<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 March 31, 1998
--------------
[_] 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 13,478,586
- ----------------------------- ----------------------------
Title Class Number of Shares Outstanding
at April 30, 1998
<PAGE>
BIOLASE TECHNOLOGY, INC.
<TABLE>
<CAPTION>
Page Number
-----------
<S> <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 11
ITEM 3. Quantitative and Qualitative
Disclosures About Market Risk 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 2. Changes in Securities 15
ITEM 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security
Holders 15
ITEM 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURE PAGE 17
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- -----------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
(Unaudited)
--------------- -----------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 114,279 $ 213,074
Marketable securities 108,658 627,817
Accounts receivable, less allowance of $117,464 in 1998
and 1997 1,137,153 1,060,252
Inventories, net of reserves of $620,949 in 1998 and 1997 1,394,286 1,008,777
Prepaid expenses and other current assets 98,813 110,094
------------- -------------
Total current assets 2,853,189 3,020,014
Property and equipment, net 173,506 181,804
Patents, licenses and trademarks, less accumulated amortization of
$330,466 in 1998 and 1997 131,352 95,508
Other assets 98,666 98,666
------------- -------------
Total assets $ 3,256,713 $ 3,395,992
============= =============
Liabilities and Stockholders' Equity:
Current liabilities:
Line of Credit $ 1,021,106 $ 301,233
Note Payable 250,000 -
Accounts payable 223,610 481,240
Accrued expenses 418,995 480,440
Accrued costs related to dissolution of foreign subsidiary 37,144 38,069
------------- -------------
Total current liabilities 1,950,855 1,300,982
------------- -------------
Stockholders' equity:
Preferred stock, par value $.001, 1,000,000 shares authorized:
Series A 6% Redeemable Cumulative Convertible Preferred
Stock, no shares issued and outstanding at March 31, 1998
and December 31, 1997 - -
Common stock, par value, $.001, 50,000,000 shares
authorized, issued 13,478,586 in 1998 and 13,462,636 in 1997 13,481 13,463
Additional paid-in capital 29,779,561 29,755,652
Unearned services (34,734) (50,766)
Accumulated deficit (28,452,450) (27,623,339)
------------- -------------
Net stockholders' equity 1,305,858 2,095,010
------------- -------------
Total liabilities and stockholders' equity $ 3,256,713 $ 3,395,992
============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 3
<PAGE>
Item 1. Financial Statements (continued).
- ----------------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Sales $ 262,530 $ 134,405
Cost of sales 238,107 112,870
---------- ----------
Gross profit 24,423 21,535
---------- ----------
Operating expenses:
Sales and marketing 305,259 273,803
General and administrative 253,780 235,987
Engineering and development 273,930 282,695
---------- ----------
Total operating expenses 832,969 792,485
---------- ----------
Loss from operations (808,546) (770,950)
Interest income (expense), net (20,565) 3,216
---------- ----------
Net loss $ (829,111) $ (767,734)
========== ==========
Basic loss per share $ (0.06) $ (0.06)
========== ==========
Weighted average shares outstanding 13,469,193 13,237,060
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 4
<PAGE>
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 Unearned Accumulated Stockholders'
Shares Amount Shares Amount Capital Services Deficit Equity
------ ------ ------ ------ ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 - $ - 13,462,636 $13,463 $29,755,652 ($50,766) ($27,623,339) $2,095,010
Exercise of stock options - - 15,950 18 23,909 - - 23,927
Earned escrow shares - - - - - 16,032 - 16,032
Net loss - - - - - - (829,111) (829,111)
---------------------------------------------------------------------------------------------------
Balance at March 31, 1998 - $ - 13,478,586 $13,481 $29,779,561 ($34,734) ($28,452,450) $1,305,858
===================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 5
<PAGE>
Item 1. Financial Statements (continued).
