<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 September 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 13,446,450
----------------------------- ------------------------
Title Class Number of Shares Outstanding
at October 31, 1997
<PAGE> 2
BIOLASE TECHNOLOGY, INC.
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <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 10
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>
SEPTEMBER 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
------------ ------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 262,353 $ 349,457
Marketable securities 1,867,297 3,500,000
Accounts receivable, less allowance of $118,464 in 1997
and $21,957 in 1996 576,136 145,463
Inventories, net of reserves of $485,154 in 1997 and 1996 496,729 376,479
Prepaid expenses and other current assets 127,097 73,723
------------ ------------
TOTAL CURRENT ASSETS 3,329,612 4,445,122
Property, plant and equipment, less accumulated depreciation of
$1,115,265 in 1997 and $1,035,648 in 1996 191,867 194,078
Patents, licenses and trademarks, less accumulated amortization of
$327,614 in 1997 and 1996 86,423 31,215
Other assets 70,207 18,929
------------ ------------
TOTAL ASSETS $ 3,678,109 $ 4,689,344
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 269,115 $ 109,582
Accrued expenses 560,660 615,635
Accrued costs related to dissolution of foreign subsidiary 38,943 46,167
Other current liabilities -- 3,980
------------ ------------
TOTAL CURRENT LIABILITIES 868,718 775,364
------------ ------------
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 September 30, 1997
and December 31, 1996 -- --
Common stock, par value, $.001, 50,000,000 shares
authorized, issued 13,427,450 in 1997 and 13,129,949 in 1996 13,427 13,130
Additional paid-in capital 29,554,236 28,700,279
Accumulated deficit (26,758,272) (24,799,429)
------------ ------------
NET STOCKHOLDERS' EQUITY 2,809,391 3,913,980
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,678,109 $ 4,689,344
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 604,681 $ 132,098 $ 1,172,027 $ 436,850
Cost of sales 426,893 118,937 870,139 390,832
------------ ------------ ------------ ------------
Gross profit 177,788 13,161 301,888 46,018
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 189,953 150,438 685,966 467,586
General and administrative 283,154 189,661 925,753 599,485
Engineering and development 245,916 239,972 801,119 666,900
Litigation and settlement costs 5,308 3,209 13,645 6,790
------------ ------------ ------------ ------------
Total operating expenses 724,331 583,280 2,426,483 1,740,761
------------ ------------ ------------ ------------
Loss from operations (546,543) (570,119) (2,124,595) (1,694,743)
Other income
Interest income, net 33,296 1,881 165,752 18,775
------------ ------------ ------------ ------------
Net loss $ (513,247) $ (568,238) $ (1,958,843) $ (1,675,968)
============ ============ ============ ============
Loss per share of common stock $ (0.04) $ (0.05) $ (0.15) $ (0.15)
============ ============ ============ ============
Weighted average shares outstanding 13,426,972 11,321,054 13,309,822 11,291,659
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE> 5
ITEM 1. FINANCIAL STATEMENTS (CONTINUED).
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Net
--------------- ---------------------- 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 common stock for services -- -- 2,000 2 6,118 -- 6,120
Issuance of shares for fractional interest
on reverse split -- -- 1 -- -- -- --
Net loss -- -- -- -- -- (1,958,843) (1,958,843)
------ ------ ------------ ------- ------------ ------------ ------------
Balance at September 30, 1997 1 $ -- 13,427,450 $13,427 $ 29,554,236 $(26,758,272) $ 2,809,391
====== ====== ============ ======= ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE> 6
ITEM 1. FINANCIAL STATEMENTS (CONTINUED).
