to assigned patents and patent-pending applications. Such
payment was reduced by $20,000 to repay to the Company a loan that had
been previously guaranteed by Dr. Levy. Accordingly, in 1994, the
Company recognized an extraordinary gain on the extinguishment of
royalties payable to Dr. Levy of $421,282, or $.05 per share.
Continued
F-14
<PAGE> 41
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
6. Accrued Expenses:
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accrued professional fees $ 158,416 $ 138,596
Accrued litigation and settlement costs 88,292 28,524
Accrued private placement costs 72,984 --
Sales tax payable 46,514 48,331
Accrued rent 32,253 41,049
Accrued warranty 15,000 57,164
Accrued vacation 48,354 25,490
Other 153,822 65,598
---------- ----------
$ 615,635 $ 404,752
========== ==========
</TABLE>
7. Litigation:
A suit entitled Dental World, Inc. v. BioLase Technology, Inc., f/k/a
Laser Medical Technology, Inc., filed September 18, 1995 in the United
States District Court for the Southern District of Texas has been
settled. The complaint sought damages in excess of $250,000 based upon
claims of negligence, product liability, breach of express and implied
warranties, and violation of the consumer provisions of the Texas
Deceptive Trade Practices Act, arising out of the Company's April 1992
sale of a Laser-35 to the plaintiff. On March 3, 1997, the Company
agreed to pay the plaintiff $50,000 and the plaintiff agreed to
return to the Company the subject Laser-35.
On April 26, 1995, the Company was named as an additional defendant in
Hazel Lefern Moore v. David A. Pyner, D.D.S., Florida Dental Team,
P.A., Princeton Medical Management Southeast, Inc. and Laser Endo
Technic, Inc., initially filed in the 17th Judicial Circuit in and for
Broward County, Florida on April 21, 1994. The plaintiff alleges that
she underwent laser dental surgery with a laser allegedly produced by
the Company and seeks unspecified damages from the Company on theories
of product liability, based on allegations that the laser was defective
by reason of design, manufacture and lack of product warnings. The
Company has answered the complaint, denying the majority of plaintiff's
Continued
F-15
<PAGE> 42
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
7. Litigation, Continued:
material factual allegations and asserting various affirmative
defenses. The Company is vigorously contesting liability. The case has
not yet been set for trial, and discovery is ongoing. The Company
believes that liability, should any result from plaintiff's claims,
would be covered by insurance.
Trans Leasing International v. Elie M. Makhoul v. Laser Endo Technic
Corporation, was filed July 6, 1994 in the Circuit Court of Cook
County, Illinois, Municipal Department, First District. This action
involves a third-party claim against the Company in a suit in which a
dentist, who was the lessee of a dental laser system manufactured by
the Company, had been sued for breach of the equipment lease by the
financing institution that was the lessor. The theories of the
third-party plaintiff include common law fraud, violation of the
Consumer Fraud and Deceptive Business Practices Act, and intentional
and negligent misrepresentations. The third-party claim against the
Company in this action is for $78,408 in compensatory damage, $15,000
in lost profits, $50,000 in punitive damages, and attorney's fees and
related costs. The Company intends to defend against the claims
vigorously. The case has been inactive since the third-party plaintiff
filed for protection under the U.S. Bankruptcy Law on July 10, 1995.
The Company does not believe that these lawsuits or any other lawsuits
to which it is a party will have a material adverse effect on the
Company's results of operations or its financial condition.
8. Lease Commitments:
The Company leases plant and office facilities under long-term
operating leases. The following is a schedule of future minimum rental
payments required under operating leases that have initial or remaining
non-cancellable lease terms in excess of one year as of December 31,
1996:
<TABLE>
<S> <C>
1997 $139,386
1998 139,386
1999 139,386
2000 92,924
--------
$511,082
========
</TABLE>
Rent expense was $136,938, $148,775 and $122,805 for the years ended
December 31, 1996, 1995 and 1994, respectively.
Continued
F-16
<PAGE> 43
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
9. Stockholders' Equity:
Equity Financing:
----------------
The Company has raised equity capital through several private offerings
in the three years ended December 31, 1996, as follows:
<TABLE>
<CAPTION>
Number
Of Shares
Of Common Net Cash
Stock Consideration
------------ -------------
Years Ended December 31,
------------------------
<S> <C> <C>
1996 1,800,018* $4,400,000
1995 2,300,000 $1,292,707
1994 979,800** $2,054,133
</TABLE>
*Excludes one share of Preferred Stock - see below.
**Includes 29,800 shares issued as commissions in 1994.
Preferred Stock:
---------------
On October 16, 1996, the Company completed a private placement (the
"Placement") in which the Company issued and sold 100 units, each
consisting of one share of its Series A 6% Redeemable Cumulative
Convertible Preferred Stock (the "Preferred Stock") which, at the
option of the holder, may be converted into a variable number of shares
of common stock that cannot exceed 18,182 shares, and 5,000 Redeemable
Common Stock Purchase Warrants (the "Placement Warrants") expiring 1998
which are exercisable under certain conditions. Gross proceeds in the
Placement were $5,000,000 and net proceeds, after commissions of
$400,000 and estimated expenses, were $4,400,000.
In November 1996, 99 of the 100 shares of Preferred Stock were
converted to common stock at a rate of 18,182 common shares for each
preferred share, resulting 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 (the "Act").
Accordingly, such shares may be resold only pursuant to a registration
statement under the Act or in accordance with an exemption from such
registration requirement. The Company is obligated to file a registra-
tion statement covering the resale of such shares of common stock.
Continued
F-17
<PAGE> 44
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
9. Stockholders' Equity, Continued:
Common Stock:
------------
The Company has occasionally issued shares of its common stock to
individuals for services rendered. The estimated fair value of the
common stock was charged to earnings as compensation for these
services. No shares were issued for services in 1996 or 1995, and 1,250
shares valued at $2,969 were issued for services in 1994.
Common Stock Options And Warrants:
---------------------------------
The Company has adopted the 1990 Stock Option Plan (the "1990 Plan"),
the 1992 Stock Option Plan (the "1992 Plan") and the 1993 Stock Option
Plan (the "1993 Plan" and collectively with the 1990 Plan and 1992
Plan, the "Plans"). Each of the Plans enable the Company to offer
equity participation to employees, officers, directors and consultants
of the Company through stock options and, with respect to the 1990 and
1992 Plans, stock appreciation rights.
A total of 375,000 shares of common stock were authorized for issuance
under the 1990 Plan, of which, at December 31, 1996, 65,500 had been
issued upon option exercise, 258,250 were reserved for issuance upon
exercise of outstanding options and 51,250 were available for the
granting of additional options. A total of 150,000 shares of common
stock were authorized for issuance under the 1992 Plan, of which, at
December 31, 1996, 21,516 shares had been issued upon option exercise,
105,875 were reserved for issuance upon exercise of outstanding
options, and 22,609 were available for the granting of additional
options. A total of 1,500,000 shares of common stock were authorized
for issuance under the 1993 Plan, of which, at December 31, 1996,
40,900 had been issued upon option exercise, 937,785 were reserved for
issuance upon exercise of outstanding options, and 521,315 were
available for the granting of additional options. Any shares which are
reserved for issuance under an outstanding option which expires or
terminates unexercised, or any shares which are used by participants
to pay all or part of the purchase price of any option exercised, may
again be reserved for issuance upon exercise of newly granted options
under the respective Plans. However, shares with respect to which stock
appreciation rights have been exercised may not again be made subject
to an award.
Continued
F-18
<PAGE> 45
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
9. Stockholders' Equity, Continued:
Common Stock Options And Warrants, Continued:
--------------------------------------------
At the discretion of a committee comprised of non-employee directors or
other non-employees appointed by the Board of Directors (the
"Committee"), employees, officers, directors and consultants of the
Company and its subsidiary may become participants in the Plans upon
receiving grants in the form of stock options or in the case of the
1990 and 1992 Plans, stock appreciation rights.
Stock options may be granted as nonqualified stock options or incentive
stock options, but incentive stock options may not be granted at a
price less than 100% of the fair market value of the stock as of the
date of grant (110% as to any 10% stockholder at the time of grant);
nonqualified stock options may not be granted at a price less than 85%
of the fair market value of the stock as of the date of grant. Stock
options may be exercised no more than ten years after the date of grant
and no more than three years after death or disability, whichever
occurs earlier. In the case of options granted under the 1993 Plan,
payment of the purchase price for shares of stock acquired through the
exercise of stock options must be paid in cash. At the discretion of
the Committee, the purchase price for shares of stock acquired through
the exercise of stock options under the 1990 and 1992 Plans may be paid
by cash, shares of common stock valued at their fair market value at
the date of exercise or by delivery of recourse promissory notes or a
combination of notes, cash and shares of the Company's common stock.
Incentive stock options have not been awarded under any of the Plans to
date. The following table summarizes the activity under the Plans:
Continued
F-19
<PAGE> 46
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
9. Stockholders' Equity, Continued:
Common Stock Options And Warrants, Continued:
--------------------------------------------
<TABLE>
<CAPTION>
Option Price Per
Shares Share
----------- ----------------
<S> <C> <C> <C>
Options outstanding, December 31, 1993 642,500 $2.00 - $16.00
Granted 473,750 2.00 - 2.38
Surrendered (250,250) 2.00 - 16.00
----------- --------------
Options outstanding, December 31, 1994 866,000 2.00 - 10.50
Granted 725,000 0.75 - 7.20
Exercised (39,150) 1.50 - 2.38
Surrendered (412,400) 1.50 - 2.38
----------- --------------
Options outstanding, December 31, 1995 1,139,450 0.75 - 10.50
Granted 318,335 2.53 - 4.13
Exercised (88,766) 1.50
Surrendered (67,109) 1.50 - 2.80
----------- --------------
Options outstanding, December 31, 1996 1,301,910 $0.75 - $10.50
=========== ==============
Options exercisable, December 31, 1996 956,700 $0.75 - $10.50
=========== ==============
</TABLE>
Stock options granted under the 1990 Plan may include the right to
acquire an Accelerated Ownership Nonqualified Stock Option ("AO"). If
an option grant contains the AO feature and if the participant pays all
or part of the purchase price of the option with shares of the
Company's common stock held by the participant for at least six months,
then upon exercise of the option, the participant is granted an AO to
purchase at the fair market value as of the date of the AO grant the
number of shares of common stock of the Company equal to the sum of the
number of whole shares used by the participant in payment of the
purchase price and the number of whole shares, if any, withheld by the
Company as payment for withholding taxes. An AO may be exercised
between the date of grant and the date of expiration, which will be the
same as the date of expiration of the option to which the AO is
related. At December 31, 1996, 93,750 options outstanding under the
1990 Plan include the AO feature.
Continued
F-20
<PAGE> 47
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
9. Stockholders' Equity, Continued:
Common Stock Options And Warrants, Continued:
--------------------------------------------
In addition to the option plans discussed above, the Company has
several agreements with certain vendors and other persons under which
options, not under any of the Plans, to purchase shares of the
Company's common stock have been granted. The shares issuable upon
exercise of such options have not been registered under the Act.