- ----------------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(829,111) $ (767,734)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 19,694 30,463
Issuance of common stock for services 16,032 -
Changes in operating assets and liabilities:
Accounts receivable (76,901) (5,470)
Inventories (385,509) (141,548)
Prepaid expenses and other current assets 11,281 (20,290)
Accounts payable (257,630) 53,542
Accrued expenses (61,445) 21,093
Accrued costs related to dissolution of foreign subsidiary (925) (3,093)
Other current liabilities - (3,980)
--------- ----------
Net cash used by operating activities (1,564,514) (837,017)
--------- ----------
Cash flows from investing activities:
Sale of marketable securities 519,159 250,000
Additions to property and equipment (11,396) (60,286)
Additions to patents, licenses and trademarks (35,844) (39,952)
-------- ----------
Net cash provided by investing activities 471,919 149,762
-------- ----------
Cash flows from financing activities:
Borrowings under line of credit 719,873 -
Note payable 250,000 -
Proceeds from issuance of common stock, net - 719,885
Proceeds from exercise of stock options 23,927 78,749
-------- ----------
Net cash provided by financing activities 993,800 798,634
-------- ----------
Increase (decrease) in cash and cash equivalents (98,795) 111,379
Cash and cash equivalents at beginning of period 213,074 349,457
-------- ----------
Cash and cash equivalents at end of period $ 114,279 $ 460,836
========= ==========
Supplemental cash flow disclosure:
Cash paid during the period for interest $ 711 $ 913
========= ==========
Noncash financing activities
Issuance of common stock for earned services $ 16,032 $ -
========= ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 6
<PAGE>
BIOLASE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
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, 1997 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-month period ended March 31,
1998.
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 $2,823,910,
$2,463,259 and $2,023,822 for the years ended December 31, 1997, 1996 and 1995,
respectively, and a net loss of $829,111 for the three-month period ended March
31, 1998 and has an accumulated deficit of $28,452,450 at March 31, 1998. 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
stock or through borrowings until it achieves sustained profitability through
increased sales and product improvement through engineering 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 yet-to-be-released LaserBrush(TM) and a new reduced-power variation of the
Millennium(TM), called DermaLase(TM), which is being configured to accommodate
applications in dermatology and general soft-tissue surgery.
Financing the development of laser-based medical and dental devices and
instruments and the operations of the Company has been achieved principally
through the private placements of preferred and common stock and the exercise of
stock options and warrants. During the three years ended December 31, 1997, the
Company has raised approximately $6,414,000 of equity funds. More recently, the
Company raised an additional $3,593,000 in equity funds (see Note 7 to
Consolidated Condensed Financial Statements). Management believes that
significant additional resources will be required, commencing in the first half
of 1999, to complete the processes designed to lead to FDA clearance to market
the Company's laser-based technologies for various dental and medical
applications in the United States and foreign countries, and to fund the
Company's working capital needs. The Company expects to generate the necessary
capital resources through the sale of its products, the issuance of equity
securities in either public or private placements, or debt financing. No
assurance can be given, however, that the Company will be able to obtain such
capital resources.
Based on the Company's current business plan, the Company anticipates that it
will need additional financing during the first half of 1999 to support
additional working capital requirements should its existing and soon-to-be-
released products meet with resistance of acceptance by the market. There are
no assurances that the Company will be successful in obtaining such financing.
If unsuccessful in arranging such financing, the Company may be
Page 7
<PAGE>
able to extend the period before additional financing is required by deferring
the creation or satisfaction of various commitments and deferring the
introduction of various products or entry into various markets. If the Company
were unable to obtain such financing, its ability to meet its obligations and to
continue its operations would be adversely affected. The Company's financial
statements have been prepared under the assumption of a going concern. Failure
to arrange such financing on acceptable terms and to achieve profitability would
have an adverse effect on the financial position, results of operations, cash
flows and prospects of the Company and ultimately its ability to continue as a
going concern.
Operating results for the three -month period ended March 31, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998. These statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Note 2
- ------
Inventories, net of reserves, March 31, 1998
consist of the following: (unaudited) December 31, 1997
------------ -----------------
<S> <C> <C>
Raw materials $ 1,209,704 $ 804,631
Work-in-process 57,249 36,609
Finished goods 127,333 167,537
----------- -----------
$ 1,394,286 $ 1,008,777
=========== ===========
Note 3
- ------
Property and equipment, March 31, 1998
at cost, consist of the following: (unaudited) December 31, 1997
----------- -----------------
Leasehold improvements $ 149,282 $ 149,282
Equipment and computers 764,303 754,152
Furniture and fixtures 169,664 168,419
Demonstration units 247,354 247,354
----------- -----------
Total cost 1,330,603 1,319,207
Less, accumulated depreciation and amortization (1,157,097) (1,137,403)
----------- -----------
$ 173,506 $ 181,804
=========== ===========
</TABLE>
Page 8
<PAGE>
<TABLE>
<CAPTION>
Note 4
- ------
Accrued expenses consist of the following: March 31, 1998
(unaudited) December 31, 1997
----------- -----------------
<S> <C> <C>
Accrued professional fees $ 45,124 $ 82,876
Accrued legal and litigation costs 69,666 91,880
Accrued warranty 78,000 83,000
Accrued vacation 67,591 64,270
Other 158,614 158,414
-------- --------
$418,995 $480,440
======== ========
</TABLE>
Note 5
- ------
Basic 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 March 31, 1998
and 1997.
