<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Conformed Copy
--------------
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the quarterly period ended June 30, 1997
------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the transition period from ____________ to _____________
Commission File Number
0-19627
-------
BIOLASE TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 87-0442441
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
981 CALLE AMANECER, SAN CLEMENTE, CA 92673
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(714) 361-1200
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
COMMON STOCK, $.001 PAR VALUE 13,428,450
- ----------------------------- --------------------------
Title Class Number of Shares Outstanding
at July 30, 1997
<PAGE> 2
BIOLASE TECHNOLOGY, INC.
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements
of Operations 4
Consolidated Condensed Statement
of Stockholders' Equity 5
Consolidated Condensed Statements
of Cash Flows 6
Notes to Consolidated Condensed
Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
ITEM 3. Quantitative and Qualitative
Disclosures About Market Risk 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 2. Changes in Securities 14
ITEM 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security
Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
SIGNATURE PAGE 16
</TABLE>
Page 2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,1997
(UNAUDITED) DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 313,409 $ 349,457
Marketable securities 2,357,127 3,500,000
Accounts receivable, less allowance of $118,549
in 1997 and $21,957 in 1996 359,899 145,463
Inventories, net of reserves of $485,154 in 1997
and 1996 479,816 376,479
Prepaid expenses and other current assets 133,427 73,723
------------ ------------
TOTAL CURRENT ASSETS 3,643,678 4,445,122
Property, plant and equipment, less accumulated
depreciation of $1,089,963 in 1997 and
$1,035,648 in 1996 213,882 194,078
Patents, licenses and trademarks, less accumulated
amortization of $327,614 in 1997 and 1996 75,974 31,215
Other assets 70,207 18,929
------------ ------------
TOTAL ASSETS $ 4,003,741 $ 4,689,344
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 63,107 $ 109,582
Accrued expenses 581,042 615,635
Accrued costs related to dissolution of
foreign subsidiary 43,074 46,167
Other current liabilities -- 3,980
------------ ------------
TOTAL CURRENT LIABILITIES 687,223 775,364
------------ ------------
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 June 30, 1997 and December 31, 1996 -- --
Common stock, par value, $.001, 50,000,000 shares
authorized, issued 13,425,450 in 1997 and
13,129,949 in 1996 13,425 13,130
Additional paid-in capital 29,548,118 28,700,279
Accumulated deficit (26,245,025) (24,799,429)
------------ ------------
NET STOCKHOLDERS' EQUITY 3,316,518 3,913,980
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,003,741 $ 4,689,344
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 3
<PAGE> 4
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sales $ 432,941 $ 161,137 $ 567,346 $ 304,752
Cost of sales 330,376 136,072 443,246 271,895
------------ ------------ ------------ ------------
Gross profit 102,565 25,065 124,100 32,857
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 222,210 137,007 496,013 317,148
General and administrative 409,365 257,722 650,607 409,824
Engineering and development 274,181 246,411 546,866 426,928
Litigation and settlement costs 3,582 2,147 8,337 3,581
------------ ------------ ------------ ------------
Total operating expenses 909,338 643,287 1,701,823 1,157,481
------------ ------------ ------------ ------------
Loss from operations (806,773) (618,222) (1,577,723) (1,124,624)
Other income
Interest income, net 128,911 7,210 132,127 16,894
------------ ------------ ------------ ------------
Net loss $ (677,862) $ (611,012) $ (1,445,596) $ (1,107,730)
============ ============ ============ ============
Loss per share of common stock $ (0.05) $ (0.05) $ (0.11) $ (0.10)
============ ============ ============ ============
Weighted average shares outstanding 13,409,608 11,299,783 13,250,603 11,276,800
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 4
<PAGE> 5
ITEM 1. FINANCIAL STATEMENTS (CONTINUED).