The following table summarizes option transactions outside the option
plans for the three years ended December 31, 1996:
<TABLE>
<CAPTION>
Option Price Per
Shares Share
------- ----------------
<S> <C> <C>
Options outstanding, December 31, 1993 103,750 $0.80 - $12.00
Granted - -
Surrendered (1,250) 0.80
------- ----------------
Options outstanding, December 31, 1994 102,500 5.00 - 12.00
Granted 20,000 2.00
Surrendered - -
------- ----------------
Options outstanding, December 31, 1995 122,500 2.00 - 12.00
Granted - -
Surrendered - -
------- ----------------
Options outstanding, December 31, 1996 122,500 $2.00 - $12.00
======= ================
Options exercisable, December 31, 1996 117,500 $2.00 - $12.00
======= ================
</TABLE>
The majority of all the Company's options outstanding and exercisable
at December 31, 1996 are at an exercise price of between $0.75 and
$3.00. Additionally, at December 31, 1996 the weighted average exercise
price for options outstanding and exercisable was $2.97 with a weighted
average remaining term of 6.5 years.
Warrants to purchase 489,900 shares of common stock at $3.25 per share
were issued in conjunction with a placement of the Company's common
stock in 1994, including 14,900 warrants issued as commission to the
placement agent. The warrants included a call feature whereby the
Company had the right, upon thirty days' notification, to call such
warrants for redemption at anytime the market price per share exceeded
138.46% of the exercise price for ten consecutive trading days. In the
event of such a call, the Company could redeem any warrants remaining
outstanding at the end of the notification period for nominal
consideration.
Continued
F-21
<PAGE> 48
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
9. Stockholders' Equity, Continued:
Common Stock Options And Warrants, Continued:
---------------------------------------------
On June 2, 1995, the Company reduced the exercise price of such
warrants from $3.25 to $1.625 per share, which had the effect of making
the warrants subject to call when the common stock traded at or above
$2.25 per share. The closing bid price of the Company's common stock on
June 2, 1995 was $0.6875 per share. On August 24, 1995, the Company
called for redemption all such warrants which would be outstanding on
September 25, 1995. All of the outstanding warrants were exercised
prior to the redemption date. The Company issued 489,900 shares of its
common stock upon exercise of the warrants; net proceeds received
aggregated $794,202, excluding direct expenses of $1,885.
In October 1996, the Company issued 500,000 Placement Warrants expiring
October 16, 1998, each entitling the holder to purchase one share of
common stock at $3.50 per share under certain conditions. An additional
190,910 warrants, expiring December 31, 1998, were also issued in
connection with the Placement, which are also exercisable at $3.50 per
share.
On December 2, 1996, the Company granted warrants to purchase 10,000
shares of common stock at $3.50 per share to consultants. These
warrants expire December 31, 1998.
Pro Forma Effect Of Stock-Based Compensation:
---------------------------------------------
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Had compensation cost been determined based on the fair value of
awards under the 1990, 1992 and 1993 Plans on the respective dates of
grant in a manner consistent with the method promulgated by SFAS No.
123, the Company's net loss and loss per share would have been
increased to the pro forma amounts below:
<TABLE>
<CAPTION>
For The Years Ended
December 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Net loss:
As reported ($2,463,259) ($2,023,822)
Pro forma ($2,730,811) ($2,073,714)
Loss per share:
As reported ($0.21) ($0.21)
Pro forma ($0.24) ($0.21)
</TABLE>
Continued
F-22
<PAGE> 49
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
9. Stockholders' Equity, Continued:
Pro Forma Effect Of Stock-Based Compensation, Continued:
--------------------------------------------------------
The fair value of each option grant was estimated on the date of the
grant using the Black-Scholes option pricing model. The assumptions
used for the Black-Scholes computation for the years ended December 31,
1996 and 1995 are as follows: the risk-free interest rate was the U.S.
Zero Coupon Bond rate for the corresponding grant date, ranging from
5.4% to 5.64% in 1996 and 5.68% to 7.46% in 1995; the exercise price is
equal to the fair market value of the underlying common stock at the
grant date; the expected life of the option is the term to expiration,
ranging from 1-4 years; volatility is 53.02%; and the common stock will
pay no dividends.
10. Dissolution Of SET:
In March 1994, the Board of Directors of SET, a French corporation 77%
owned by the Company, authorized the Director General of SET to advise
the French Commercial Court of its inability to pay its debts.
Accordingly, the Commercial Court ordered the dissolution of SET. As
the Company no longer had control over the operations of SET, such
operations are excluded from the consolidated results of the Company in
1994, 1995 and 1996. In 1994, the Company recognized a loss on its
investment in SET of $1,697,032, offset by a reversal of losses
previously recognized in consolidation of $2,201,437. The net result
was a recognized gain of $504,405, including the effect of the reversal
of the cumulative foreign currency translation adjustment of $177,078.
11. Income Taxes:
The following table presents the current and deferred provision for
federal and state income taxes for the years ended December 31, 1996,
1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ --
State 1,600 1,600 1,600
-------- -------- --------
1,600 1,600 1,600
Deferred:
Federal -- -- --
State -- -- --
-------- -------- --------
$ 1,600 $ 1,600 $ 1,600
======== ======== ========
</TABLE>
Continued
F-23
<PAGE> 50
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
11. Income Taxes, Continued:
The foregoing tax provisions are included in general and administrative
expense in the accompanying consolidated statements of operations.
The effects of temporary differences which give rise to deferred tax
provision (benefit) at December 31, 1996, 1995 and 1994 consist of:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Property and equipment $ 20,796 $ 320,965 $ --
Reserves not currently deductible (89,418) (346,611) 136,000
Inventories (7,925) 41,518 --
Capital loss carryforward -- 21,498 256,000
State taxes (226) 770 --
Net operating losses 1,462,117 1,395,841 1,173,500
----------- ----------- -----------
1,385,344 1,433,981 1,565,000
Change in valuation allowance (1,385,344) (1,433,981) (1,565,000)
----------- ----------- -----------
Total $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The provision (benefit) for income taxes differs from the amount that would
result from applying the federal statutory rate at December 31, 1996, 1995 and
1994 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Statutory regular federal income tax rate (34.0%) (34.0%) (34.0%)
State income taxes, net of federal benefit 0.1 0.1 0.1
Loss due to deconsolidation -- -- (24.5)
Change in valuation allowance 36.1 33.6 57.7
Other (2.2) 0.3 0.7
-------- -------- --------
Total 0.0% 0.0% 0.0%
======== ======== ========
</TABLE>
Continued
F-24
<PAGE> 51
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
11. Income Taxes, Continued:
The components of the deferred income tax assets as of December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Property and equipment $ 341,760 $ 320,965
Reserves not currently deductible 280,972 370,389
Inventories 33,594 41,518
Capital loss carryforward 277,498 277,498
State taxes 544 770
Net operating losses 8,897,958 7,435,841
----------- -----------
9,832,326 8,446,981
Valuation allowance (9,832,326) (8,446,981)
----------- -----------
Total $ -- $ --
=========== ===========
</TABLE>
The Company has established a valuation allowance against its deferred
tax assets due to the uncertainty surrounding the realization of such
assets. Management periodically evaluates the recoverability of the
deferred tax assets. At such time as it is determined that deferred tax
assets are realizable, the valuation allowance will be reduced.
At December 31, 1996, the Company had a capital loss carryforward of
$640,873, which will expire in 2000.
As of December 31, 1996, the Company had net operating loss
carryforwards for federal and state purposes of approximately
$22,748,000 and $12,511,000, respectively. The net operating loss
carryforwards begin expiring in 2002 and 1997, respectively. The
utilization of net operating loss carryforwards may be limited under
the provisions of Internal Revenue Code Section 382 and similar state
provisions.
Continued
F-25
<PAGE> 52
BIOLASE TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1996, 1995 And 1994
----------
12. Provision For Patents:
The Company included a charge to its 1994 operations of $958,850
representing a provision for the carrying value of its patents due to
uncertainties related to the future recoverability of such carrying
values. The Company's evaluation of its capitalized patent costs
considered such factors as reductions in sales during fiscal 1994,
extinguishment of debt which was used to acquire certain patents, and
the under-utilization of existing patents in various geographic regions
of the world.
13. Business Segment And Sales Concentrations:
The Company designs, manufactures and markets advanced laser products
for dental and other surgical applications, and markets and distributes
endodontic products manufactured by third parties. These activities
comprise the Company's only business segment.
The Company has distributorship agreements for dental lasers in Europe,
the Middle East and the Far East. In 1996, 1995 and 1994, export sales
were $328,000, $807,000 and $644,000, respectively, of which 80%, 72%
and 85%, respectively, were sales to Europe.
One customer accounted for $141,654 of consolidated sales in 1996, two
customers accounted for $473,268 and $193,353 of consolidated sales in
1995, respectively, and two customers accounted for $492,563 and
$139,900 of consolidated sales in 1994, respectively. No other
customers accounted for more than 10% of consolidated sales in 1996,
1995 or 1994.
14. Subsequent Event:
On February 28, 1997, the Company completed a private placement in
which it issued and sold 200,000 shares of its common stock. Gross
proceeds from the private placement were $725,000 and net proceeds
after direct expenses of $5,115, were $719,885. The shares of common
stock issued in connection with the private placement are "restricted
securities" as defined in Rule 144 promulgated under the Securities Act
of 1933, as amended (the "Act). Accordingly, such shares may be resold
only pursuant to a registration statement under the 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.
