<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, 1999
--------------
[_] 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
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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)
(949) 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 17,657,387
- ----------------------------- ----------------------------
Title Class Number of Shares Outstanding
at May 21, 1999
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BIOLASE TECHNOLOGY, INC.
Page Number
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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 15
ITEM 3. Defaults Upon Senior Securities 16
ITEM 4. Submission of Matters to a Vote of Security
Holders 16
ITEM 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURE PAGE 17
Page 2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
(Unaudited)
-------------- -----------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 3,480,181 $ 424,539
Marketable securities 101,485 251,485
Accounts receivable, less allowance of $118,511 in 1999
and $118,015 in 1998 479,671 563,236
Inventories, net of reserves of $227,694 in 1999 and 1998 1,669,016 1,930,117
Prepaid expenses and other current assets 169,788 168,725
------------ ------------
Total current assets 5,900,141 3,338,102
Property and equipment, net 413,191 407,142
Patents, trademarks and licenses, less accumulated
amortization of $134,177 in 1999 and $129,312 in 1998 147,238 147,199
Other assets 61,064 18,929
------------ ------------
Total assets $ 6,521,634 $ 3,911,372
============ ============
Liabilities and Stockholders' Equity:
Current liabilities:
Line of credit $ 1,889,025 $ 1,705,025
Accounts payable 912,858 806,335
Accrued expenses 890,017 701,016
Accrued costs related to dissolution of foreign subsidiary 37,144 37,144
------------ ------------
Total current liabilities 3,729,044 3,249,520
------------ ------------
Stockholders' equity:
Preferred stock, par value $.001, 1,000,000 shares authorized:
no shares issued and outstanding in 1999 or 1998 - -
Common stock, par value, $.001, 50,000,000 shares
authorized, issued 17,474,507 in 1999 and 16,312,007 in 1998 17,475 16,312
(after deducting 182,880 of escrow shares in 1999 and 1998)
Additional paid-in capital 41,460,598 38,614,948
Unearned services (46,219) -
Accumulated deficit (38,639,264) (37,969,408)
------------ ------------
Net stockholders' equity 2,792,590 661,852
------------ ------------
Total liabilities and stockholders' equity $ 6,521,634 $ 3,911,372
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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Item 1. Financial Statements (continued).
- -----------------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
------------------------------
1999 1998
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Sales $ 1,785,983 $ 262,530
Cost of sales 988,842 238,107
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Gross profit 797,141 24,423
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Operating expenses:
Sales and marketing 534,320 305,259
General and administrative 435,695 253,780
Engineering and development 471,515 273,930
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Total operating expenses 1,441,530 832,969
------------- -------------
Loss from operations (644,389) (808,546)
Interest income 3,515 5,457
Interest expense (28,982) (26,022)
------------- -------------
Net loss $ (669,856) $ (829,111)
============= =============
Loss per share - basic and diluted $ (0.04) $ (0.06)
============= =============
Weighted average shares outstanding 16,316,157 13,469,193
============= =============
See accompanying notes to consolidated condensed financial statements.
Page 4
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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, 1999 - $ - 16,312,007 $16,312 $38,614,948 $ - $(37,969,408) $ 661,852
Private Placement of common stock 1,116,000 1,116 2,746,884 - - 2,748,000
Issuance of stock for unearned
services 46,500 47 98,766 (98,813) - -
Earned escrow shares - - - - - 52,594 - 52,594
Net loss - - - - - - (669,856) (669,856)
--------------------------------------------------------------------------------------------
Balance at March 31, 1999 - $ - 17,474,507 $17,475 $41,460,598 $(46,219) $(38,639,264) $2,792,590
============================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 5
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Item 1. Financial Statements (continued).