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Net
Preferred Stock Common Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
------ ------ ------ ------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1 $ -- 13,129,949 $13,130 $ 28,700,279 $(24,799,429) $ 3,913,980
Exercise of stock options -- -- 95,500 95 128,154 -- 128,249
Private placement of
common stock -- -- 200,000 200 719,685 -- 719,885
Issuance of shares for
fractional interest on
reverse split -- -- 1 -- -- -- --
Net loss -- -- -- -- -- $ 1,445,596) (1,445,596)
------ ----- ---------- ------- ------------ ------------ -----------
Balance at June 30, 1997 1 $ -- 13,425,450 $13,425 $ 29,548,118 $(26,245,025) $ 3,316,518
======= ===== ========== ======= ============ ============ ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 5
<PAGE> 6
ITEM 1. FINANCIAL STATEMENTS (CONTINUED).
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------------
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,445,596) $(1,107,730)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 55,357 78,691
Provision for bad debt 95,627 --
Changes in operating assets and
liabilities:
Accounts receivable (310,063) 32,489
Inventories (103,337) (75,131)
Prepaid expenses and other assets (110,982) 35,772
Accounts payable (46,475) 26,190
Accrued expenses (34,593) 55,619
Accrued costs related to dissolution of
foreign subsidiary (3,093) (23,934)
Other current liabilities (3,980) (23,000)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (1,907,135) (1,001,034)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities 1,142,873 --
Additions to property, plant and equipment (75,161) (35,697)
Additions to patents, licenses and trademarks (44,759) (12,247)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING 1,022,953 (47,944)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt -- (10,444)
Proceeds from issuance of common stock, net 719,885 --
Proceeds from exercise of stock options 128,249 119,290
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 848,134 108,846
----------- -----------
Decrease in cash and cash equivalents (36,048) (940,132)
Cash and cash equivalents at beginning of
period 349,457 1,565,655
----------- -----------
Cash and cash equivalents at end of period $ 313,409 $ 625,523
=========== ===========
Supplemental cash flow disclosure:
Cash paid during the period for interest $ 2,276 $ 2,584
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 6
<PAGE> 7
BIOLASE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
Note 1
- ------
The accompanying consolidated condensed financial statements of BioLase
Technology, Inc. (the "Company") have been prepared by the Company without audit
and do not include all disclosures required by generally accepted accounting
principles for complete financial statements. The consolidated condensed balance
sheet at December 31, 1996 was derived from audited financial statements but
does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, the consolidated condensed financial
statements include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial condition of the Company as
at and the results of operations for the three and six-month periods ended June
30, 1997.
The Company's consolidated condensed financial statements have been
presented on the basis that the Company will continue as a going-concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company reported net losses of $2,463,259,
$2,023,822 and $3,050,333 for the years ended December 31, 1996, 1995, and 1994,
respectively, and a net loss of $1,445,596 for the six-month period ended June
30, 1997 and has an accumulated deficit of $26,245,025 at June 30, 1997. 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 or
preferred stocks or through borrowings until it achieves sustained profitability
through increased sales, continued efforts of engineering redesign, and cost
containment. The Company's focus has been realigned to emphasize the marketing
of its laser-based HydroKinetic(TM) tissue cutting system (the Millennium(TM)),
its DermaLase(TM) system which is a variation of the Millennium(TM),
LaserBrush(TM), a light-activating toothbrush and other laser and endodontic
products, and the 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 mid-1998, at
which point, the Company would be dependent upon either the successful marketing
of its Millennium(TM) and its soon to be released DermaLase(TM) and
LaserBrush(TM) products 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 condensed 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-based medical and dental devices and
instruments and the operations of the Company has been achieved principally
through private placements of preferred and common stocks and the exercises of
stock options and warrants. During the three years ended December 31, 1996, the
Company has raised approximately $7,747,000 of equity funds. The Company
obtained additional equity funding through the issuance of 200,000 shares of its
common stock in a private placement resulting in net proceeds of approximately
$720,000 during the six-month period ended June 30, 1997. Management believes
that significant additional resources will be required by mid-1998 to complete
the process designed to lead to FDA clearance to market the Company's
laser-based technologies for hard tissue and
Page 7
<PAGE> 8
certain additional soft tissue applications in the United States and to fund the
Company's working capital needs. The Company expects to generate the necessary
capital resources through the revenue generated by its new products, the
issuance of equity securities in either public offerings or private placements,
or debt financing. No assurances can be given, however, that the Company will be
able to obtain such capital resources.