F-26
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
----------
The Board of Directors
BioLase Technology, Inc.
Our report, which contains an explanatory paragraph regarding the Company's
ability to continue as a going-concern, on the consolidated financial statements
of BioLase Technology, Inc. and its subsidiary is included on page F-2 of this
Form 10-KSB. In connection with our audit of such consolidated financial
statements, we have also audited the related financial statement schedule listed
in the index on page F-1 of this Form 10-KSB.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
March 4, 1997
S-1
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BioLase Technology, Inc.:
Under the date of March 17, 1995, we reported on the consolidated statements of
operations, changes in stockholders' equity and cash flows of BioLase
Technology, Inc. and subsidiaries for the year ended December 31,1994. In
connection with our audit of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedule as of December 31, 1994 and for the year then ended. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this consolidated financial
statement schedule based on our audit.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
The audit report on the consolidated financial statements of BioLase Technology,
Inc. and subsidiaries referred to above contains an explanatory paragraph that
states the Company's consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has suffered
recurring losses from operations and shows a need for continued funding that
raises substantial doubt about its ability to continue as a going concern. The
consolidated financial statements and financial statement schedule do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Orange County, California
March 17, 1995
S-2
<PAGE> 55
BIOLASE TECHNOLOGY, INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES
For The Years Ended December 31, 1996, 1995 And 1994
----------
<TABLE>
<CAPTION>
Allowance For
Doubtful Accounts Slow-Moving Inventory
----------------- ---------------------
<S> <C> <C>
Balance at December 31, 1993 $ 248,135 $ 839,445
Charged (credited) to operations (10,335) 23,460
Write-offs (138,234) (285,773)
------------- -------------
Balance at December 31, 1994 99,566 577,132
Charged to operations 337 24,500
Write-offs (35,286) (110,297)
------------- -------------
Balance at December 31, 1995 64,617 491,335
Charged (credited) to operations (5,900) 37,663
Write-offs (36,760) (43,844)
------------- -------------
Balance at December 31, 1996 $ 21,957 $ 485,154
============= =============
</TABLE>
S-3
<PAGE> 1
EXHIBIT 4.4
THE WARRANTS REPRESENTED HEREBY AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF
THE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER SECURITIES
LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE
WARRANTS REPRESENTED HEREBY AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE
WARRANTS MAY NOT BE OFFERED, SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS
REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT IS APPLICABLE (IN WHICH CASE THE ISSUER
SHALL HAVE RECEIVED AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE ISSUER TO SUCH EFFECT) AND THE PROVISIONS OF ALL OTHER
APPLICABLE SECURITIES LAWS ARE OBSERVED.
BIOLASE TECHNOLOGY, INC.
Incorporated Under the Laws of the State of Delaware
No. 96-U-____ _________ Common Stock
Purchase Warrants
CERTIFICATE FOR COMMON STOCK
PURCHASE WARRANTS
1. Warrant. This Warrant Certificate certifies that _________________
_________________________________________________________________ (the
"Registered Holder"), is the registered owner of the above indicated number of
Warrants expiring on the Expiration Date, as hereinafter defined. One (1)
Warrant entitles the Registered Holder to purchase one (1) share of the common
stock, par value $0.001 per share (a "Share"), of BioLase Technology, Inc., a
Delaware corporation (the "Company"), from the Company at a purchase price of
Three Dollars and Fifty Cents ($3.50) (the "Exercise Price") to the extent and
on the conditions specified herein at any time during the Exercise Period, as
hereinafter defined, upon surrender of this Warrant Certificate with the
exercise form hereon duly completed and executed and accompanied by payment of
the Exercise Price at the principal executive office of the Company.
The Warrants represented by this Warrant Certificate were originally
issued as part of a unit (a "Unit"), consisting of one share (the "Share") of
Series A Redeemable Cumulative Convertible Preferred Stock ("Preferred Stock")
which is convertible into shares of the Company's Common Stock ("Common Stock")
and Five Thousand (5,000) Warrants, issued by the Company in a private placement
(the "Private Placement") pursuant to a Private Placement Memorandum dated
September 11, 1996. The date on which the transactions constituting the Private
Placement were consummated and the Warrants represented by this Warrant
Certificate were originally issued is referred to as the "Closing Date".
-1-
<PAGE> 2
2. Restrictive Legends. Each Warrant Certificate shall bear legends
substantially in the form of the legends that appear at the beginning of this
Warrant Certificate. Each certificate representing Shares issued upon exercise
of Warrants, unless such Shares are then registered for issuance under the
Securities Act of 1933, as amended (the "Act"), shall bear a legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR REGISTERED
OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION IN RELIANCE
UPON EXEMPTIONS AFFORDED UNDER THE SECURITIES ACT AND APPLICABLE LAWS OF
OTHER JURISDICTIONS. THE SHARES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD,
HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER THE SECURITIES
ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES
ACT IS APPLICABLE (IN WHICH CASE THE ISSUER SHALL HAVE RECEIVED AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO SUCH
EFFECT) AND THE PROVISIONS OF ALL OTHER APPLICABLE SECURITIES LAWS ARE
OBSERVED."
3. Exercise. Subject to the terms hereof, the Warrants evidenced by
this Warrant Certificate may be exercised at the Exercise Price in whole or in
part at any time during the period (the "Exercise Period") commencing, if at
all, with respect to various portions of the Warrants at the times herein
specified and terminating at the close of business at the location of the
principal executive offices of the Company on December 31, 1998 (the "Expiration
Date"). The Exercise Period may also be extended by the Company's Board of
Directors.
A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date (the "Exercise Date") of the surrender to the
Company during the Exercise Period at its principal executive offices of this
Warrant Certificate with the exercise form attached hereto duly completed and
executed by the Registered Holder and accompanied by payment to the Company, in
cash or by official bank or certified check, of an amount equal to the aggregate
Exercise Price for the Shares being acquired through exercise of Warrants, in
lawful money of the United States of America.
The Exercise Period shall commence as to one thousand six hundred
sixty-six (1,666) Warrants, and the right of the Registered Holder hereof to
purchase through exercise of Warrants one thousand six hundred sixty-six (1,666)
shares of Common Stock shall commence, on the one hundred twentieth (120th) day
after the Closing Date, if and only if such Registered Holder remains the record
holder through the one hundred twentieth (120th) day after the Closing Date of
the Share of Preferred Stock that constituting part of the Unit of which the
Warrants represented by this Warrant Certificate were part or all of the shares
of Common Stock into which such Share is converted.
The Exercise Period shall commence as to an additional one thousand six
hundred sixty-seven (1,667) Warrants, and the right of the Registered Holder
hereof to purchase through exercise of Warrants an additional one thousand six
hundred sixty-seven (1,667) shares of Common Stock shall commence, on the two
hundred fortieth (240th) day after the Closing Date, if and only if such
Registered Holder remains the record holder through the two hundred fortieth
(240th) day after the Closing Date of the Share of Preferred Stock that
constituting part of the Unit of which the Warrants represented by this Warrant
Certificate were part or all of the shares of Common Stock into which such Share
is converted.
-2-
<PAGE> 3
The Exercise Period shall commence as to an additional (and the
remaining) one thousand six hundred sixty-seven (1,667) Warrants, and the right
of the Registered Holder hereof to purchase through exercise of Warrants an
additional one thousand six hundred sixty-seven (1,667) shares of Common Stock
shall commence, on the three hundred sixtieth (360th) day after the Closing
Date, if and only if such Registered Holder remains the record holder through
the three hundred sixtieth (360th) day after the Closing Date of the Share of
Preferred Stock that constituting part of the Unit of which the Warrants
represented by this Warrant Certificate were part or all of the shares of Common
Stock into which such Share is converted.
The person entitled to receive the Shares issuable upon exercise of a
Warrant or Warrants ("Warrant Shares") shall be treated for all purposes as the
holder of such Warrant Shares as of the close of business on the Exercise Date.
The Company shall not issue any fractional share interests in Warrant Shares
issuable or deliverable on the exercise of any Warrant, but the Company will
instead pay a cash adjustment in respect of any fraction of a Warrant Share
which would otherwise be issuable in an amount equal to the same fraction of the
market price of a Share on the date of exercise, such market price to be
determined in good faith by the Board of Directors of the Company. If Warrants
represented by more than one Warrant Certificate shall be exercised at one time
by the same Registered Holder, the number of full Shares which shall be issuable
on exercise thereof shall be computed on the basis of the aggregate number of
full shares issuable on such exercise.
Promptly, and in any event within ten business days after the Exercise
Date, the Company shall cause to be issued and delivered to the person or
persons entitled to receive the same a certificate or certificates for the
number of Warrant Shares deliverable on such exercise.
The Company may deem and treat the Registered Holder of the Warrants at
any time as the absolute owner thereof for all purposes, and the Company shall
not be affected by any notice to the contrary. The Warrants shall not entitle
the Registered Holder thereof to any of the rights of shareholders or to any
dividend declared on the Shares unless the Registered Holder shall have
exercised the Warrants and thereby purchased the Warrant Shares prior to the
record date for the determination of holders of Shares entitled to such dividend
or other right.
4. Reservation of Shares and Payment of Taxes. The Company covenants
that it will at all times reserve and have available from its authorized Common
Stock such number of shares as shall then be issuable on the exercise of
outstanding Warrants. The Company covenants that all Warrant Shares which shall
be so issuable shall be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
The Registered Holder shall pay all documentary, stamp or similar taxes
and other government charges that may be imposed with respect to the issuance,
transfer or delivery of any Warrant Shares on exercise of the Warrants. In the
event the Warrant Shares are to be delivered in a name other than the name of
the Registered Holder of the Warrant Certificate, no such delivery shall be made
unless the person requesting the same has paid the amount of any such taxes or
charges incident thereto.