- ------------------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (669,856) $ (829,111)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 24,685 19,694
Issuance of common stock for earned services 52,594 16,032
Provision for bad debts 496 -
Changes in operating assets and liabilities:
Accounts receivable 83,069 (76,901)
Inventories 261,101 (385,509)
Prepaid expenses and other current assets (43,198) 11,281
Accounts payable 106,523 (257,630)
Accrued expenses 189,001 (61,445)
Accrued costs related to dissolution of foreign subsidiary - (925)
----------- ------------
Net cash provided (used) by operating activities 4,415 (1,564,514)
----------- ------------
Cash flows from investing activities:
Sale of marketable securities 150,000 519,159
Additions to property and equipment (25,869) (11,396)
Additions to patents, trademarks and licenses (4,904) (35,844)
----------- ------------
Net cash provided by investing activities 119,227 471,919
----------- ------------
Cash flows from financing activities:
Borrowings under line of credit 184,000 719,873
Proceeds from issuance of note - 250,000
Proceeds from issuance of common stock, net 2,748,000 -
Proceeds from exercise of stock options - 23,927
----------- ------------
Net cash provided by financing activities 2,932,000 993,800
----------- ------------
Increase (decrease) in cash and cash equivalents 3,055,642 (98,795)
Cash and cash equivalents at beginning of period 424,539 213,074
----------- ------------
Cash and cash equivalents at end of period $ 3,480,181 $ 114,279
=========== ============
Supplemental cash flow disclosure:
Cash paid during the period for interest $ 28,100 $ 8,864
=========== ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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BIOLASE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1999
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, 1998 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
of March 31, 1999 and the results of operations for the three-month period then
ended.
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 $10,346,069,
$2,823,910 and $2,463,259 for the years ended December 31, 1998, 1997 and 1996,
respectively, and a net loss of $669,856 for the three-month period ended March
31, 1999 and has an accumulated deficit of $38,639,264 at March 31, 1999. 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's business focuses on and is expected to continue to focus on the
manufacturing and marketing of its Er,Cr:YSGG HydroKinetic(TM) tissue cutting
system, the Millennium(TM) within the dental market and the launching of its
recently-released home consumer tooth-whitening system, the LazerSmile(TM)
toothbrush.
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, 1998, the
Company has raised approximately $8,713,000 of equity funds. During the first
quarter of 1999, the Company raised an additional $2,748,000, after commission
and expenses, in equity funds (see Note 6).
The Company's recent clearance to market its Millennium(TM) system for
certain dental hard tissue procedures in the United States should contribute to
the Company's ability to generate working capital through higher sales volume
and associated increased gross profits. However, management believes that the
Company will require significant capital resources during 1999 to fund its
present operations, to fund efforts directed towards further extensions and
refinements of existing products, and to fund continuing research and
development activities. Combined with the contributed capital, the Company
expects to generate the necessary resources to continue with its 1999 business
plan through the sales of its products. Should its current operations fall short
of providing such resources, the Company would need to obtain the necessary
capital resources through other sources such as debt or equity financing. No
assurances can be given, however, that the Company will be able to achieve and
sustain profitability or have other sources available to provide the capital
resources necessary to continue its operations. 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
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consolidated condensed financial statements have been prepared under the
assumption of a going concern. 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.
Operating results for the three-month period ended March 31, 1999 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1999. 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, 1998.
<TABLE>
<CAPTION>
Note 2
- ------
Inventories, net of reserves, March 31, 1999 December 31, 1998
consist of the following: (unaudited)
-------------- -----------------
<S> <C> <C>
Raw materials $ 1,048,746 $ 1,372,172
Work-in-process and subassemblies 347,210 183,889
Finished goods 273,060 374,056
----------- -----------
$ 1,669,016 $ 1,930,117
=========== ===========
Note 3
- ------
Property and equipment, March 31, 1999 December 31, 1998
at cost, consist of the following: (unaudited)
-------------- -----------------
Leasehold improvements $ 170,927 $ 170,927
Equipment and computers 1,027,132 1,001,263
Furniture and fixtures 199,588 199,588
Demonstration units 247,354 247,354
----------- -----------
Total cost 1,645,001 1,619,132
Less, accumulated depreciation and amortization (1,231,810) (1,211,990)
----------- -----------
$ 413,191 $ 407,142
=========== ===========
</TABLE>
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<TABLE>
<CAPTION>
Note 4
- ------
Accrued expenses consist March 31, 1999 December 31, 1998
of the following: (unaudited)
-------------- -----------------
<S> <C> <C>
Accrued payroll and benefits $ 332,368 $ 152,124
Accrued professional fees 104,000 89,124
Accrued legal costs 128,500 144,166
Accrued warranty 74,175 40,315
Other 250,974 275,287
----------- -----------
$ 890,017 $ 701,016
=========== ===========
</TABLE>
Note 5
- ------
Basic and diluted loss per share is based on the weighted average number
of common shares outstanding. Common stock equivalents, which consist of stock
options and warrants, 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, 1999 and 1998.