Operating results for the three and six-month periods ended June 30,
1997 are not necessarily indicative of the results to be expected for the year
ending December 31, 1997. These statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended December 31, 1996.
Note 2
- ------
<TABLE>
<CAPTION>
Inventories, net of reserves, June 30, 1997
consist of the following: (unaudited) December 31, 1996
------------- -----------------
<S> <C> <C>
Raw materials $234,086 $ 96,823
Work-in-process 49,009 --
Finished goods 196,721 279,656
-------- --------
$479,816 $376,479
======== ========
</TABLE>
Note 3
- ------
<TABLE>
<CAPTION>
Property, plant and equipment, June 30, 1997
at cost, consist of the following: (unaudited) December 31, 1996
------------- -----------------
<S> <C> <C>
Leasehold improvements $ 149,282 $ 149,282
Equipment and computers 740,545 725,882
Furniture and fixtures 166,664 107,208
Demonstration units 247,354 247,354
----------- ------------
Total cost 1,303,845 1,229,726
Less, accumulated depreciation and amortization (1,089,963) (1,035,648)
----------- -----------
$ 213,882 $ 194,078
=========== ===========
</TABLE>
Note 4
- ------
<TABLE>
<CAPTION>
Accrued expenses consist of the following: June 30, 1997
(unaudited) December 31, 1996
-------------- -----------------
<S> <C> <C>
Accrued professional fees $137,576 $158,416
Accrued legal and litigation costs 109,340 88,292
Accrued private placement costs 46,613 72,984
Sales tax payable 44,759 46,514
Accrued rent 27,855 32,253
Accrued warranty 15,000 15,000
Accrued vacation 61,923 48,354
Other 137,976 153,822
-------- --------
$581,042 $615,635
======== ========
</TABLE>
Page 8
<PAGE> 9
Note 5
- ------
Loss per share is based on the weighted average number of common shares
outstanding. Common stock equivalents, which consist of stock options, have been
excluded from per share calculations, as the effect of the assumed exercise of
these common stock equivalents is anti-dilutive at June 30, 1997 and 1996.
Note 6
- ------
As of December 31, 1996, the Company had net operating loss
carryforwards for federal and state purposes of approximately $23 million and
$12.5 million, 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.
Note 7
- ------
In February, 1997, the Financial Accounting Standards Board (`FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share". SFAS No. 128 requires companies to adopt its provisions for fiscal
years beginning after December 15, 1997 and requires restatement of all prior
period earnings per share ("EPS") data presented. Earlier application is not
permitted. SFAS No. 128 specifies the computation, presentation and disclosure
requirements for EPS. The implementation of SFAS No. 128 is not expected to have
a material effect on the EPS data presented by the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130, which is effective for fiscal years beginning after
December 15, 1997, and requires restatement of earlier periods presented,
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. The implementation of SFAS No. 130 is not expected to have a
material effect on the Company's results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information". SFAS No. 131, which is effective for
fiscal years beginning after December 15, 1997, and requires restatement of
earlier periods presented, establishes standards for the way that a public
enterprise reports information about key revenue-producing segments in the
annual financial statements and selected information in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The implementation of SFAS
No. 131 is not expected to have a material effect on the Company's current
reporting and disclosures.
Page 9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
consolidated condensed financial statements and notes thereto.