Note 6
- ------
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 does not have a material
effect on the Company's results of operations for the three-month period ended
March 31, 1998.
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 does not have a material effect on the Company's current reporting and
disclosures for the three-month period ended March 31, 1998.
Note 7
- ------
On April 21, 1998, the Company initiated two private placements (the
"Offerings") pursuant to Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act") that closed on May 15, 1998. In the
Offerings, the Company issued and sold 132 units, each unit consisting of 10,000
shares of the Company's common stock and 5,000 redeemable common stock purchase
warrants (the "Unit Warrants"), expiring April 30, 2000. Gross proceeds
received from the Offerings were $3,960,000 with net proceeds, after commissions
and estimated expenses, of approximately $3,593,000.
Page 9
<PAGE>
The Company also issued to its placement agents for the Offerings non-
redeemable warrants to purchase an aggregate of 64,000 shares of common stock
(collectively, along with the Unit Warrants, the "Warrants"), expiring April 30,
2000. The exercise price of the Warrants is $3.75 per share.
The shares of common stock issued, included those underlying shares to be
issued upon exercise of the Warrants, are "restricted securities" as defined in
Rule 144 promulgated under the Securities Act. Accordingly, such shares may be
resold only pursuant to a registration statement under the Securities Act or in
accordance with an exemption from such registration requirement. The Company is
obligated to file a registration statement covering the resale of such shares of
common stock within 45 days from May 15, 1998, the closing date.
The unaudited consolidated condensed balance sheet of BioLase Technology,
Inc. at March 31, 1998 presented below reflects the consolidated financial
position of the Company on such date and such financial position as adjusted on
a proforma basis to give effect to the Offerings.
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
---------------------------------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- ---------
<S> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 114,279 $3,402,800 $ 3,517,079
Marketable securities 108,658 108,658
Accounts receivable, less allowance of $117,464 1,137,153 1,137,153
Inventories, net of reserves of $620,949 1,394,286 1,394,286
Prepaid expenses and other current assets 98,813 98,813
----------- ---------- ----------
TOTAL CURRENT ASSETS 2,853,189 3,402,800 6,255,989
Property and equipment, net 173,506 173,506
Patents, licenses and trademarks, less accumulated amortization
of $330,466 131,352 131,352
Other assets 98,666 98,666
---------- ---------- ----------
TOTAL ASSETS $ 3,256,713 $3,402,800 $ 6,659,513
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Line of credit $ 1,021,106 $ $ 1,021,106
Note payable 250,000 (250,000) -
Accounts payable 223,610 223,610
Accrued expenses 418,995 60,000 478,995
Accrued costs related to dissolution of foreign
subsidiary 37,144 37,144
------------ ---------- ------------
TOTAL CURRENT LIABILITIES 1,950,855 (190,000) 1,760,855
------------ ---------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 1,000,000 shares
authorized: Series A Redeemable Cumulative
Preferred Stock, no shares issued and
outstanding at March 31, 1998 - -
Common stock, $.001 par value, 50,000,000 shares
authorized; 13,478,586 shares issued and
outstanding at March 31, 1998, 14,798,586 shares
issued on a proforma basis 13,481 1,320 14,801
Additional paid-in capital 29,779,561 3,591,480 33,371,041
Unearned services (34,734) (34,734)
Accumulated deficit (28,452,450) (28,452,450)
------------ ---------- ------------
NET STOCKHOLDERS' EQUITY 1,305,858 3,592,800 4,898,658
------------ ---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,256,713 $3,402,800 $ 6,659,513
============ ========== ============
</TABLE>
Page 10
<PAGE>
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
Sales were $263,000 during the first quarter of 1998, compared to $134,000
for the same period in 1997, an increase of $129,000, or 96%. The increase was
related solely to the sales of Millennium(TM) systems in the first quarter of
1998 while the first quarter of 1997 reflected sales related to the phase-out of
the Company's Nylad laser product line. Sales of endodontic products during the
first quarter of 1998 were comparable to those reported for the same quarter in
1997.