Note 6
- ------
On March 26, 1999, the Company completed a private placement (the
"Placement") pursuant to Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act"). In the Placement, the Company issued
and sold 110 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 March 31, 2001. The Unit Warrants allow for the Company
to call the warrants, with not less than 30 days written notice, at a redemption
price of $.01 each, provided that the average between the high and low prices at
which the shares of common stock trade in the principal market in which they
then trade exceeds 142% of the exercise price for ten consecutive trading days
preceding the date of such call. Gross proceeds received from the Placement
were $3,025,000; net proceeds were approximately $2,748,000 after placement
agent cash commissions and expenses of $242,000 and estimated expenses incurred
by the Company of $35,000. The Company also issued to its Placement Agent
16,000 shares of its common stock and 99,000 redeemable common stock purchase
warrants, expiring March 31, 2001 with an exercise price of $2.75 per share.
The redemption features of these warrants are the same as those afforded the
Unit Warrants.
The shares of common stock issued, including those underlying shares to
be issued upon exercise of the Warrants, are or will be "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 with such registration declared
effective no later than June 24, 1999 to avoid certain stock issuance penalties.
In the event such registration statement is not declared effective by June 24,
1999, the Company is obligated to issue and deliver to each purchaser of units
in the Placement as liquidated damages shares of common stock equal to (i) one
percent (1%) of the number of shares forming part of the units purchased by such
purchaser in the Placement for each of the first three (3) months (or portion
thereof)
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following June 24, 1999 that such registration statement has not been declared
effective and (ii) two percent (2%) of such number of shares for each month (or
portion thereof) thereafter that such registration statement has not been
declared effective, up to a maximum number of shares in liquidated damages equal
to ten percent (10%) of the number of shares so purchased by such purchaser in
Placement.
On April 28, 1999, the Company filed Amendment No. 2 to Form S-3
Registration Statement with the Securities and Exchange Commission (the
"S.E.C.") that included the common shares and underlying common shares of the
warrants issued in connection with the Placement. Such registration statement
is pending and has not yet been declared effective by the S.E.C.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- --------------
Qualifying Statement With Respect To Forward-Looking Information
The United States Private Securities Litigation Reform Act of 1995 provides
a "safe harbor" for certain forward-looking statements. Such forward-looking
statements are based upon the current expectations of the Company and speak only
as of the date made. These forward-looking statements involve risks,
uncertainties and other factors. The factors discussed below under "Forward-
Looking Statements" and elsewhere in this Quarterly Report on Form 10-Q are
among those factors that in some cases have affected the Company's historic
results and could cause actual results in the future to differ significantly
from the results anticipated in forward-looking statements made in this
Quarterly Report on Form 10-Q, future filings by the Company with the Securities
and Exchange Commission, in the Company's press releases and in oral statements
made by authorized officers of the Company. When used in this Quarterly Report
on Form 10-Q, the words "estimate," "project," "anticipate," "expect," "intend,"
"believe," "hope," "may" and similar expressions, as well as "will," "shall" and
other indications of future tense, are intended to identify forward-looking
statements.
The following discussion should be read in conjunction with the
consolidated condensed financial statements and notes thereto.
Results of Operations - Three-month period ended March 31, 1999 as compared to
three-month period ended March 31, 1998:
Sales during the first three months of 1999 were $1,786,000, an
increase of $1,523,000, or 580%, over the $263,000 reported for the comparable
period in 1998. The sales reported during the first quarter of 1999 represent
the highest quarterly sales in the Company's history and is attributed
principally to the Company's increased marketing efforts of its Millennium(TM)
YSGG HydroKinetic(TM) system. Increased marketing efforts, establishment of new
domestic and foreign distributor relationships, increases in the Company's
domestic sales force and recent Food and Drug Administration clearance for all
classes of carries removal have contributed to the significant increase in
sales. The Company intends to continue its market awareness of the Millennium
through advertising in professional journals, design and distribution of
creative marketing brochures, sponsorship of "Laser Lunch and Learn" sessions at
professional dental practices and continued participation at significant dental
trade shows, both domestically and abroad.