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,958,843) $(1,675,968)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 80,658 116,302
Issuance of common stock for services 6,120 --
Provision for bad debt 95,621 --
Changes in operating assets and liabilities:
Accounts receivable (526,294) 32,569
Inventories (120,250) (36,924)
Prepaid expenses and other assets (104,652) 12,226
Accounts payable 159,533 97,195
Accrued expenses (54,975) 33,226
Accrued costs related to dissolution of foreign subsidiary (7,224) (42,943)
Other current liabilities (3,980) (23,000)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (2,434,286) (1,487,317)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities 1,632,703 --
Additions to property, plant and equipment (78,447) (39,539)
Additions to patents, licenses and trademarks (55,208) (18,790)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,499,048 (58,329)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt -- (15,538)
Proceeds from issuance of common stock, net 719,885 --
Proceeds from exercise of stock options 128,249 120,039
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 848,134 104,501
----------- -----------
Decrease in cash and cash equivalents (87,104) (1,441,145)
Cash and cash equivalents at beginning of period 349,457 1,565,655
----------- -----------
Cash and cash equivalents at end of period $ 262,353 $ 124,510
=========== ===========
Supplemental cash flow disclosure:
Cash paid during the period for interest $ 3,014 $ 3,024
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6
<PAGE> 7
BIOLASE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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 nine-month periods ended
September 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 $1,958,843 for the nine-month period ended
September 30, 1997 and has an accumulated deficit of $26,758,272 at September
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, which contemplates the
successful marketing of its Millennium(TM) and its soon to be released
DermaLase(TM) and LaserBrush(TM) products, the Company anticipates that it will
need additional financing during the first half of 1998 to support additional
working capital requirements. There are no assurances that the Company will be
successful in obtaining such financing. If unsuccessful in arranging such
financing, the Company may be able to extend the period before additional
financing is required by deferring the creation or satisfaction of various
commitments. If the Company were to continue to be unable to obtain such
financing, its 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
Page 7
<PAGE> 8
$720,000 during the nine-month period ended September 30, 1997. Management
believes that significant additional resources will be required by the first
quarter of 1998 to complete the process designed to lead to FDA clearance to
market the Company's laser-based technologies for hard 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 nine-month periods ended September 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
Inventories, net of reserves, consist of the following:
<TABLE>
<CAPTION>
September 30, 1997
(unaudited) December 31, 1996
------------------- -----------------
<S> <C> <C>
Raw materials $179,059 $ 96,823
Work-in-process 130,000 --
Finished goods 187,670 279,656
-------- --------
$496,729 $376,479
======== ========
</TABLE>
Note 3
Property, plant and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
September 30, 1997
(unaudited) December 31, 1996
------------------- -----------------
<S> <C> <C>
Leasehold improvements $ 149,282 $ 149,282
Equipment and computers 743,028 725,882
Furniture and fixtures 167,468 107,208
Demonstration units 247,354 247,354
----------- -----------
Total cost 1,307,132 1,229,726
Less, accumulated depreciation and amortization (1,115,265) (1,035,648)
----------- -----------
$ 191,867 $ 194,078
=========== ===========
</TABLE>
Page 8
<PAGE> 9
Note 4
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30, 1997
(unaudited) December 31, 1996
------------------ -----------------
<S> <C> <C>
Accrued professional fees $ 151,406 $ 158,416
Accrued legal and litigation costs 106,313 88,292
Accrued private placement costs -- 72,984
Sales tax payable 45,385 46,514
Accrued rent 25,656 32,253
Accrued warranty 15,000 15,000
Accrued vacation 53,841 48,354
Accrued clinical studies 41,800 --
Other 121,259 153,822
---------- ----------
$ 560,660 $ 615,635
========== ==========
</TABLE>
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 September 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. These 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.
Page 9
<PAGE> 10
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.
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AS
COMPARED WITH THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996:
Operating summary
<TABLE>
<CAPTION>
($ in thousands, except per-share amounts)
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 604 $ 132 $ 1,172 $ 437
Gross profit $ 178 $ 13 $ 302 $ 46
Percentage of sales 29% 10% 26% 11%
Sales and marketing expenses $ 190 $ 150 $ 686 $ 468
General and administrative expenses $ 283 $ 190 $ 926 $ 599
Engineering and development expenses $ 246 $ 240 $ 801 $ 667
Litigation and settlement expenses $ 5 $ 3 $ 14 $ 7
Operating loss $ (547) $ (570) $ (2,125) $ (1,695)
Interest income, net $ 33 $ 2 $ 166 $ 19
Net loss $ (513) $ (568) $ (1,959) $ (1,676)
Loss per share of common stock $ (0.04) $ (0.05) $ (0.15) $ (0.15)
</TABLE>
Sales were $605,000 during the third quarter of 1997, an increase of
$473,000 from the $132,000 reported during the same period in 1996. The increase
was related solely to the sales of Millennium(TM) systems to the Company's
German distributor. The sales of endodontic products during the third quarter
of 1997 were comparable to those reported for the same quarter in 1996.
Sales for the nine-month period ended September 30, 1997 increased to
$1,172,000, up $735,000 from the $437,000 reported for the comparable period in
1996. The increase was due to shipments of the Millennium(TM) system combined
with an increase in sales of endodontic products amounting to approximately
$105,000 for the nine-month period ended September 30, 1997 compared to the same
period in 1996.