RESULTS OF OPERATIONS - THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 1997 AS
COMPARED WITH THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 1996:
<TABLE>
<CAPTION>
Operating Summary ($ in thousands, except per-share amounts)
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 433 $ 161 $ 567 $ 305
Gross profit $ 103 $ 25 $ 124 $ 33
Percentage of sales 24 % 16 % 22 % 11 %
Sales and marketing expenses $ 222 $ 137 $ 496 $ 317
General and administrative expenses $ 409 $ 258 $ 651 $ 410
Engineering and development expenses $ 274 $ 246 $ 547 $ 427
Litigation and settlement expenses $ 4 $ 2 $ 8 $ 4
Operating loss $ (807) $ (618) $(1,578) $(1,125)
Interest income, net $ 129 $ 7 $ 132 $ 17
Net loss $ (678) $ (611) $(1,446) $(1,108)
Loss per share of common stock $(0.05) $(0.05) $ (0.11) $ (0.10)
</TABLE>
Sales were $433,000 during the second quarter of 1997, an increase of
$272,000 from the $161,000 reported during the same period in 1996. The increase
was related solely to the laser division and the sale of its first production
units of the Millennium(TM) system to its German distributor. The units
delivered during June, 1997 included demonstration units on which the Company
provided a discount from the normal pricing. Shipments of the Company's
traditional laser products decreased slightly during the second quarter of 1997,
compared to the same period in 1996. The Company has received an order from its
German distributor for 1997 third quarter shipments of approximately $500,000
which such order shall be shipped under normal pricing. (The preceding sentence
constitutes a forward looking statement [hereinafter identified as "FLS"]. Each
of the forward looking statements in this Quarterly Report on Form 10-Q is
subject to various factors that could cause actual results to differ materially
from the results anticipated in such forward looking statement, as more fully
discussed in this Item 2 under "Forward Looking Statements".) The Company's
endodontic division reported sales during the second quarter of 1997 that were
comparable to those reported during the same period in 1996.
Sales for the first half of 1997 increased to $567,000, an increase of
$262,000 from the $305,000 reported during the first half of 1996. The increase
was due to the Millennium(TM) system production units shipped in the second
quarter of 1997, offset to a modest extent by a $23,000 decrease in sales
reported by the Company's endodontic division for the first half of 1997
compared to the same period in 1996.
In July, 1997, the Company received clearance from the Food and Drug
Administration ("FDA") to market a laser-based surgical tissue cutting system in
the United States that utilizes a variation of the Millennium(TM) technology for
a broad range of dermatological and general surgical soft tissue applications.
In response to this clearance, the Company intends to introduce to the domestic
market a laser-based system in a configuration that is designed for lower power
settings than those of the Millennium(TM) system, under the name DermaLase(TM),
during September 1997. (FLS) The Company is presently developing its marketing
plan for the
Page 10
<PAGE> 11
DermaLase(TM) system and anticipates sales of this product during the fourth
quarter of 1997. (FLS)
Gross profit increased to $103,000 during the second quarter of 1997,
up $78,000 from the $25,000 reported for the comparable period in 1996. The
Company's laser division reported gross profit of $39,000 for the second quarter
of 1997, an increase of $74,000 from the gross loss of $35,000 reported for the
same period in 1996. Gross profit margins attributable to the Millennium(TM)
units shipped to Germany during the second quarter of 1997 were lower than
expected due to both production inefficiencies realized during the first
production run and a discount provided to the German distributor on this first
order of Millennium(TM) units. The design and manufacturing of various test and
production fixtures contributed to the manufacturing inefficiencies experienced
during the second quarter of 1997. The Company expects to realize improved
margins on its Millennium(TM) sales during the balance of 1997, although, costs
related to improving the production layout and efficiencies are anticipated to
hinder margins in the third quarter of 1997. (FLS) The Company's endodontic
division's gross profit for the second quarter of 1997 was comparable to that
reported during the second quarter of 1996. Gross profits for the first half of
1997 were $124,000 compared to $33,000 in the first half of 1996, an increase of
$91,000. The increase is due principally to the gross profits related to the
Millennium(TM) unit sales shipped during the second quarter of 1997 combined
with a slight increase in the gross profits reported by the Company's endodontic
division of approximately $19,000 above those reported during the first half of
1996.
Sales and marketing expenses increased $85,000 to $222,000 during the
second quarter of 1997 compared to $137,000 reported during the comparable
period in 1996. During the first half of 1997, sales and marketing expenses were
$496,000 compared to $317,000 reported during the first half of 1996, an
increase of $179,000. The increases were due principally to greater
participation by the Company at various dermatological and dental trade shows
during the respective periods during 1997 as compared to those same periods in
1996.