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Sales of the Company's LazerSmile(TM) tooth-whitening system continue to
improve, though at a nominal rate. The Company continues to employ its strategy
of utilizing experienced consumer marketing groups that specialize in the
distribution of home consumer health products through such channels as
television shopping networks, specialty catalogs and traditional consumer
distribution channels. To date, sales of the LazerSmile(TM) tooth-whitening
system have been achieved predominately through advertising on the Internet,
professional trade journals and cosmetic journals and magazines.
Cost of sales as a percentage of sales decreased significantly from 91%
reported for the three months ended March 31, 1998 to 55% reported for the three
months ended March 31, 1999. The improvement was due principally to the
Company's increased manufacturing efficiency coupled with an improved absorption
of fixed manufacturing costs due to higher manufacturing volumes.
Operating expenses increased $609,000 or 73% during the first quarter of
1999 to $1,442,000 from the $833,000 reported during the comparable period in
1998. Sales and marketing expense increased $229,000 or 75% for the first
quarter of 1999 from the $305,000 reported for the comparable period in 1998.
The increase was due principally to a significant growth in the Company's
domestic sales force and international sales management team, increased selling
commissions as a result of higher sales, increased costs related to marketing
and advertising of the Company's Millennium(TM) system and, to a lesser degree,
costs related to advertising and marketing of the LazerSmile(TM) tooth-whitening
system that was absent during the first quarter of 1998.
General and administrative expense for the first quarter of 1999 was
$436,000, an increase of $182,000, or 72%, above the $254,000 reported for the
first quarter of 1998. The increase is due principally to increases in the
Company's executive management and regulatory staffing and related personnel
expenses, insurance costs and professional expenses associated with the
Company's growth, and patent/trademark expenses related to the Company's
continued efforts to protect its proprietary technologies.
Engineering and development expense increased $198,000, or 72% during the
first quarter of 1999, from $274,000 reported during the comparable period in
1998. The increase was attributed principally to increases in engineering
staffing requirements necessitated by the continued refining and enhancement of
existing products, and continued design and development of new products
requiring research and development.
On July 2, 1998, the Company acquired substantially all of the assets of
Laser Skin Toner, Inc., a development stage company ("LSTI"). The assets
acquired related primarily to the proprietary laser-based technology being
developed by LSTI for non invasive laser treatment in the field of aesthetic
skin rejuvenation, including all intellectual property rights consisting of
patents, patent applications, a trademark application and certain know-how. At
the time of the acquisition, the intellectual property embodying this
developmental effort represented substantially all of LSTI's assets, and the
developmental efforts did not appear applicable to any alternative use. At the
time of acquisition, the Company intended to proceed with those additional
research and development efforts needed to bring the product to market and to
fund the costs from working capital. In anticipation of and then in response to
the clearance it received in October 1998 from the FDA to market its
Millennium(TM) tissue cutting system for dental hard tissue applications, the
Company shortly after acquiring the LSTI technology decided to focus its limited
resources on the marketing of its Millennium(TM) system, including a build-up of
inventory and expansion of sales staff. As a result, the additional research and
development that will be required in an effort to complete and commercialize the
LSTI technology has been largely deferred until Company resources permit
resumption of the research and development efforts. Limited clinical trials of
the developmental technology have continued, and the results of those clinical
trials are being analyzed and evaluated by the Company and will be utilized to
define the additional research and development activities. The Company does
recognize that any advantage that the LSTI technology could have afforded the
Company may be dissipated by delaying efforts to commercialize that technology,
as competing technologies may be developed and receive market acceptance.
The loss from operations decreased to $644,000, or 36% of reported sales
during the first quarter of 1999 compared to an operating loss of $809,000, or
308% of reported sales for the comparable period in 1998. The reduction in the
operating loss is a result of increased sales and improved product margins
offset to a lesser degree by increases in operating expenses associated
principally with the Company's growth.
Interest income and interest expense were comparable between the first
quarters of 1999 and 1999.