-3-
<PAGE> 4
5. Registration of Transfer. The Warrants represented by this Warrant
Certificate may be transferred only (i) to the estate of a natural person who is
the Registered Holder and (ii) to a successor by merger or otherwise by
operation of law with respect to a Registered Holder that is not a natural
person, provided any such transfer complies with all applicable federal and
state securities laws and, if requested by the Company, the Registered Holder
delivers to the Company an opinion of counsel to that effect, in form and
substance reasonably acceptable to the Company. Warrant Certificates to be
transferred shall be surrendered to the Company at its principal executive
office. The Company shall execute, issue and deliver in exchange therefor the
Warrant Certificate or Certificates which the Registered Holder making the
transfer shall be entitled to receive.
The Company shall keep transfer books at its principal executive office
or at such other office as it may designate, which shall register Warrant
Certificates and the transfer thereof. On due presentment at such office of any
Warrant Certificate for registration of a transfer permitted hereunder, the
Company shall execute, issue and deliver to the transferee a new Warrant
Certificate representing an equal aggregate number of Warrants. All Warrant
Certificates presented for registration of transfer or exercise shall be duly
endorsed or be accompanied by a written instrument or instruments of transfer in
form satisfactory to the Company and shall be accompanied by documentary
evidence, reasonably satisfactory to the Company, demonstrating the entitlement
of the transferee to the requested transfer. The Company may require payment of
a sum sufficient to cover any tax or other government charge that may be imposed
in connection therewith.
All Warrant Certificates so surrendered, or surrendered for exercise,
or for exchange in case of mutilated Warrant Certificates, shall be promptly
canceled by the Company and thereafter retained by the Company until the
Expiration Date. Prior to due presentment for registration of transfer thereof,
the Company may treat the Registered Holder of any Warrant Certificate as the
absolute owner thereof (notwithstanding any notations of ownership or writing
thereon made by anyone other than the Company), and the Company shall not be
affected by any notice to the contrary.
6. Loss or Mutilation. On receipt by the Company of evidence
satisfactory as to the ownership of and the loss, theft, destruction or
mutilation of this Warrant Certificate, the Company shall execute and deliver,
in lieu thereof, a new Warrant Certificate representing an equal aggregate
number of Warrants. In the case of loss, theft or destruction of any Warrant
Certificate, the individual requesting issuance of a new Warrant Certificate
shall be required to indemnify the Company in an amount satisfactory to the
Company. In the event a Warrant Certificate is mutilated, such Certificate
shall be surrendered and canceled by the Company prior to delivery of a new
Warrant Certificate. Applicants for a new Warrant Certificate shall also comply
with such other reasonable regulations as the Company may prescribe.
7. Call Option. So long as the closing price or last trade on the
principal exchange on which, or in the principal market in which, the Shares
then trade equals or exceeds Six Dollars ($6.00) per share for the twenty (20)
consecutive trading days immediately preceding but not including the date of
such call, the Company at any time after December 31, 1997 shall have the right
and option, upon no less than thirty (30) days' written notice to the Registered
Holder, to call and thereafter to redeem and acquire all of the Warrants
evidenced hereby which remain outstanding and unexercised at the date fixed for
such redemption in such notice (the "Redemption Date"), which Redemption Date
shall be at least 30 days after the date of such notice, for an amount equal to
One Cent ($.01) per Warrant; provided, however, that the Registered Holder shall
be entitled during the period between the date of such notice and the Redemption
Date to exercise the Warrants in accordance with the provisions of Section 3
-4-
<PAGE> 5
hereof. Said notice of redemption shall require the Registered Holder to
surrender to the Company, on the Redemption Date, at the principal executive
offices of the Company, the certificate or certificates representing the
Warrants to be redeemed. Notwithstanding the fact that any Warrants called for
redemption have not been surrendered for redemption and cancellation on the
Redemption Date, after the Redemption Date such Warrants shall be deemed to be
expired and all rights of the Registered Holder of such unsurrendered Warrants
shall cease and terminate, other than the right to receive the redemption price
of $.01 per Warrant for such Warrants, without interest.
In connection with any call hereunder, the Company shall have no
obligation to call any other stock purchase warrant or warrants, whether or not
having similar terms, and no call made pursuant to any other stock purchase
warrant shall obligate the Company to exercise its right and option to make a
call hereunder, except that the Company shall not call any redeemable stock
purchase warrants expiring December 31, 1998 (including the Warrants evidenced
hereby) having terms substantially identical to the Warrants evidenced hereby
unless the Company concurrently calls all such Warrants.
8. Adjustment of Shares. The number and kind of securities issuable
upon exercise of a Warrant or to be delivered upon the redemption of Warrants
hereunder shall be subject to adjustment from time to time upon the happening of
certain events ("Adjustment Event"), as follows:
(a) If the Company shall, at any time prior to the complete
exercise of the Warrants evidenced hereby, declare or pay to the
holders of its outstanding Shares, a dividend payable in any kind of
shares of stock or other securities of the Company, or in property, or
otherwise than in cash, the Registered Holder when thereafter
exercising the Warrants evidenced hereby as herein provided shall be
entitled to receive for the Exercise Price, in addition to one Warrant
Share, such additional share or shares of stock or scrip representing
fractions of a share or other securities or property as the Registered
Holder would have received in the form of such dividend if he had been
the holder of record of such Warrant Share on the record date for the
determination of the holders of Shares entitled to receive such
dividend.
(b) If the Company shall, while any Warrants evidenced hereby
remain in force, effect a stock split, reverse stock split or other
recapitalization of such character that the Shares for which the
Warrants are exercisable shall be changed into or become exchangeable
for a larger or smaller number of shares, then thereafter the number of
Shares which the Registered Holder shall be entitled to purchase
hereunder shall be increased or decreased, as the case may be, in
direct proportion to the increase or decrease in the number of
outstanding Shares of the Company arising solely by reason of such
recapitalization, and the Exercise Price (per Share) shall in the case
of an increase in the number of Shares be proportionately reduced, and
in the case of a decrease in the number of shares be proportionately
increased, so that the aggregate exercise price shall remain the same.
(c) In case of any reorganization of the Company (or any other
corporation the stock or other securities of which are at the time
receivable upon exercise of a Warrant) or in case the Company (or any
such other corporation) shall merge into or with or consolidate with
another corporation or convey all or substantially all of its assets to
another corporation or enter into a business combination of any form as
a result of which the Shares or other securities receivable upon
exercise of a Warrant are converted into
-5-
<PAGE> 6
other stock or securities of the same or another corporation, then and
in each such case, the Registered Holder of a Warrant, upon exercise of
the purchase right at any time after the consummation of such
reorganization, consolidation, merger, conveyance or combination, shall
be entitled to receive, in lieu of the Shares or other securities to
which such Registered Holder would have been entitled had he exercised
the purchase right immediately prior thereto, such stock and securities
which such Registered Holder would have owned immediately after such
event with respect to the Shares and other securities for which a
Warrant may have been exercised immediately before such event had the
Registered Holder exercised the Warrant immediately prior to such
event.
(d) In case the Company shall at any time prior to the exercise
of a Warrant evidenced hereby make any distribution of its assets to
holders of its Shares by liquidating or partial liquidating dividend or
by way of return of capital, or other than as a dividend payable out of
earnings or any surplus legally available for dividends under the laws
of the state of its incorporation, then the Registered Holder when
thereafter exercising such Warrant as herein provided after the date of
record for the determination of those holders of Shares entitled to
such distribution of assets, shall be entitled to receive for the
Exercise Price, in addition to a Warrant Share, the amount of such
assets (or at the option of the Company, a sum equal to the value
thereof at the time of such distribution to holders of Shares as such
value is determined by the Board of Directors of the Company in good
faith) which would have been payable to the Registered Holder had he
been the holder of record of such Warrant Share receivable upon
exercise of such Warrant on the record date for the determination of
those entitled to such distribution.
In each case of an adjustment in the Shares or other securities
receivable upon the exercise of a Warrant, the Company shall promptly notify the
Registered Holder of such adjustment. Such notice shall set forth the facts
upon which such adjustment is based.
9. Reduction in Exercise Price at Company's Option. The Company's
Board of Directors may, at its sole discretion, reduce the Exercise Price of the
Warrants in effect at any time either for the life of the Warrants or any
shorter period of time determined by the Company's Board of Directors. The
Company shall promptly notify the Registered Holders of any such reduction in
the Exercise Price.
10. Notices. All notices, demands, elections, or requests (however
characterized or described) required or authorized hereunder shall be deemed
given sufficiently if in writing and sent by registered or certified mail,
return receipt requested and postage prepaid, or by facsimile or telegram to the
Company, at its principal executive office, and to the Registered Holder, at the
address of such holder as set forth on the books maintained by the Company.
11. General Provisions. This Warrant Certificate shall be construed
and enforced in accordance with, and governed by, the laws of the State of
California. Except as otherwise expressly stated herein, time is of the essence
in performing hereunder. The headings of this Warrant Certificate are for
convenience in reference only and shall not affect the meaning hereof.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of the ____ day of ____________, 199__.
BioLase Technology, Inc.
By
----------------------------------
-7-
<PAGE> 8
BIOLASE TECHNOLOGY, INC.
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
JR TEN - as joint tenants with right ---------------------
of survivorship and not as (Cust) (Minor)
tenants in common under Uniform Gifts
to Minors Act _______
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To be Executed by the Registered Holder if He
Desires to Assign Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto _____________________________ _____________________ (_______)
Warrants, evidenced by the within Warrant Certificate, and does hereby
irrevocably constitute and appoint _____________________ __________________
Attorney to transfer the said Warrants evidenced by the within Warrant
Certificates on the books of the Company, with full power of substitution.
Dated:____________________ _____________________________________________
Signature
Notice: The above signature must correspond with the name as written upon the
face of the Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
Signature Guaranteed: __________________________________________
SIGNATURE MUST BE GUARANTEED BY AN "ELIGIBLE GUARANTOR INSTITUTION", AS DEFINED
IN RULE 17Ad-15 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
-8-
<PAGE> 9
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder to Exercise Warrants)
To BioLase Technology, Inc.:
The undersigned hereby irrevocably elects to exercise _______________
_____________________ (______) Warrants evidenced by the within Warrant
Certificate for, and to purchase thereunder, ___________________ (______) full
shares of Common Stock issuable upon exercise of said Warrants and delivery of
$___________ and any applicable taxes.