General and administrative expenses increased $151,000 during the
second quarter of 1997 to $409,000 compared to $258,000 reported during the same
period in 1996. The increase was due principally to a $96,000 provision for bad
debt as a result of a bank claiming technical defects in documentation and
thereby refusing to honor a letter of credit for goods shipped to a foreign
customer. The Company has recently filed a complaint against the foreign
customer in the United States District Court for various claims including the
collection of the debt. See "Part II - Other Information, Item 1 Legal
Proceedings". Additional items contributing to the increase in general and
administrative expenses during the second quarter of 1997 were due to increases
in: (i) insurance costs related to directors' and officers' liability insurance,
(ii) legal costs, and (iii) payroll expense related to increased administrative
personnel. The Company intends to increase its administrative staff by
approximately three during the third quarter of 1997. (FLS) General and
administrative expenses increased $241,000 during the first half of 1997 to
$651,000 from the $410,000 reported during the same period in 1996 due
principally to the $96,000 provision for bad debt discussed previously and
similar increases experienced during the second quarter of 1997 in insurance,
legal, and payroll related costs.
Engineering and development expenses reported during the second quarter
of 1997 were $274,000, an increase of $28,000 from the $246,000 reported during
the second quarter of 1996. The increase during the second quarter of 1997 was
due principally to: (i) costs related to clinical studies utilizing the
Company's HydroKinetic(TM) technology in its attempt to obtain clearance by the
FDA to market the Millennium(TM) system for certain dental hard tissue
applications, and (ii) final development costs related to the Company's
soon-to-be-released LaserBrush(TM), anticipated for launching during the fourth
quarter of 1997. (FLS) The increase was offset somewhat by a reduction in
project design costs related to the Millennium(TM) system as the present
version was placed into production during the second quarter of 1997.
During the
Page 11
<PAGE> 12
first half of 1997, engineering and development expenses increased $120,000 to
$547,000, from the $427,000 reported for the first half of 1996. The increase
was due principally to 1997 costs related to the completion of engineering
prototypes of Millennium(TM) and design and development costs related to
LaserBrush(TM), and the clinical studies previously discussed.
Interest income, net, increased $122,000 and $115,000 during the second
quarter and first half of 1997, respectively, compared to the second quarter and
first half of 1996. The increases were due to the Company recording
approximately $130,000 of interest income representing interest paid on certain
invested funds for the first half of 1997.
The net losses reported during the second quarter and first half of
1997 increased $67,000 and $338,000, respectively, to $678,000 and $1,446,000,
respectively, from the $611,000 and $1,108,000 reported during the respective
periods in 1996. The increased net losses are due principally to the increases
in: (i) production design and layout costs related to the manufacturing of the
Millennium(TM) systems, and (ii) operating expenses including the provision for
bad debt of $96,000, partially offset by the gross profit related to the
Millennium(TM) unit shipments and interest income.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
($ in thousands)
June 30, 1997 December 31, 1996
(unaudited)
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 313 $ 349
Marketable securities $ 2,357 $ 3,500
Working capital $ 2,956 $ 3,670
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Net cash used by operating activities $(1,907) $(1,001)
Net cash provided (used) by
investing activities $ 1,023 $ (48)
Net cash provided by financing activities $ 848 $ 109
</TABLE>
The Company's liquidity declined from December 31, 1996 to June 30,
1997 due principally to the losses incurred during the first half of 1997. Cash,
cash equivalents and marketable securities decreased $1,179,000 due principally
to (i) cash used by operations of $1,907,000, and (ii) expenditures related to
capital equipment and patent and trademark applications, aggregating $120,000,
partially offset by (a) net proceeds of $720,000 received from the issuance of
the Company's common stock through a private placement, and (b) proceeds
received from the exercise of employee stock options, aggregating $128,000.