Financial Condition
Cash, cash equivalents and marketable securities in the aggregate increased
from $676,000 at December 31, 1998 to $3,582,000 at March 31, 1999, primarily as
a result of a
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private placement of Company common stock and stock purchase warrants in March
1999 that generated net proceeds of approximately $2,748,000 combined with
$184,000 of net borrowings under a line of credit. The Company reported a small
increase in cash from operating activities during the first quarter of 1999 as a
result of its improved operations.
Accounts receivable decreased $83,000 from December 31, 1998, when it
totaled $563,000, to $480,000 at March 31, 1999. This decrease was due
principally to the timely receipt of debtor obligations related to a high volume
of sales that occurred during December, 1998 that was absent in March, 1999.
Inventories decreased $261,000 from $1,930,000 at December 31, 1998 to
$1,669,000 at March 31, 1999 due principally to the Company's use of its
inventory buildup from the fourth quarter of 1998 for sales during the first
quarter of 1999. The Company expects to continue reducing its inventory to a
level that optimizes its production requirements to the established lead times
necessary to obtain such material. The Company believes that its business does
not presently operate in a normalized cycle in which information regarding
inventory turns would be meaningful but that such information will become
meaningful once normal deliveries of Millennium(TM) systems are established.
Prepaid expenses and other current assets at March 31, 1999 were comparable
to those at December 31, 1998.
Current liabilities increased $480,000 from December 31, 1998 to March 31,
1999, reflecting increases in (i) indebtedness under a line of credit used to
finance inventory which increased $184,000, (ii) trade accounts payable of
$107,000 driven by the Company's focus on reducing its payable turnover, and
(iii) accrued expenses of $189,000 related principally to the Company's change
in its payroll cycle in 1999 compared to 1998.
Capital expenditures during the first quarter of 1999 totaled $26,000
primarily related to the purchase of personal computers to accommodate the
increase in personnel at the Company. Patents, trademarks and licenses were
comparable to those reported at December 31, 1998, less normal amortization for
the first quarter of 1999.
Stockholders' equity increased to $2,793,000 at March 31, 1999 from
$662,000 at December 31, 1998. In March, 1999, the Company completed a private
placement of 1,116,000 shares of common stock for net proceeds of $2,748,000.
During the first quarter of 1999, the Company released escrowed shares of its
common stock valued at $53,000 for services provided by certain professional
organizations. These increases in stockholders' equity were offset by the
current period loss of $670,000.
Liquidity and Capital Resources
The Company's business now focuses on and is expected to continue to focus
on the manufacturing and marketing of its Er,Cr:YSGG HydroKinetic(TM) tissue
cutting system, the Millennium(TM) within the dental market and the launching of
its recently-released home consumer tooth-whitening system, the LazerSmile(TM)
toothbrush.
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, 1998, the
Company has raised approximately
Page 12
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$8,713,000 of equity funds. During the first quarter of 1999, the Company raised
an additional $2,748,000, after commission and expenses, in equity funds.
The Company's recent clearance to market its Millennium(TM) system for
certain dental hard tissue procedures in the United States should contribute to
the Company's ability to generate working capital through higher sales volume
and associated increased gross profits. However, management believes that the
Company will require significant capital resources during 1999 to fund its
present operations, to fund efforts directed towards further extensions and
refinements of existing products, and to fund continuing research and
development activities. Combined with the contributed capital, the Company
expects to generate the necessary resources to continue with its 1999 business
plan through the sales of its products. Should its current operations fall short
of providing such resources, the Company would need to obtain the necessary
capital resources through other sources such as debt or equity financing. No
assurances can be given, however, that the Company will be able to achieve and
sustain profitability or have other sources available to provide the capital
resources necessary to continue its operations. 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. 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.
At March 31, 1999, the Company had $1,889,000 outstanding under a revolving
credit agreement with a bank. The revolving credit agreement provides for
borrowings of up to $2,500,000 for the financing of inventory and is
collateralized by substantially all of the Company's accounts receivable and
inventories. The interest rate is fixed throughout the term of the credit
agreement and is computed based upon LIBOR plus 0.5% at the time of any
borrowings. The Company is required to reduce the outstanding loan balance by
an amount equal to the cost of goods sold associated with sales of inventory
upon collection of sales proceeds. The current revolving credit agreement
expires on June 1, 1999, and the Company has one six-month renewal option
remaining. The Company expects that it will exercise its option to extend the
line of credit through December 1, 1999. The Company will be required, however,
to pay off or refinance this line of credit by December 1, 1999. No assurances
can be given that the Company will be able to refinance the line of credit or
that the terms on which it may be able to refinance the line of credit will be
as favorable as the terms of the existing line. If the Company is unable to
refinance and therefore required to repay the line of credit, the diversion of
resources to that purpose may adversely affect the Company's operations and
financial condition.