The undersigned hereby:
(i) either [check one]
[ ] certifies that the undersigned is an accredited investor, as
defined in Rule 501 under the Securities Exchange Act of 1934, as
amended, and will be the record and beneficial owner of the shares
of Common Stock to be issued upon exercise of these Warrants; or
[ ] is supplying an opinion of counsel for the undersigned, which
shall be reasonably satisfactory in form and substance to BioLase
Technology, Inc., to the effect that the issuance of shares of
Common Stock pursuant to this exercise is exempt from the
registration requirements of the Securities Act of 1933, as
amended; and
(ii) agrees that the undersigned will not offer, sell, hypothecate or otherwise
transfer such shares of Common Stock unless such shares are registered under
said Securities Act or an exemption from the registration requirements of such
Act is applicable (in which case the undersigned shall supply an opinion of
counsel in form and substance reasonably satisfactory to BioLase Technology,
Inc. to such effect) and the provisions of all other applicable securities laws
are observed.
Please register the certificates for such shares as follows:
Taxpayer identification or
social security number:
___________________________________________ __________________________________
(Please print name)
_____________________________________________________________________________
(Please print address)
_____________________________________________________________________________
(FORM OF ELECTION TO PURCHASE CONTINUES ON FOLLOWING PAGE)
-9-
<PAGE> 10
If said number of Warrants shall not be all the Warrants evidenced by
the within Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised be registered in the name
of the undersigned at the following address and delivered to that address:
_____________________________________________________________________________
(Please print address)
_____________________________________________________________________________
Dated: ___________________ Signature: _________________________________________
NOTICE: The above signature must correspond with the name as written upon the
face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever. If the certificate
representing the shares is to be registered in a name other than that
in which the within Warrant Certificate is registered, the signature of
the holder hereof must be guaranteed.
Signature Guaranteed: __________________________________________________________
SIGNATURE MUST BE GUARANTEED BY AN "ELIGIBLE GUARANTOR INSTITUTION", AS DEFINED
IN RULE 17Ad-15 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
-10-
<PAGE> 1
EXHIBIT 4.5
THE WARRANTS REPRESENTED HEREBY AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF
THE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER SECURITIES
LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE
WARRANTS REPRESENTED HEREBY AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE
WARRANTS MAY NOT BE OFFERED, SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS
REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT IS APPLICABLE (IN WHICH CASE THE ISSUER
SHALL HAVE RECEIVED AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE ISSUER TO SUCH EFFECT) AND THE PROVISIONS OF ALL OTHER
APPLICABLE SECURITIES LAWS ARE OBSERVED.
BIOLASE TECHNOLOGY, INC.
Incorporated Under the Laws of the State of Delaware
No. 96-__-__ __________ Common Stock
Purchase Warrants
CERTIFICATE FOR COMMON STOCK
PURCHASE WARRANTS
1. Warrant. This Warrant Certificate certifies that ________________
_____________________________(the "Registered Holder"), is the registered owner
of the above indicated number of Warrants expiring on the Expiration Date, as
hereinafter defined. One (1) Warrant entitles the Registered Holder to
purchase one (1) share of the common stock, par value $0.001 per share (a
"Share"), of BioLase Technology, Inc., a Delaware corporation (the "Company"),
from the Company at a purchase price of Three Dollars and Fifty Cents ($3.50)
(the "Exercise Price") to the extent and on the conditions specified herein at
any time during the Exercise Period, as hereinafter defined, upon surrender of
this Warrant Certificate with the exercise form hereon duly completed and
executed and accompanied by payment of the Exercise Price at the principal
executive office of the Company.
2. Restrictive Legends. Each Warrant Certificate shall bear
legends substantially in the form of the legends that appear at the beginning
of this Warrant Certificate. Each certificate representing Shares issued upon
exercise of Warrants, unless such Shares are then registered for issuance under
the Securities Act of 1933, as amended (the "Act"), shall bear a legend in
substantially the following form:
-1-
<PAGE> 2
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY OTHER
JURISDICTION IN RELIANCE UPON EXEMPTIONS AFFORDED UNDER THE SECURITIES
ACT AND APPLICABLE LAWS OF OTHER JURISDICTIONS. THE SHARES REPRESENTED
HEREBY MAY NOT BE OFFERED, SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED
UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT IS APPLICABLE (IN
WHICH CASE THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO SUCH EFFECT) AND
THE PROVISIONS OF ALL OTHER APPLICABLE SECURITIES LAWS ARE OBSERVED."
3. Exercise. Subject to the terms hereof, the Warrants evidenced
by this Warrant Certificate may be exercised at the Exercise Price in whole or
in part at any time during the period (the "Exercise Period") commencing upon
the issuance hereof and terminating at the close of business at the location of
the principal executive offices of the Company on December 31, 1998 or such
later date through which the Exercise Period is extended (the "Expiration
Date"). The Exercise Period may be extended by the Company's Board of
Directors.
A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date (the "Exercise Date") of the surrender to the
Company during the Exercise Period at its principal executive offices of this
Warrant Certificate with the exercise form attached hereto duly completed and
executed by the Registered Holder and accompanied by payment to the Company, in
cash or by official bank or certified check, of an amount equal to the
aggregate Exercise Price for the Shares being acquired through exercise of
Warrants, in lawful money of the United States of America.
The person entitled to receive the Shares issuable upon exercise of a
Warrant or Warrants ("Warrant Shares") shall be treated for all purposes as the
holder of such Warrant Shares as of the close of business on the Exercise Date.
The Company shall not issue any fractional share interests in Warrant Shares
issuable or deliverable on the exercise of any Warrant, but the Company will
instead pay a cash adjustment in respect of any fraction of a Warrant Share
which would otherwise be issuable in an amount equal to the same fraction of
the market price of a Share on the date of exercise, such market price to be
determined in good faith by the Board of Directors of the Company. If Warrants
represented by more than one Warrant Certificate shall be exercised at one time
by the same Registered Holder, the number of full Shares which shall be
issuable on exercise thereof shall be computed on the basis of the aggregate
number of full shares issuable on such exercise.
Promptly, and in any event within ten business days after the Exercise
Date, the Company shall cause to be issued and delivered to the person or
persons entitled to receive the same a certificate or certificates for the
number of Warrant Shares deliverable on such exercise.
The Company may deem and treat the Registered Holder of the Warrants
at any time as the absolute owner thereof for all purposes, and the Company
shall not be affected by any notice to the contrary. The Warrants shall not
entitle the Registered Holder thereof to any of the rights of shareholders or
to any dividend declared on the Shares unless the Registered Holder shall have
exercised the Warrants and thereby purchased the Warrant Shares prior to the
record date for the determination of holders of Shares entitled to such
dividend or other right.
-2-
<PAGE> 3
4. Reservation of Shares and Payment of Taxes. The Company
covenants that it will at all times reserve and have available from its
authorized Common Stock such number of shares as shall then be issuable on the
exercise of outstanding Warrants. The Company covenants that all Warrant
Shares so issuable shall be duly and validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges upon issuance in
accordance with the terms thereof.
The Registered Holder shall pay all documentary, stamp or similar
taxes and other government charges that may be imposed with respect to the
issuance, transfer or delivery of any Warrant Shares on exercise of the
Warrants. In the event the Warrant Shares are to be delivered in a name other
than the name of the Registered Holder of the Warrant Certificate, no such
delivery shall be made unless the person requesting the same has paid the
amount of any such taxes or charges incident thereto.
5. Registration of Transfer. The Warrants represented by this
Warrant Certificate may be transferred only if such transfer complies with all
applicable federal and state securities laws and, if requested by the Company,
the Registered Holder delivers to the Company an opinion of counsel to that
effect, in form and substance reasonably acceptable to the Company. Warrant
Certificates representing Warrants to be transferred shall be surrendered to
the Company at its principal executive office. The Company shall execute,
issue and deliver in exchange therefor the Warrant Certificate or Certificates
which the Registered Holder making the transfer shall be entitled to receive.
The Company shall keep transfer books at its principal executive
office or at such other office as it may designate, which shall register
Warrant Certificates and the transfer thereof. On due presentment at such
office of any Warrant Certificate for registration of a transfer permitted
hereunder, the Company shall execute, issue and deliver to the transferee a new
Warrant Certificate representing an equal aggregate number of Warrants. All
Warrant Certificates presented for registration of transfer or exercise shall
be duly endorsed or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Company. The Company may require payment
of a sum sufficient to cover any tax or other government charge that may be
imposed in connection therewith.
All Warrant Certificates so surrendered, or surrendered for exercise,
or for exchange in case of mutilated Warrant Certificates, shall be promptly
canceled by the Company and thereafter retained by the Company until the
Expiration Date. Prior to due presentment for registration of transfer
thereof, the Company may treat the Registered Holder of any Warrant Certificate
as the absolute owner thereof (notwithstanding any notations of ownership or
writing thereon made by anyone other than the Company), and the Company shall
not be affected by any notice to the contrary.
6. Loss or Mutilation. On receipt by the Company of evidence
satisfactory as to the ownership of and the loss, theft, destruction or
mutilation of this Warrant Certificate, the Company shall execute and deliver,
in lieu thereof, a new Warrant Certificate representing an equal aggregate
number of Warrants. In the case of loss, theft or destruction of any Warrant
Certificate, the individual requesting issuance of a new Warrant Certificate
shall be required to indemnify the Company in an amount satisfactory to the
Company. In the event a Warrant Certificate is mutilated, such Certificate
shall be surrendered and canceled by the Company prior to delivery of a new
Warrant Certificate. Applicants for a new Warrant Certificate shall also
comply with such other reasonable regulations as the Company may prescribe.
-3-
<PAGE> 4
7. Adjustment of Shares. The number and kind of securities
issuable upon exercise of a Warrant or to be delivered upon the redemption of
Warrants hereunder shall be subject to adjustment from time to time upon the
happening of certain events ("Adjustment Event"), as follows:
(a) If the Company shall, at any time prior to the complete
exercise of the Warrants evidenced hereby, declare or pay to the
holders of its outstanding Shares, a dividend payable in any kind of
shares of stock or other securities of the Company, or in property, or
otherwise than in cash, the Registered Holder when thereafter
exercising the Warrants evidenced hereby as herein provided shall be
entitled to receive for the Exercise Price, in addition to one Warrant
Share, such additional share or shares of stock or scrip representing
fractions of a share or other securities or property as the Registered
Holder would have received in the form of such dividend if he had been
the holder of record of such Warrant Share on the record date for the
determination of the holders of Shares entitled to receive such
dividend.