The German distributor of the Company's Millennium(TM) system has requested a
partial redesign of the handpiece, which forms a portion of the delivery
subsystem of the Millennium(TM), in order to address more effectively the
requirements of its marketplace. While in the process of effecting this
redesign, the Company has delayed shipment of additional Millennium(TM) systems
to its German distributor. The Company believes that it is making substantial
progress in the redesign of the handpiece and anticipates completion of the
redesign during the second half of 1998, at which point, recommencement of
Millennium(TM) shipments in conjunction with the distribution agreement should
occur. (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".) None of the sales reported during the first quarter of
1998 were to the Company's German distributor.
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).
(FLS) The Company is presently developing its marketing plan for the
DermaLase(TM) system and anticipates commencement of production of DermaLase(TM)
in the last half of 1998. (FLS)
Gross profit for the first quarter of 1998 was comparable to the first
quarter of 1997; however, the gross margin declined to 9% compared to the same
period in 1997 due principally to the under absorption of fixed overhead costs
incurred as a result of ramping up for higher production levels. These costs
included the design and manufacturing of various test and production fixtures to
improve manufacturing efficiencies and increased indirect costs to support
higher levels of manufacturing. The gross profit from the sale of endodontic
products during the first quarter of 1998 was comparable to that reported for
the first quarter of 1997.
Sales and marketing expenses increased $31,000 to $305,000 during the first
quarter of 1998 compared to $274,000 reported for the comparable period in 1997.
The increase is due principally to costs associated with the Company's
establishment of a domestic dental sales force.
General and administrative expenses were $254,000 during the first quarter of
1998, an increase of $18,000, or 8% as compared to $236,000 reported during the
comparable period in 1997. The increase was due principally to greater costs
related to advertising and promotion of the Company through various publications
and investor forums combined with a slight increase
Page 11
<PAGE>
in employee related expenses; the increase was partially offset by reductions in
the Company's legal fees from the same period in 1997.
Engineering and development expenses reported during the first quarter of
1998 were comparable to those reported during the same period in 1997. The
Company anticipates an increase of approximately 35% in such costs during the
second quarter of 1998 as a result of the redesign of the Millennium(TM)
handpiece and the finalization of the soon-to-be-released LaserBrush(TM) design.
(FLS)
Interest expense, net, increased $24,000 to $21,000 during the first quarter
of 1998 compared to interest income, net of $3,000 reported during the
comparable period in 1997. The increase in interest expense was due to the
Company's utilization of its line of credit established for the financing of
inventories while the reduction in interest income was due to the liquidation of
certain invested funds to meet the Company's working capital needs.
FINANCIAL CONDITION
Cash, cash equivalents and marketable securities decreased an aggregate of
$618,000 during the first three months of 1998 due principally to (i) cash used
by operations of $1,565,000, and (ii) expenditures related to capital equipment
and patent and trademark applications, aggregating $47,000, offset by (a)
proceeds of $720,000 received from utilization of the Company's credit facility
established for the financing of inventories, (b) proceeds of $250,000 received
from a note which was subsequently converted to equity in connection with a
private placement (see Note 7 to Consolidated Condensed Financial Statements),
and (c) proceeds received from the exercise of employee stock options,
aggregating $24,000.
Working capital declined $817,000 to $902,000 at March 31, 1998, compared to
the $1,719,000 reported at December 31, 1997. The decline was due principally
to: (i) decreases in cash, cash equivalents and marketable securities
aggregating $618,000, offset by increases in (a) accounts receivable of $77,000
as a result of extended terms offered to the Company's German distributor and
shipments of Millennium(TM) in March 1998, and (b) inventories of $386,000
resulting from increased purchases of long-lead item material; and (ii)
increases of $720,000 and $250,000 related to the Company's line of credit and
note payable, respectively, partially offset principally by reductions in (a)
accounts payable of $258,000 and (b) accrued expenses of $61,000.