Working capital declined $714,000 to $2,956,000 at June 30, 1997, compared to
the $3,670,000 reported at December 31, 1996. The decline was due principally to
the net decrease in cash, cash equivalents and marketable securities of
$1,179,000, partially offset by (i) a $214,000 increase in net accounts
receivable, reflecting principally the shipment of the Millennium(TM) units
partially offset by the provision for bad debt recorded in June 1997, (ii) an
increase in inventories of $104,000 as a result of the build up of material for
third quarter production, (iii) an increase in prepaid assets of $59,000
represented principally by increased balances in prepaid insurance related to
directors' and officers' liability insurance, and (iv) a decrease in current
liabilities of $88,000 due primarily to reductions in trade accounts payable and
accrued expenses. Cash used by operations for the first half of 1997 increased
$906,000 from cash used during the first half of 1996 due principally to (i)
$338,000 in additional net loss reported partially offset by increased non-cash
components amounting to $72,000, (ii) $517,000 in
Page 12
<PAGE> 13
increased operating assets, and (iii) $123,000 in reduced current liabilities.
Net cash provided by investing activities increased $1,071,000 due to $1,143,000
in sales of certain of the Company's United States Treasury notes, reduced by
$72,000 in lower expenditures for capital equipment and patents, licenses and
trademarks during the first half of 1997 compared to the same period in 1996.
Net cash provided by financing activities increased $739,000 due principally to
proceeds received in February, 1997 from a private placement of the Company's
common stock.
The Company recorded revenue from its first shipments of Millennium(TM)
during the second quarter of 1997, which amount was reflected as an account
receivable in the Company's consolidated condensed balance sheet at June 30,
1997; full payment was received on the receivable in July 1997. The Company's
inventory and accounts payable levels are expected to increase during the third
quarter of 1997 to reflect anticipated increases in Millennium(TM) production
and sales, and the scheduled commencement of DermaLase(TM) and LaserBrush(TM)
production. (FLS) The Company is presently analyzing various computer software
and hardware to meet its operational needs and anticipates capital expenditures
to increase significantly during the fourth quarter of 1997. (FLS) Presently, no
other significant capital expenditure projects are under consideration.
The Company remains dependent upon its ability to obtain outside
financing either through the issuance of additional shares of its common or
preferred stocks 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 laser-based HydroKinetic(TM) tissue cutting system, the
Millennium(TM), its soon-to-be-released LaserBrush(TM) and a new reduced-power
variation of the Millennium(TM), called DermaLase(TM), which shall be configured
to accommodate applications in dermatology and general soft-tissue surgery.
(FLS)
Based on the Company's current business plan, working capital should be
sufficient to enable the Company to meet its obligations through mid-1998, 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) and
DermaLase(TM) products 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.
FORWARD LOOKING STATEMENTS
The forward looking statements contained in this Quarterly Report on
Form 10-Q are subject to various risks, uncertainties and other factors that
could cause actual results to differ materially from the results anticipated in
such forward looking statements. Included among the important risks,
uncertainties and other factors are those hereinafter discussed.
Few of the forward looking statements in this Quarterly Report on Form
10-Q deal with matters that are within the unilateral control of the Company.
There is substantial regulation of the manufacture and sale of medical products,
including many of the Company's products, by governmental agencies in the United
States and foreign countries. These governmental agencies often have
considerable discretion in determining whether and when to approve the marketing
of the Company's products that have not yet received such approval.
The availability of equity and debt financing to the Company is
affected by, among other things, domestic and world economic conditions and the
competition for funds. Rising interest rates might affect the feasibility of
debt financing that is offered. Potential investors and lenders
Page 13
<PAGE> 14
will be influenced by their evaluations of the Company and its products and
comparisons with alternative investment opportunities.
The Company's products do not provide the exclusive means for
accomplishing an objective, and customers may choose alternative means. Many of
the Company's competitors have much greater financial resources and technical
capabilities than does the Company, which may enable such competitors to design
and produce superior products or to market their products in a manner that
achieves commercial success even in the face of technical superiority on the
part of the Company's products.
The Company's patents may not offer effective protection against
competitors. Competitors may be able to design around the Company's patents or
employ technologies not covered by such patents. In addition, the Company's
patents may be challenged, and even if such patents are upheld, the diversion of
financial and human resources associated with patent litigation could adversely
affect the Company. The Company may be found to be violating the patents of
others and forced to obtain a license under such patents or modify the design of
its products.