(b) If the Company shall, while any Warrants evidenced hereby
remain in force, effect a stock split, reverse stock split or other
recapitalization of such character that the Shares for which the
Warrants are exercisable shall be changed into or become exchangeable
for a larger or smaller number of shares, then thereafter the number of
Shares which the Registered Holder shall be entitled to purchase
hereunder shall be increased or decreased, as the case may be, in
direct proportion to the increase or decrease in the number of
outstanding Shares of the Company arising solely by reason of such
recapitalization, and the Exercise Price (per Share) shall in the case
of an increase in the number of Shares be proportionately reduced, and
in the case of a decrease in the number of shares be proportionately
increased, so that the aggregate exercise price shall remain the same.
(c) In case of any reorganization of the Company (or any other
corporation the stock or other securities of which are at the time
receivable upon exercise of a Warrant) or in case the Company (or any
such other corporation) shall merge into or with or consolidate with
another corporation or convey all or substantially all of its assets to
another corporation or enter into a business combination of any form as
a result of which the Shares or other securities receivable upon
exercise of a Warrant are converted into other stock or securities of
the same or another corporation, then and in each such case, the
Registered Holder of a Warrant, upon exercise of the purchase right at
any time after the consummation of such reorganization, consolidation,
merger, conveyance or combination, shall be entitled to receive, in
lieu of the Shares or other securities to which such Registered Holder
would have been entitled had he exercised the purchase right
immediately prior thereto, such stock and securities which such
Registered Holder would have owned immediately after such event with
respect to the Shares and other securities for which a Warrant may have
been exercised immediately before such event had the Registered Holder
exercised the Warrant immediately prior to such event.
(d) In case the Company shall at any time prior to the exercise
of a Warrant evidenced hereby make any distribution of its assets to
holders of its Shares by liquidating or partial liquidating dividend or
by way of return of capital, or other than as a dividend payable out of
earnings or any surplus legally available for dividends under the laws
of the state of its incorporation, then the Registered Holder when
thereafter exercising such Warrant as herein provided after the date of
record for the determination
-4-
<PAGE> 5
of those holders of Shares entitled to such distribution of assets,
shall be entitled to receive for the Exercise Price, in addition to a
Warrant Share, the amount of such assets (or at the option of the
Company, a sum equal to the value thereof at the time of such
distribution to holders of Shares as such value is determined by the
Board of Directors of the Company in good faith) which would have been
payable to the Registered Holder had he been the holder of record of
such Warrant Share receivable upon exercise of such Warrant on the
record date for the determination of those entitled to such
distribution.
In each case of an adjustment in the Shares or other securities
receivable upon the exercise of a Warrant, the Company shall promptly notify
the Registered Holder of such adjustment. Such notice shall set forth the
facts upon which such adjustment is based.
8. Reduction in Exercise Price at Company's Option. The Company's
Board of Directors may, at its sole discretion, reduce the Exercise Price of the
Warrants in effect at any time either for the life of the Warrants or any
shorter period of time determined by the Company's Board of Directors. The
Company shall promptly notify the Registered Holders of any such reduction in
the Exercise Price.
9. Notices. All notices, demands, elections, or requests (however
characterized or described) required or authorized hereunder shall be deemed
given sufficiently if in writing and sent by registered or certified mail,
return receipt requested and postage prepaid, or by facsimile or telegram to the
Company, at its principal executive office, and to the Registered Holder, at the
address of such holder as set forth on the books maintained by the Company.
10. General Provisions. This Warrant Certificate shall be construed
and enforced in accordance with, and governed by, the laws of the State of
California. Except as otherwise expressly stated herein, time is of the essence
in performing hereunder. The headings of this Warrant Certificate are for
convenience in reference only and shall not affect the meaning hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of the 2nd day of December, 1996.
BioLase Technology, Inc.
By____________________________
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<PAGE> 6
BIOLASE TECHNOLOGY, INC.
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
JR TEN - as joint tenants with right --------------------
of survivorship and not as (Cust) (Minor)
tenants in common under Uniform Gifts
to Minors Act _______
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To be Executed by the Registered Holder if He
Desires to Assign Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED ___________________________ hereby sells,
assigns and transfers unto _____________________________ _____________________
(_______) Warrants, evidenced by the within Warrant Certificate, and does
hereby irrevocably constitute and appoint ____________________________________
Attorney to transfer the said Warrants evidenced by the within Warrant
Certificates on the books of the Company, with full power of substitution.
Dated:____________________ _____________________________________________
Signature
Notice: The above signature must correspond with the name as written upon the
face of the Warrant Certificate in every particular, without alteration
or enlargement or any change whatsoever.
Signature Guaranteed: _________________________________________________________
SIGNATURE MUST BE GUARANTEED BY AN "ELIGIBLE GUARANTOR INSTITUTION", AS DEFINED
IN RULE 17Ad-15 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
-6-
<PAGE> 7
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder to Exercise Warrants)
To BioLase Technology, Inc.:
The undersigned hereby irrevocably elects to exercise ________________
_________________ (______) Warrants evidenced by the within Warrant Certificate
for, and to purchase thereunder, ___________________ (______) full shares of
Common Stock issuable upon exercise of said Warrants and delivery of
$___________ and any applicable taxes.
The undersigned hereby:
(i) either [check one]
[ ] certifies that the undersigned is an accredited investor, as
defined in Rule 501 under the Securities Exchange Act of 1934,
as amended, and will be the record and beneficial owner of the
shares of Common Stock to be issued upon exercise of these
Warrants; or
[ ] is supplying an opinion of counsel for the undersigned, which
shall be reasonably satisfactory in form and substance to
BioLase Technology, Inc., to the effect that the issuance of
shares of Common Stock pursuant to this exercise is exempt
from the registration requirements of the Securities Act of
1933, as amended; and
(ii) agrees that the undersigned will not offer, sell, hypothecate or otherwise
transfer such shares of Common Stock unless such shares are registered under
said Securities Act or an exemption from the registration requirements of such
Act is applicable (in which case the undersigned shall supply an opinion of
counsel in form and substance reasonably satisfactory to BioLase Technology,
Inc. to such effect) and the provisions of all other applicable securities laws
are observed.
Please register the certificates for such shares as follows:
Taxpayer identification or
social security number:
__________________________________________________ __________________________
(Please print name)
_____________________________________________________________________________
(Please print address)
_____________________________________________________________________________
(FORM OF ELECTION TO PURCHASE CONTINUES ON FOLLOWING PAGE)
-7-
<PAGE> 8
If said number of Warrants shall not be all the Warrants evidenced by
the within Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised be registered in the name
of the undersigned at the following address and delivered to that address:
______________________________________________________________________________
(Please print address)
______________________________________________________________________________
Dated: ____________________ Signature:_________________________________________
NOTICE: The above signature must correspond with the name as written upon the
face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever. If the certificate
representing the shares is to be registered in a name other than that
in which the within Warrant Certificate is registered, the signature of
the holder hereof must be guaranteed.
Signature Guaranteed: _________________________________________________________
SIGNATURE MUST BE GUARANTEED BY AN "ELIGIBLE GUARANTOR INSTITUTION", AS DEFINED
IN RULE 17Ad-15 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
-8-
<PAGE> 1
EXHIBIT 10.26
DISTRIBUTION AGREEMENT
This AGREEMENT ("Agreement") is made and entered into this 19th day of
December 1996, (this "Effective Date") by and between
BioLase Technology, Inc., with its principal place of business at 981 Calle
Amanecer, San Clemente, California 92673, U.S.A., a Delaware corporation
hereinafter referred to as "BioLase"
and
Orbis High Tech Dental GmbH, with its principal place of business at Langenweg
18, 26125 Oldenburg, Germany, a German company with limited liability
hereinafter referred to as "OHT"
Whereas, BioLase has developed laser systems and accessories, and
desires to market said products in the Federal Republic of Germany
("Territory").
Whereas, OHT has experience in marketing Dental products and desires to
be a distributor of BioLase products for dentistry in the Territory.
Now, therefore, in consideration of the foregoing recitals and of the
mutual covenants and conditions contained herein, the parties agree as follows:
1. PRODUCTS AND SUBJECT-MATTER OF THE AGREEMENT
The products, accessories and parts covered by this Agreement are
listed in Exhibit A to this Agreement as it may be amended from time to time at
the mutual con-
- ------------------------------
The Registrant considers certain portions of this Agreement to be confidential
and has omitted them pursuant to Rule 24b-2 promulgated under the Securities
Exchange Act of 1934. The confidential portion has been filed with the
Securities Exchange Commission pursuant to Rule 24b-2.
<PAGE> 2
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sent of the parties (the "Covered Products"). BioLase shall furthermore grant a
first option to OHT to distribute within the Territory any new Dentistry
products which may be developed or distributed by BioLase at similar or more
favorable conditions as those granted to other distributors of the new Dentistry
products. Should BioLase have a valid opportunity to distribute new Dentistry
products in the Territory, it will notify OHT and within thirty (30) days of
such notice OHT will notify BioLase of its intention.
2. TERM
The term of this Agreement shall commence on the Effective Date and
shall end upon expiry of the three years period beginning with the first order
of OHT, however, not later than on 1 February 1997. The Agreement may be renewed
by mutual consent of the parties.