The Company is presently continuing its analysis of its computer software
and hardware requirements, including non-information technology systems, and
anticipates capital expenditures to increase significantly during 1999 in
connection with the acquisition of such software and hardware. Included among
the software to be purchased would be a new accounting system. That system,
unlike the present system, would be Year 2000 compliant. 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 suppliers of
such software. The Company has received assurances from the suppliers of the
software it employs, other than the accounting system software, that such
software is Year 2000 compliant. The Company intends to obtain certification
that any computer software and hardware purchased in 1999 is Year 2000
compliant. The Company does not believe that its insistence upon Year 2000
compliant hardware or software will materially increase the cost of any hardware
or software acquired. Should the Company be unable to obtain Year 2000
compliant software or
Page 13
<PAGE>
hardware, the worst case scenario would require the Company to transition to a
manual financial reporting and information gathering system.
The Year 2000 problem arises out of the convention by which years have been
represented in computer programs by a two digit number representing the final
two digits in the year's designation and concern that time sensitive components
could fail or provide erroneous output if they do not correctly recognize years
beginning with 20 rather than 19.
The Company currently has limited information regarding the Year 2000
compliance status of its principal suppliers of goods and services and of its
principal customers. The Company has initiated formal communications with all
such suppliers and customers with respect to the status of such persons'
computer systems in terms of Year 2000 compliance. If any principal customers
lack systems that are Year 2000 compliant or programs that provide reasonable
assurance that such systems will be Year 2000 compliant well before the end of
1999, the Company will attempt to establish communications channels with such
customers that bypass the non-compliant computer systems. If any principal
suppliers lack systems that are Year 2000 compliant or programs that provide
reasonable assurance that such systems will be Year 2000 compliant well before
the end of 1999, the Company will attempt to identify and establish relations
with alternate suppliers who have Year 2000 compliant systems. There is a
single source supplier of optic fiber for the Millennium which could not be
easily replaced if it has non-compliant systems, and in the event such supplier
had a non-compliant system, the Company would attempt to establish
communications channels with such supplier that bypass the supplier's non-
compliant computer system. There can be no assurance however that the Company
would be successful in locating new suppliers and an inability to do so could
create difficulties in the Company obtaining certain components used in its
manufacturing process. The Company believes that the costs associated with
monitoring Year 2000 compliance by suppliers and customers and dealing with any
non-compliance will not be material. The failure of the Company or any of its
principal suppliers and customers to become Year 2000 compliant in a timely
manner and the failure to establish alternate communications channels could have
a material adverse effect on the Company's business, financial condition,
results of operations and cash flow.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
- --------------------------------------------------------------------
Not Applicable
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, 1998 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.
Page 14
<PAGE>
Item 2. Changes in Securities.
- -------------------------------
On March 26, 1999, the Registrant issued and sold an aggregate 1,100,000
shares of its Common Stock, par value $.001 per share ("Unit Common Stock"), and
550,000 Redeemable Stock Purchase Warrants ("Unit Warrants"). In addition, the
Registrant issued to Eurocapital Limited (the "Placement Agent") 16,000 shares
of its Common Stock ("Agent Common Stock") and 99,000 redeamable stock purchase
warrants (the "Agent Warrants" and, collectively with the Unit Common Stock,
Agent Common Stock and Unit Warrants, the "Securities"). Each of the Unit
Warrants entitles the holder hereof to purchase one share of Common Stock at an
exercise price of $3.50 per share through March 31, 2001. The Agent Warrants
have an exercise price of $2.75 per share and expire March 31, 2001. The
Securities were sold to accredited investors exclusively.
The Securities were sold in units ("Units") consisting of 10,000 shares of
Common Stock and 5,000 Warrants at a price of $27,500 per Unit, or aggregate
consideration of $3,025,000 for all of the Securities sold. The aggregate
commissions and non-accountable expenses paid to the Placement Agent amounted to
$242,000.