Cash used by operations for the first three months of 1998 increased by
$727,000 from cash used during the first three months of 1997 due principally to
(i) an additional $61,000 in net loss reported and (ii) increased levels in
accounts receivable and inventories associated with Millennium(TM) sales and
production coupled with decreases principally in accounts payable and accrued
expenses. Net cash provided by investing activities increased by $322,000
during the first three months of 1998 as compared to the same period in 1997 due
to an increase of $269,000 in sales of U. S. Treasury Notes and a reduction in
cash used for capital equipment expenditures and additions to patents, licenses
and trademarks, aggregating $53,000. Net cash provided by financing activities
increased by $195,000 during the first quarter of 1998 from the comparable
period in 1997 due to proceeds received from borrowings under the Company's line
of credit and a note payable of $720,000 and $250,000, respectively, offset by
reductions of $720,000 and $55,000 in proceeds received from issuance of common
stock and exercises of stock options, respectively.
The Company recorded revenue from its shipments of Millennium(TM) units
during the second half of 1997, which amount was reflected as an account
receivable in the Company's audited consolidated balance sheet at December 31,
1997 with anticipated payment in the first quarter of 1998. (FLS) In order to
promote the introduction of the Millennium(TM) system in Germany, the Company
provided its distributor introducing that system in Germany, the first market to
be approached, with extended payment terms on its receivable of $885,000.
Page 12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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 and 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 yet-to-be-released LaserBrush(TM) and a new reduced-power
variation of the Millennium(TM), called DermaLase(TM), which is being configured
to accommodate applications in dermatology and general soft-tissue surgery.
(FLS)
Financing the development of laser-based medical and dental devices and
instruments and the operations of the Company has been achieved principally
through the private placements of preferred and common stock and the exercise of
stock options and warrants. During the three years ended December 31, 1997, the
Company has raised approximately $6,414,000 of equity funds. More recently, the
Company raised an additional $3,593,000 in equity funds (see Note 7 to
Consolidated Condensed Financial Statements). Management believes that
significant additional resources will be required, commencing in the first half
of 1999, to complete the processes designed to lead to FDA clearance to market
the Company's laser-based technologies for various dental and medical
applications in the United States and foreign countries, and to fund the
Company's working capital needs. (FLS) The Company expects to generate the
necessary capital resources through the sale of its products, the issuance of
equity securities in either public or private placements, or debt financing. No
assurance can be given, however, that the Company will be able to obtain such
capital resources. (FLS)
Based on the Company's current business plan, the Company anticipates that it
will need additional financing during the first half of 1999 to support
additional working capital requirements should its existing and soon-to-be-
released products meet with resistance of acceptance by the market. (FLS) There
are no assurances that the Company will be successful in obtaining such
financing. (FLS) 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 and deferring the
introduction of various products or entry into various markets. (FLS) If the
Company were unable to obtain such financing, its ability to meet its
obligations and to continue its operations would be adversely affected. (FLS)
The Company's financial statements have been prepared under the assumption of a
going concern. Failure to arrange such financing on acceptable terms and to
achieve profitability would have an adverse effect on the financial position,
results of operations, cash flows and prospects of the Company and ultimately
its ability to continue as a going concern. (FLS)
The Company is presently analyzing various computer software and hardware to
meet its operational needs and anticipates capital expenditures to increase
significantly during 1998 in connection with the acquisition of such software
and hardware. (FLS) The Company's present software and hardware is personal
computer based and is unaltered from its original purchased state except for
those upgrades offered by the manufacturer of such software. The Company
believes that its present software and hardware is Year 2000 compliant and
intends to obtain certification of such for any future purchases of computer
software and hardware. Additionally, the ability of third parties with whom the
Company transacts business to adequately address their Year 2000 issues is
outside the control of the Company. There can be no assurance that the failure
of the Company or such third parties to adequately address their respective Year
2000 issues will not have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows. (FLS)
Page 13
<PAGE>
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 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 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.