3. OBLIGATIONS OF THE PARTIES
(1) During the term of this Agreement OHT undertakes
a) to arrange for the import of the Covered Products into the Territory
and to bear any and all expenses relating thereto, e.g. customs,
duties, tariffs, import taxes or other amounts, charges, costs or
expenses payable on account of transportation or handling (F.O.B. San
Clemente); OHT shall bear any amounts, charges, costs, expenses, fees
or taxes due on account of any income of OHT pursuant to this
Agreement;
b) to accept the Covered Products according to its Orders as well as to
perform an initial inspection and if appropriate calibrations and/or
adaptations as well as repair works; OHT shall bear any costs or other
expenses caused by the return transport of Covered Products that have
been unduly rejected by OHT for alleged defects;
c) to immediately inform BioLase as soon as OHT becomes aware of any
change relating to statutory and/or regulatory requirements for the
distribution of the Covered Products in Germany so as to enable BioLase
to comply with
<PAGE> 3
-3-
pertinent legal requirements (e.g. permits relating to the type of
construction (Bauartzulassungen) etc.);
d) to perform all necessary repair and adaptation work related to
warranty claims;
e) to provide Biolase with a report as specified by Exhibit B about the
installation of each laser;
f) to ensure training of the dentists for the use of the Covered
Products;
g) to provide prompt warranty and out of warranty repair and
maintenance services to the end users and to send at OHT's expense and
option repair technicians as required to such location within Germany
as designated by BioLase for training in service and repair of Covered
Products; BioLase will at its own expense regularly, however, not more
than twice a year send an experienced repair and maintenance trainer to
Germany;
h) to exhibit the Covered Products at major trade shows within the
Territory;
i) to have on stock and distribute literature, technical manuals,
clinical research, procedural guidelines and other materials regarding
the Covered Products and specifications which are reasonably necessary
to develop and maintain effective distribution of the Covered Products
and customer service and support programs as supplied from time to time
by BioLase pursuant to section 3(2)f) hereof;
j) to translate literature and marketing material pertaining to the
Covered Products into the German language.
(2) During the term of this Agreement BioLase undertakes
a) to inform OHT about any intention to introduce a new dental product
in Germany, to negotiate in good faith with OHT on the terms and
conditions of a distribution arrangement for any such product in the
Territory;
<PAGE> 4
-4-
b) [*];
c) to give thirty (30) days notice to OHT on any price changes. Such
price changes do not apply to orders dispatched by OHT prior to the
above notification. Such price changes may not be made prior to the
first anniversary of the agreement;
d) to make mutually agreeable available research equipment and an
annual research budget not to exceed [*] to participate in not more
than four (4) universities selected by Biolase after consultation with
OHT. The parties have to agree upon the research projects to be
financed by means of the above research budget;
e) to offer technical and personal support for selected trade shows.
Each party is, however, obliged to bear the costs relating to its own
staff. Biolase will attend in joint efforts every two (2) years at the
IDS for the purpose of marketing its products with OHT. The
contribution of BioLase for the booth at the IDS will not exceed [*].
f) to make available to OHT all of BioLase's documents - literature,
technical manuals, clinical research, procedural guidelines - which
might support OHT's marketing efforts.
4. DISTRIBUTION
(1) BioLase hereby grants to OHT the exclusive rights, subject to the provisions
of Section 5 below, to distribute the Covered Products in the Territory during
the term of this Agreement.
(2) OHT is authorized to establish sub-distributors or sell to persons other
than end users; the parties understand and agree that the minimum purchase
requirements shall be an obligation of OHT and if not satisfied, BioLase shall
have the option to terminate
- ------------------------------
* The Registrant considers this portion of the Agreement to be confidential and
has omitted it pursuant to Rule 24b-2 promulgated under the Securities
Exchange Act of 1934. The confidential portion has been filed separately
with the Securities Exchange Commission pursuant to Rule 24b-2.
<PAGE> 5
-5-
exclusivity in which event the exclusive rights of sub-distributors hereunder
shall also be terminated.
(3) Nothing in this Agreement shall be construed to preclude BioLase from
selling, leasing or otherwise marketing any of the Covered Products to any
customer, including but not limited to end users, original equipment
manufacturers and other distributors outside the Territory. OHT shall refrain,
outside the Territory and in relation to the Covered Products, from seeking
customers, from establishing any branch, and from maintaining any distribution
depot.
(4) BioLase grants OHT a right of first refusal to acquire exclusive
distribution in the following countries: Switzerland, Benelux and Austria. It is
understood that BioLase will pursue distribution opportunities in these
countries and, should BioLase have a valid opportunity to grant distribution to
another dealer, BioLase will notify OHT and within thirty (30) days of notice
OHT will notify BioLase of its intention. Should OHT elect exclusivity, the
country will be added to this Agreement as Addendum with all terms and
conditions of this Agreement applicable.
5. ORDERS/MINIMUM PURCHASE REQUIREMENTS
(1) During the first week of each calendar month OHT will communicate to BioLase
its business plan and place its orders for the calendar month after next (e.g.
in January for March). The first order will be placed by OHT in January 1997.
(2) The minimum purchase requirements to be fulfilled by OHT are set forth in
paragraph 4 of Exhibit A to this Agreement. BioLase has the right to terminate
the agreement with immediate effect once OHT has failed to order the minimum in
a respective year within the first week of the following year, with no
obligations to OHT or any of its sub-distributors, contractors and successors.
(3) BIOLASE shall be obliged to make sure and to notify OHT that the Covered
Products ordered by OHT pursuant to sub-section (1) hereof are ready for
shipment not later than at the end of the respective calendar month for which
the order has been placed. [*]
- ------------------------------
* The Registrant considers this portion of the Agreement to be confidential and
has omitted it pursuant to Rule 24b-2 promulgated under the Securities
Exchange Act of 1934. The confidential portion has been filed separately
with the Securities Exchange Commission pursuant to Rule 24b-2.
<PAGE> 6
-6-
6. TERMS OF PAYMENT
(1) Payment by OHT is to be made in US$ either by 30-day irrevocable Letter of
Credit or by direct wire transfer to a bank account indicated by BioLase upon
notification made by BioLase to OHT that the ordered Covered Products are ready
for shipment. OHT shall bear all banking charges connected with the payments
made in respect of the Covered Products.
(2) The transfer price per unit is set forth in Paragraph 3 of Exhibit A to this
Agreement.
7. TECHNICAL SERVICE/SPARE PARTS
(1) OHT shall make available maintenance technicians who shall be trained for
after sales services of the Covered Products. With regard to costs and expenses
Section 3(1)f) applies.
(2) Upon signature of this Agreement, OHT shall to the extent not yet available
purchase a repair kit and a set of repair instruments for the Covered Products
as well as those spare parts which are necessary for the maintenance of the
Covered Products in the Territory.
(3) [*]
(4) [*]
- ------------------------------
* The Registrant considers this portion of the Agreement to be confidential and
has omitted it pursuant to Rule 24b-2 promulgated under the Securities
Exchange Act of 1934. The confidential portion has been filed separately
with the Securities Exchange Commission pursuant to Rule 24b-2.
<PAGE> 7
-7-
8. WARRANTIES
(1) The warranty period for Covered Products is one year from the date of the
installation of the Covered Products at the dentist's practice but in no event
longer than [*] from the date of shipment of the Covered Products by BioLase to
OHT. Spare parts are to be delivered to OHT in a timely manner and either free
of cost by BioLase if the defective Covered Product falls within the scope of
the warranty clause, or, if the warranty clause does not apply, at the customary
sales prices for distributors or at the current prices for spare parts. This
warranty clause only applies to cases of substantial defect in material or
workmanship of the Covered Products and in no event to cases of non-compliance
with statutory or other local requirements affecting the use of the product by
OHT's customers. BioLase shall have no service obligations of any kind under
this Agreement.
(2) During the warranty period, OHT may charge BioLase with the costs incurred
for repairing any Covered Products as well as any parts made available to its
customers which are covered by a BioLase warranty, provided that it forwards its
corresponding invoice to BioLase. Such invoice pertaining to a warranty claim
must be received by BioLase Technology, Inc., 981 Calle Amanecer, San Clemente,
CA 92673, USA, Tel. 001 714 361 1200, Fax 001 714 361 0204 within sixty (60)
days upon the date of performance of the repair works. Notwithstanding the
foregoing, BioLase shall not be responsible for OHT's warranty related labor
costs, except in the event that excessive repairs (100% more than usually
required for BioLase products) are necessary for a Covered Product. Regarding
all works not falling within the scope of the warranty, OHT will charge the
customer directly for its services and spare parts. Only parts delivered by
BioLase shall be used in connection with Covered Products.
(3) All parts which are the object of a warranty claim shall be returned to
BioLase in a packaging appropriate for reducing the risk of any damage during
the transport. OHT is entitled to collectively ship all such defective parts
substituted prior to the eleventh calendar day of the last month of the
respective calendar quarter to BioLase not later than on the last day of such
calendar quarter (e.g. defective parts substituted during the period from 11
December until 10 March shall be collectively shipped to BioLase not later than
on 31 March, etc.). OHT is then obliged to identify the date of the repair work,
its respective invoice number and the respective serial number of the Covered
- ------------------------------
* The Registrant considers this portion of the Agreement to be confidential and
has omitted it pursuant to Rule 24b-2 promulgated under the Securities
Exchange Act of 1934. The confidential portion has been filed separately
with the Securities Exchange Commission pursuant to Rule 24b-2.
<PAGE> 8
-8-
Product. If such parts are not shipped as outlined above and subsequently
received by BioLase and if the aforementioned invoices are not received by
BioLase within sixty (60) days upon performance of the repair works undertaken
pursuant to the warranty clause, BioLase may freely decide whether it makes
corresponding payments. If returned parts are damaged due to inadequate
packaging, OHT shall indemnify BioLase against all costs resulting from such
damage. OHT has to return the above parts to the after-sales manager of BioLase.
(4) If Covered Products show severe defects, OHT is entitled to return these to
BioLase on BioLase's expense and BioLase will repay to OHT the original sales
price plus all costs and expenses as listed in section 3(1)a).
9. PRODUCT LIABILITY
BioLase shall hold harmless OHT against all product liability claims unless they
are caused by conduct of OHT. BioLase undertakes to underwrite a reasonable
product liability insurance and will provide OHT upon request with copies of
such insurance policy. BioLase currently maintains a product liability insurance
covering damages of up to [*] per individual case with [*] for the purpose of
covering product liability in the Territory.
10. TERMINATION OF THE AGREEMENT
(1) This Agreement terminates upon expiry of the term set forth in section 2 (1)
if no consent as to its renewal has been reached.
(2) Each party has the right to terminate the Agreement with immediate effect if
composition or bankruptcy proceedings are commenced with respect to the other
party's assets or if the other party stops its payments. In such events all
outstanding orders may be cancelled by either party.