The Warrants and Agent Warrants (collectively, the "Warrants") include
certain call features whereby the Company may, by written notice to the
registered holders, call all of the then outstanding Warrants for redemption,
provided the average between the high and low prices at which shares of Common
Stock trade in the principal market in which they then trade exceeds one hundred
forty-two percent (142%) of the respective Warrant Exercise Price for the ten
(10) consecutive trading days preceding the date of such call. The notice shall
specify a date (the "Warrant Redemption Date") no less than thirty (30) days
after the date of such notice on which all Warrants then remaining unexercised
and outstanding shall be redeemed by the Company. In redemption for each
Warrant, the Company shall pay to the holder thereof in cash the sum (the
"Warrant Redemption Price") of One Cent ($0.01). Effective upon the Warrant
Redemption Date, each Warrant being called for redemption shall be deemed to be
no longer outstanding and shall represent only the right to receive from the
Company the Warrant Redemption Price upon surrender to the Company of the
certificate representing such Warrant. Between the date of the notice and the
Warrant Redemption Date, holders may exercise their Warrants to purchase Common
Stock.
The issuance and sale of the Securities was exempt from the registration
requirements of the Securities Act pursuant to Sections 4(2) and 4(6) of the
Securities Act as transactions by an issuer not involving any public offering
and as transactions involving offers and sales by an issuer solely to accredited
investors in which the aggregate offering price did not exceed the amount
allowed under Section 3(b) of the Securities Act, there was no advertising or
public solicitation in connection with the transactions, and the issuer filed
the prescribed notice with the Securities and Exchange Commission. Each
purchaser of Securities represented, with supporting information, that such
purchaser was an accredited investor; that such purchaser was acquiring the
Securities for such purchaser's own account and not for the account or benefit
of any other person; that the Securities were being acquired for investment and
not with a view to the distribution thereof; and that such purchaser did not
intend to sell or otherwise dispose of all or any part of the Securities at the
time of purchase or upon the occurrence or nonoccurrence of any predetermined
event. Each purchaser also agreed that such purchaser would offer or resell
Securities only if the Securities are registered under the Securities Act or an
exemption from such registration is available (and confirmed by an opinion of
counsel satisfactory to the Registrant). The Registrant placed restrictive
legends on the certificates representing the Securities and placed "stop
transfer" instructions with the transfer agent for
Page 15
<PAGE>
Common Stock. Since the Registrant is acting as transfer agent for the Warrants,
it will impose comparable procedures with respect to requests for the transfer
of Warrants.
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
27. Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
On January 6, 1999, the Company filed a Current Report on Form 8-K
with the Securities and Exchange Commission reporting the adoption of a
stockholder rights plan under which one redeamable preferred stock
purchase right was distributed on January 11, 1999 with respect to each
share of the Registrant's common stock outstanding at the close of
business on December 31, 1998. Features of the stock purchase right are
triggered in the event any person becomes the beneficial owner of 15%
or more of Registrant's common shares while the rights are outstanding,
currently through December 31, 2008.
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 21, 1999 /s/ Jeffrey W. Jones
------------ ----------------------------------------
Donald A. La Point
President & Chief Executive Officer
Date: May 21, 1999 /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 COMPANY'S CONSOLIDATED CONDENSED BALANCE SHEET AT MARCH 31, 1999 AND ITS
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,480,181
<SECURITIES> 101,485
<RECEIVABLES> 598,182
<ALLOWANCES> (118,511)
<INVENTORY> 1,669,016
<CURRENT-ASSETS> 5,900,141
<PP&E> 1,645,001
<DEPRECIATION> (1,231,810)
<TOTAL-ASSETS> 6,521,634
<CURRENT-LIABILITIES> 3,729,044
<BONDS> 0
0
0
<COMMON> 17,475
<OTHER-SE> 2,775,115
<TOTAL-LIABILITY-AND-EQUITY> 6,521,634
<SALES> 1,785,983
<TOTAL-REVENUES> 1,785,983
<CGS> 988,842
<TOTAL-COSTS> 988,842
<OTHER-EXPENSES> 471,515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,982
<INCOME-PRETAX> (669,856)
<INCOME-TAX> 0
<INCOME-CONTINUING> (669,856)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (669,856)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