While the Company believes that its technology incorporated into its
Millennium(TM) surgical tissue cutting system should be effective in a broad
range of medical and dental applications, this belief (except with respect to
dental hard tissue and certain dermatological applications, for which clinical
research has been and is being conducted) is based largely on preliminary in
vitro and in vivo research and extrapolation of observations in such clinical
research. No assurances can be given that the Company's Millennium(TM)
technology will prove to be applicable to, or will find market acceptance in,
any medical or dental fields or that the Company will receive clearance from the
FDA or other regulatory agencies to market the Millennium(TM) system or other
products embodying its HydroKinetic(TM) technology or variations thereof for any
additional applications or in any additional jurisdictions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- --------------------------------------------------------------------
Not Applicable
Page 14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ---------------------------
See Item 3 "Legal Proceedings" included within the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1997 for information regarding
certain pending legal proceedings.
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.
- -------------------------------
On April 21, 1998, the Company initiated two private placements (the
"Offerings") pursuant to Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act") that closed on May 15, 1998. In the
Offerings, the Company issued and sold 132 units, each unit consisting of 10,000
shares of the Company's common stock and 5,000 redeemable common stock purchase
warrants (the "Unit Warrants"), expiring April 30, 2000. Gross proceeds
received from the Offerings were $3,960,000 with net proceeds, after commissions
and estimated expenses, of approximately $3,593,000.
The placement agents for the Offerings, PacVest Associates, Inc. and
EuroCapital Limited, received cash commissions equal to 8% of gross proceeds to
the Company for 128 of the 132 units sold. The Company also issued to its
placement agents for the Offerings non-redeemable warrants to purchase an
aggregate of 64,000 shares of common stock (collectively, along with the Unit
Warrants, the "Warrants"), expiring April 30, 2000. The exercise price of the
Warrants is $3.75 per share.
The units were sold to an aggregate of 29 individuals and entities qualifying
as "accredited investors", as defined in Rule 501 of Regulation D. The Company
relied on the exemption from registration provided by Rule 506 of Regulation D,
as each purchaser represented to the Company that it met one of the categories
of accredited investor set forth in Rule 501 and was aware of the restrictions
on resale set forth below. In addition, neither the Company nor the placement
agents offered or sold the units by any form of general solicitation or
advertising.
The shares of common stock issued, included those underlying shares to be
issued upon exercise of the Warrants, are "restricted securities" as defined in
Rule 144 promulgated under the Securities Act. Accordingly, such shares may be
resold only pursuant to a registration statement under the Securities Act or in
accordance with an exemption from such registration requirement. The Company is
obligated to file a registration statement covering the resale of such shares of
common stock within 45 days from May 15, 1998, the closing date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- -----------------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------------------------------------------------------------
None
Page 15
<PAGE>
ITEM 5. OTHER INFORMATION.
- ---------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
(a) EXHIBITS
27. Financial Data Schedule (electronic filing only)
(b) REPORTS ON FORM 8-K
None
Page 16
<PAGE>
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: May 20, 1998 /s/ Donald A. La Point
-------------- ----------------------
Donald A. La Point
President & Chief Executive Officer
Date: May 20, 1998 /s/ Stephen R. Tartamella
-------------- -------------------------
Stephen R. Tartamella
Vice President & Chief Financial Officer
Page 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF BIOLASE TECHNOLOGY, INC. AND ITS
SUBSIDIARY AS OF MARCH 31, 1998 AND THE RELATED CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS, STOCKHOLDER'S EQUITY AND CASH FLOWS FOR THE
THREE-MONTH PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 114,279
<SECURITIES> 108,658
<RECEIVABLES> 1,254,617
<ALLOWANCES> (117,464)
<INVENTORY> 1,394,286
<CURRENT-ASSETS> 2,853,189
<PP&E> 1,330,603
<DEPRECIATION> (1,157,097)
<TOTAL-ASSETS> 3,256,713
<CURRENT-LIABILITIES> 1,950,855
<BONDS> 0
0
0
<COMMON> 13,481
<OTHER-SE> 1,292,377
<TOTAL-LIABILITY-AND-EQUITY> 3,256,713
<SALES> 262,530
<TOTAL-REVENUES> 262,530
<CGS> 238,107
<TOTAL-COSTS> 238,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,565
<INCOME-PRETAX> (829,111)
<INCOME-TAX> 0
<INCOME-CONTINUING> (829,111)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (829,111)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