Page 10
<PAGE> 11
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).
(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 is presently developing its marketing plan for the
DermaLase(TM) system and anticipates commencement of production of DermaLase(TM)
in the first quarter of 1998. (FLS)
Gross profit increased to $178,000 for the third quarter of 1997, up
$165,000 from the $13,000 reported for the third quarter in 1996. The Company's
laser-based products provided gross profit of $132,000 for the third quarter of
1997, an increase of $170,000 from the gross loss of $38,000 reported for the
same period in 1996. Gross profit margins attributable to the Millennium(TM)
units shipped to Germany during the third quarter of 1997 improved from the
preceding quarter, but were still below anticipated levels. (FLS) The continued
design and manufacturing of various test and production fixtures contributed to
the manufacturing inefficiencies experienced during the third quarter of 1997.
The Company expects to realize improved margins on its Millennium(TM) sales
during the balance of 1997 through improved production layouts and efficiencies
and improved pricing in its cost of materials. (FLS) The gross profit from the
sale of endodontic products during the third quarter of 1997 was comparable to
that reported for the third quarter of 1996. Gross profits for the first nine
months of 1997 were $302,000 compared to $46,000 in the first nine months of
1996, an increase of $256,000. The increase is due principally to the gross
profits related to the Millennium(TM) unit sales shipped during the first nine
months of 1997 combined with a slight increase in the gross profit realized on
the Company's endodontic products.
Sales and marketing expenses increased $40,000 to $190,000 during the
third quarter of 1997 compared to $150,000 reported for the comparable period in
1996. During the first nine months of 1997, sales and marketing expenses were
$686,000 compared to $468,000 reported for the first nine months of 1996, an
increase of $218,000. The third quarter and nine-month increases are due
principally to: (i) greater participation by the Company at various
dermatological and dental trade shows, and (ii) payroll and other costs
associated with the Company's establishment of a domestic sales force and its
continued pursuance of qualified international distributors.
General and administrative expenses increased $93,000 during the third
quarter of 1997 to $283,000 from the $190,000 reported for the same period in
1996. The increase was due principally to increases in: (i) legal costs related
primarily to contractual and international law, (ii) costs related to domestic
and foreign patents and patent applications, (iii) public relation costs
incurred by promotion of the Company through various publications and investor
forums, and (iv) insurance costs related to directors' and officers' liability
insurance. General and administrative expenses increased $327,000 during the
first nine months of 1997 to $926,000 from the $599,000 reported for the same
period in 1996 due principally to the same factors responsible for the
third-quarter increase as well as a $96,000 provision for bad debt. The $96,000
provision for bad debt recorded during the second quarter of 1997 was 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".
While engineering and development expenses reported during the third
quarter of 1997 were comparable to those reported during the same period in
1996, an increase of $134,000 in such expenses was experienced during the first
nine months of 1997 from the $667,000 reported for the comparable period in
1996. This increase was due principally to costs incurred during the first and
second quarters of 1997 with respect to (i) clinical studies utilizing the
Company's HydroKinetic(TM) technology in its effort to obtain clearance by the
FDA to market the
Page 11
<PAGE> 12
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), partially offset by a reduction in 1997 project design costs
related to the Millennium(TM) system as the present version was placed into
production during the second quarter of 1997.
Interest income, net, increased $31,000 and $147,000 during the third
quarter and first nine months of 1997, respectively, compared to the third
quarter and first nine months of 1996. The increases were due principally to the
Company recording interest income representing interest paid or accrued on
certain invested funds in the third quarter and the first nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
($ in thousands)
September 30, 1997
(unaudited) December 31, 1996
------------------ -----------------
<S> <C> <C>
Cash and cash equivalents $ 262 $ 349
Marketable securities $ 1,867 $ 3,500
Working capital $ 2,461 $ 3,670
</TABLE>
<TABLE>
<CAPTION>
For The
Nine Months Ended September 30,
-----------------------------------
1997 1996
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Net cash used by operating activities $ (2,434) $ (1,487)
Net cash provided (used) by
investing activities $ 1,499 $ (58)
Net cash provided by financing activities $ 848 $ 105
</TABLE>
Cash, cash equivalents and marketable securities decreased an aggregate of
$1,720,000 in the first nine months of 1997 due principally to (i) cash used by
operations of $2,434,000, and (ii) expenditures related to capital equipment and
patent and trademark applications, aggregating $134,000, 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 $1,209,000 to $2,461,000 at September 30, 1997,
compared to the $3,670,000 reported at December 31, 1996. The decline was due
principally to: (i) the net decrease in cash, cash equivalents and marketable
securities of $1,720,000, and (ii) the net increase in current liabilities of
$94,000 relating primarily to increased inventory purchases associated with
fourth quarter production; partially offset by increases in (a) net accounts
receivable of $431,000 resulting from the increased sales level, and (b)
inventories and prepaid assets of $174,000.