- ------------------------------
* The Registrant considers this portion of the Agreement to be confidential and
has omitted it pursuant to Rule 24b-2 promulgated under the Securities
Exchange Act of 1934. The confidential portion has been filed separately
with the Securities Exchange Commission pursuant to Rule 24b-2.
<PAGE> 9
-9-
11. POST-CONTRACTUAL OBLIGATIONS
(1) Notwithstanding section 10(2), all obligations arising under this Agreement
which are due to the other party and not yet performed survive this Agreement
until being performed irrespective of any termination or renewal of this
Agreement.
(2) BioLase is under an obligation to deliver spare parts to OHT for warranty
purposes for a period of [*]. The conditions of this Agreement shall apply to
such deliveries.
12. CONFIDENTIALITY
During the duration of this Agreement as well as after its termination, the
parties undertake to keep secret vis-a-vis any third party any circumstance
concerning the business or the business partners of the parties as well as any
technical or commercial information of which they shall have become aware in
connection with the performance of this Agreement.
13. TRADEMARKS: PROPRIETARY RIGHTS
BioLase hereby grants and OHT hereby accepts, a non-exclusive, non-transferable,
non-assignable, terminable and royalty-free license to use BioLase's name,
trademark(s), and logo (collectively "Proprietary Marks") solely to perform its
obligations hereunder subject to the conditions of this Agreement and solely in
connection with the Covered Products. OHT shall immediately provide BioLase with
samples of its current use of the Proprietary Marks in marketing and on the
Covered Products if BioLase so requires. OHT shall refrain from using the
Proprietary Marks if BioLase informs OHT that any actual or proposed use is, or
may be, detrimental to BioLase's investment in such Proprietary Marks or
otherwise is not approved by BioLase, in its sole discretion. All price lists,
sales, or promotional literature and other materials prepared by OHT with
respect to the Covered Products shall bear appropriate copyright and/or
trademark notices as prescribed by BioLase. OHT shall promptly inform BioLase in
writing of any known or reasonably suspected violation or infringement of
BioLase's trademark(s) or copyright(s). OHT agrees that it will not use,
register, or otherwise appropriate any name, mark, or logo which is similar to
or may be confused with any name,
- ------------------------------
* The Registrant considers this portion of the Agreement to be confidential and
has omitted it pursuant to Rule 24b-2 promulgated under the Securities
Exchange Act of 1934. The confidential portion has been filed separately
with the Securities Exchange Commission pursuant to Rule 24b-2.
<PAGE> 10
-10-
mark, or logo licensed by BioLase hereunder. The license granted to OHT
constitutes OHT's exclusive right to use BioLase's Proprietary Marks, and OHT is
not granted a license to use any other proprietary rights of BioLase. OHT shall
at all times take all reasonable actions to protect the good name and reputation
of BioLase, the Covered Products and the Proprietary Marks. OHT shall not
change, alter, cover or remove the name, trademarks, logos, nomenclature or
instructions of any type appearing on, or that are originally shipped with or as
part of, the Covered Products. OHT may not affix any marks other than the
Proprietary Marks to the Covered Products.
14. DISPUTES, GOVERNING LAW AND VENUE
(1) The parties shall use their best endeavours to amicably settle any disputes,
controversies and claims arising under or in connection with or due to an
infringement of this Agreement. If such disputes, controversies or claims cannot
be amicably settled after consultation of the parties' managements, the courts
of Frankfurt a. M., Germany, shall have exclusive jurisdiction for all claims of
BioLase against OHT and the courts of San Clemente, California, U.S.A. shall
have exclusive jurisdiction for all claims of OHT against BioLase.
(2) The law of the Federal Republic of Germany shall apply to the validity,
construction and performance of this Agreement.
(3) Any failure of one of the parties to claim at any time from the other party
performance of the provisions of this Agreement shall not be construed as a
waiver of such party to claim performance of such provision. In the event of a
breach of any provision of this Agreement, any waiver shall be made in writing
in order to be effective and shall not be construed as a waiver of any right
arising from any future or continuing breach of such provision, of such
provision itself or of any other right resulting from this Agreement.
15. SEVERABILITY
This Agreement shall be performed and executed in its entirety. If one or more
of the provisions or parts thereof contained in this Agreement shall for any
reason be held to be invalid or unenforceable or excessively broad as to scope,
activity or subjects so as to
<PAGE> 11
-11-
be unenforceable, this Agreement shall remain in force and such provision or
parts of such provision and such other relevant terms of the Agreement shall be
changed or amended so as to achieve the utmost compliance with applicable
statutory provisions. If such provision or parts of such provision and such
other relevant terms of the Agreement cannot be changed or amended so as to
comply with the statutory provisions, it/they shall be struck from this
Agreement and this Agreement shall remain in force unless the rights of either
party are unreasonably adversely affected by the elimination of such provision
or parts of such provision and such other relevant terms of the Agreement.
16. FINAL PROVISIONS
(1) This is the entire Agreement concluded between the parties. There are no
verbal collateral agreements that are not contained in either this Agreement or
in the Exhibit 1 attached thereto. This Agreement may be changed or modified
only by an agreement in writing signed by the parties hereto.
(2) No provision of this Agreement shall be construed so as to create a
partnership, agency or fiduciary relationship between the parties.
(3) Any notice of termination or other notifications under this Agreement shall
be made in writing and may be communicated either by personal delivery,
registered mail return receipt requested, via telefax, messenger or telex and
has to be addressed to either the parties' business address or any other address
as has been notified in writing by the parties. The above notices and
notifications shall be deemed to have been made on the date of service as
established by written confirmation of receipt or other confirmation.
(4) This Agreement shall be legally binding upon the parties and their
successors and/or assigns. Any assignment of this Agreement by one party is,
however, subject to the prior written approval by the other party.
<PAGE> 12
-12-
BioLase Technology, INC Orbis High Tech Dental GmbH
San Clemente, this Oldenburg, den 6 - January, 1997
/s/ Donald A. LaPoint /s/ Johannes Wolf
- --------------------------- ---------------------------------
Donald A. LaPoint Johannes Wolf
CEO Geschaftsfuhrer
<PAGE> 13
-13-
EXHIBIT A
1. Covered Product
MILLENNIUM(R) BioLase's actual Er,Cr:YSGG Dental Laser
including its further modifications, e.g.
changes of components aiming at reducing
weight and/or increasing portability etc.
2. Statutory Provisions
Subject to section 3, (1) c) of this Agreement, the Covered Product will bear
the CE seal and will comply with all statutory and regulatory requirements
relating to its distribution in Germany.
3. Transfer Price of the Covered Product:
MILLENNIUM(R)
[*]
(All prices on invoices or payments are shown in US$.)
4. Minimum Purchase Requirement
[*]
- ------------------------------
* The Registrant considers this portion of the Agreement to be confidential and
has omitted it pursuant to Rule 24b-2 promulgated under the Securities
Exchange Act of 1934. The confidential portion has been filed separately
with the Securities Exchange Commission pursuant to Rule 24b-2.
<PAGE> 14
-14-
5. [*]
6. Further Support by BioLase
From time to time, however not less than twice a year, BioLase will provide OHT
with information on research projects and newly published literature in order to
assist the mutual marketing efforts. This applies also to any description of new
clinical applications of the Covered Product to which BioLase has access. Basic
advertising material and pictures of the Covered Products will be made available
upon request.
BioLase Technology, INC Orbis High Tech Dental GmbH
San Clemente, this Oldenburg, den 6 - January, 1997
/s/ Donald A. LaPoint /s/ Johannes Wolf
- ---------------------------- ----------------------------------
Donald A. LaPoint Johannes Wolf
CEO Geschaftsfuhrer
- ------------------------------
* The Registrant considers this portion of the Agreement to be confidential and
has omitted it pursuant to Rule 24b-2 promulgated under the Securities
Exchange Act of 1934. The confidential portion has been filed separately
with the Securities Exchange Commission pursuant to Rule 24b-2.
<PAGE> 15
-15-
EXHIBIT B
INSTALLATION TRACKING FORM
Customer: Millennium serial number:
Address: Date of installation:
Address: Name of installer:
Telephone:
FAX:
Primary user:
Names and positions of those receiving on-site training:
Handpiece serial number(s):
Power setting [W] Power measured [W]
----------------- ------------------
0.25
0.50
0.75
1.0
2.0
3.0
4.0
5.0
6.0
Verified spray adjustability:
Comments:
Installer signature:____________________ Date:__________
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
BioLase Technology, Inc.:
We consent to incorporation by reference in the registration statements Nos.
33-51234 and 33-73300 on Form S-8 of BioLase Technology, Inc. (Formerly Laser
Medical Technology, Inc.) of our report dated March 17, 1995 relating to the
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1994, and the related schedule, which report appears
in the December 31, 1996 Annual Report on Form 10-KSB of BioLase Technology,
Inc.
Our report dated March 17, 1995 contains an explanatory paragraph that states
that the Company's consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has suffered recurring
losses from operations and shows a need for continued funding that raises
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements and consolidated financial statement schedule
does not include any adjustments that might result from the outcome of that
uncertainty.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Orange County, California
April 7, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
BioLase Technology, Inc. on Form S-8 (File No. 333-09093) of our report, which
includes an explanatory paragraph regarding the Company's ability to continue
as a going concern, dated March 4, 1997 on our audits of the consolidated
financial statements and consolidated financial statement schedule of BioLase
Technology, Inc. as of December 31, 1996 and 1995 and for each of the two years
in the period ended December 31, 1996, included in this Annual Report on Form
10-KSB.
/s/ COOPERS & LYBRAND L.L.P.
-----------------------------
Coopers & Lybrand L.L.P.
Newport Beach, California
April 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 1996 AND FOR THE
FISCAL YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31,
1996.
</LEGEND>
<CIK> 0000811240
<NAME> BIOLASE TECHNOLOGY, INC.
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<CASH> 349,457
<SECURITIES> 3,500,000
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<ALLOWANCES> (21,957)
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<PP&E> 1,229,726
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<TOTAL-ASSETS> 4,689,344
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0
0
<COMMON> 13,130
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<TOTAL-LIABILITY-AND-EQUITY> 4,689,344
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<CGS> 559,169
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<OTHER-EXPENSES> 984,418
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<INCOME-PRETAX> (2,463,259)
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