Rapid technological developments are expected to continue in the
industries in which the Company competes. The Company may not be able to
develop, manufacture and market products which meet changing user requirements
or which successfully anticipate or respond to technological changes on a
cost-effective and timely manner.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Yet Effective
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 8, 1997, the Company filed a complaint in the United States
District Court for the Central District of California, Southern Division, in an
action entitled BioLase Technology, Inc. v. Rudolf Schneider and
Dental-Fachhandel. In this action, the Company is seeking to recover from a
former distributor (i) lost profits alleged to be no less than $500,000
attributable to the former distributor's failure to perform its obligations,
particularly its commitment to purchase minimum quantities of products, pursuant
to the distribution agreement between the Company and this distributor, and (ii)
$96,000 in amounts owed to the Company by this former distributor for goods sold
and delivered and services performed by the Company. As the complaint has just
been filed, the defendants have not yet answered the complaint.
From time to time, the Company is involved in legal proceedings
incidental to its business. It is management's opinion that pending actions,
individually and in the aggregate, will not have a material adverse effect on
the Company's financial condition, and that adequate provision has been made for
the resolution of such actions and proceedings.
ITEM 2. CHANGES IN SECURITIES.
None
Page 14
<PAGE> 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Following are the results of matters submitted to a vote at the Annual
Stockholders' Meeting held May 20, 1997:
(1) The election of the following individuals to the Company's Board of
Directors, to serve until the next Annual Meeting of Stockholders and until
their successors are duly elected and qualified:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C> <C>
Donald A. La Point 8,028,850 - -
Federico Pignatelli 8,028,850 - -
George V. d'Arbeloff 8,028,850 - -
</TABLE>
(2) The ratification of the appointment of Coopers & Lybrand L.L.P. as
the Company's independent public accountants for the year ended December 31,
1997. The number of votes cast for were 8,036,559; votes cast against were
5,575; there were no abstentions.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
3. Articles of Incorporation and Bylaws:
3.1 Restated Certificate of Incorporation, as amended.(1)
3.2 Amended and Restated Bylaws.(1)
27. Financial Data Schedule (electronic filing only)
- -----------------
(1) Filed with the Company's Registration Statement on Form S-1 dated
July 10, 1997 and incorporated by reference.
(B) REPORTS ON FORM 8-K
None
Page 15
<PAGE> 16
SIGNATURE PAGE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BIOLASE TECHNOLOGY, INC.
a Delaware Corporation
Date: August 14, 1997 /s/ DONALD A. LA POINT
---------------------------------------
Donald A. La Point
President & Chief Executive Officer
Date: August 14, 1997 /s/ STEPHEN R. TARTAMELLA
----------------------------------------
Stephen R. Tartamella
Vice President & Chief Financial Officer
Page 16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3. Articles of Incorporation and Bylaws:
3.1 Restated Certificate of Incorporation, as amended.(1)
3.2 Amended and Restated Bylaws.(1)
27 Financial Data Schedule (electronic filing only)
- -------------------
(1) Filed with the Company's Registration Statement on Form S-1 dated
July 10, 1997 and incorporated by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE SIX-MONTH
PERIOD ENDED JUNE 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 313,409
<SECURITIES> 2,357,127
<RECEIVABLES> 478,448
<ALLOWANCES> (118,549)
<INVENTORY> 479,816
<CURRENT-ASSETS> 3,643,678
<PP&E> 1,303,845
<DEPRECIATION> (1,089,963)
<TOTAL-ASSETS> 4,003,741
<CURRENT-LIABILITIES> 687,223
<BONDS> 0
0
0
<COMMON> 13,425
<OTHER-SE> 3,303,093
<TOTAL-LIABILITY-AND-EQUITY> 4,003,741
<SALES> 567,346
<TOTAL-REVENUES> 567,346
<CGS> 443,246
<TOTAL-COSTS> 443,246
<OTHER-EXPENSES> 546,866
<LOSS-PROVISION> 95,627
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,445,596)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,445,596)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,445,596)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