Cash used by operations for the first nine months of 1997 increased
$947,000 from cash used during the first half of 1996 due principally to (i) an
additional $216,000 in net loss reported and (ii) substantial increases in
accounts receivable and inventories associated with Millennium(TM) sales and
production. Net cash provided by investing activities increased $1,557,000 in
the 1997 period due to the sale of U. S. Treasury Notes in which the proceeds of
an earlier financing had been temporarily invested. Net cash provided by
financing activities increased $744,000 due principally to proceeds received in
February, 1997 from a private placement of the Company's common stock.
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<PAGE> 13
The Company recorded revenue from its shipments of Millennium(TM) units
during the third quarter of 1997, which amount was reflected as an account
receivable in the Company's consolidated condensed balance sheet at September
30, 1997; payment is anticipated during the fourth quarter of 1997. (FLS) The
Company's inventory and accounts payable levels are expected to increase during
the fourth quarter of 1997 to reflect anticipated increases in Millennium(TM)
production and sales in the fourth quarter of 1997, and the scheduled
commencement of DermaLase(TM) and LaserBrush(TM) production during the first
quarter of 1998. (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 first half of 1998. (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, which contemplates the
successful marketing of its Millennium(TM) and its soon to be released
DermaLase(TM) and LaserBrush(TM) products, the Company anticipates that it will
need additional financing during the first half of 1998 to support additional
working capital requirements. There are no assurances that the Company will be
successful in obtaining such financing. If unsuccessful in arranging such
financing, the Company may be able to extend the period before additional
financing is required by deferring the creation or satisfaction of various
commitments. If the Company were to continue to be unable to obtain such
financing, its ability to meet its obligations and to continue operations could
be impaired. The Company is presently considering various options to obtain
financing sufficient to meet its operational needs during 1998. (FLS)
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 and for applications 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
Page 13
<PAGE> 14
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.
The principal products, which the Company presently markets or expects to
market in the foreseeable future, have either recently been introduced to the
market or are expected to be introduced to the market in this period. Newly
introduced products are more subject to production problems and redesign
requirements than are mature products, and such problems and requirements could
delay anticipated production and revenue and could increase anticipated costs.
In addition, it is more difficult to project market demand for newly introduced
products than for mature 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 22, 1997, the Company filed an amended 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. 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. The defendant has not yet answered the complaint,
which the Company is attempting to serve through established international
procedures.
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.
None
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 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: November 19, 1997 /s/ Donald A. La Point
------------------- -------------------------------------------
Donald A. La Point
President & Chief Executive Officer
Date: November 19, 1997 /s/ Stephen R. Tartamella
------------------- -------------------------------------------
Stephen R. Tartamella
Vice President & Chief Financial Officer
Page 16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Restated Certificate of Incorporation, as amended.(1)
3.2 Amended and Restated Bylaws.(1)
27. Financial Data Schedule (electronic filing only)
</TABLE>
<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
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE NINE-MONTH
PERIOD ENDED SEPTEMBER 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 262,353
<SECURITIES> 1,867,297
<RECEIVABLES> 694,600
<ALLOWANCES> (118,464)
<INVENTORY> 496,729
<CURRENT-ASSETS> 3,329,612
<PP&E> 1,307,132
<DEPRECIATION> (1,115,265)
<TOTAL-ASSETS> 3,678,109
<CURRENT-LIABILITIES> 868,718
<BONDS> 0
0
0
<COMMON> 13,427
<OTHER-SE> 2,795,964
<TOTAL-LIABILITY-AND-EQUITY> 3,678,109
<SALES> 1,172,027
<TOTAL-REVENUES> 1,172,027
<CGS> 870,139
<TOTAL-COSTS> 870,139
<OTHER-EXPENSES> 801,119
<LOSS-PROVISION> 95,627
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,958,843)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,958,843)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,958,843)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
