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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(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
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[_] 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
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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
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Title Class Number of Shares Outstanding
at May 21, 1999
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
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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 in-process 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.
The in-process laser system technology acquired by the Company from
LSTI consists of six critical components: (1) a coupling system; (2) a pneumatic
control system; (3) a distal end; (4) packaging/cabinetry; (5) a pharmaceutical
membrane; and (6) FDA clearance. Each of these components were estimated to
require additional research and development efforts, as set forth below:
Coupling System. The coupling system involves integration of the
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laser receptacle, proximal end of the fiber, the fiber and jacket, the hand
piece and the wand of the laser system, and allows the transfer of power
through each phase of the laser. The transfer of power from the laser to
the fiber delivery system and ultimately to the device that touches the
patient's face (the distal end) involves linking different technologies; it
also requires further development of the LSTI "SmartConnect" technology,
which is intended to assure the appropriate therapeutic dose of laser
energy and to monitor skin contraction during the procedure. Management
had estimated at the time of acquisition that this component was less than
50% complete and would require the efforts of two mechanical engineers and
one electrical engineer for three months, estimated at a cost of $70,000,
to bring it to the production phase. In addition, the Company estimated at
the time of acquisition that it would be required to incur $350,000 of non-
recurring engineering fees for an original equipment manufacturer to
provide the customized power source for the laser.
Pneumatic Control System. The pneumatic control system is intended to
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ensure that the laser does not burn the patient. It is a cooling mechanism
using a pressure system to maintain the correct temperature through a pump
and fiber interface, and requires interaction with the laser, fiber and
distal end. Steps remaining at the time of acquisition to complete this
component included the selection of a suitable compressed air system,
estimated at $30,000, and design and test of the pump and fiber interface.
The Company estimated at the time of acquisition that approximately two
engineers would be required to work on this project for three months at an
estimated cost of $81,000.
Distal End. The distal end of the laser system will provide the
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surgeon with control while housing all of the electronics needed to deliver
the correct amount of power and pulse duration. At the time of
acquisition, it was contemplated that the laser system would initially
include three distal ends, each tailored for different sized wrinkles
located on different parts of the body. At that time, it was also
anticipated that three additional distal ends would be made available in
the second half of 1999. Management of the Company had estimated at the
time of acquisition that development of the distal end was then less than
40% complete. Completion of the initial three distal ends was estimated at
the time of acquisition to require the efforts of two optical engineers for
approximately three months, with an additional four months required for the
remaining three distal ends. Estimated costs to complete this portion of
the project were estimated at the time of acquisition to be $138,000.
Packaging/Cabinetry. The packaging/cabinetry of the laser will
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provide the housing or outer surface for the entire system. This housing
can be quite elaborate and may be comprised of different types of metal or
plastic. Management believes that this component of the system is the only
one that will not require the development of technology in order to
complete; however, the design of the packaging/cabinetry is required to
ensure an efficient, aesthetically pleasing medical devise for the
practitioner. The Company estimated at the time of acquisition that
completion of this portion of the project would require the efforts of two
engineers for approximately ten and one-half months at an estimated cost of
$259,000.
Pharmaceutical Membrane. LSTI contemplated that pharmaceutical
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membranes would be applied to the patient for a 90-day period after the
resurfacing procedure. The membranes would carry an active pharmaceutical
agent employing a specific concentration, mix and delivery of an anti-
inflammatory agent, various anti-oxidants and a neo-collagen-promoting
agent. At the time of the acquisition, the pharmaceutical membrane was in
the initial phase of development. Significant tasks remaining at the time
of acquisition included integration of the chemicals and membrane material,
which had never before been accomplished, and design, development and
integration of a time release system to be incorporated with the membrane
system. Non-recurring engineering related the membranes was estimated at
the time of acquisition to cost approximately $350,000 to $450,000, with an
additional $50,000 to $75,000 for each of four clinical trials then
expected. Management estimated at the time of acquisition that completion
of this portion of the project would require approximately seven and one-
half months of full-time effort by one engineer at an estimated cost of
$40,000.
FDA Clearance. The completed laser system must go through two FDA
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approval processes, one of which was subsequently received following the
acquisition of the LSTI technology. The remaining process was estimated at
the date of acquisition to require approximately four to six months of data
gathering prior to submission to the FDA for approval. The costs estimated
for the approval process remaining at the date of acquisition were
$312,000.
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.
The Company has since determined that it is in the best interests of its
stockholders to continue its focus on the marketing and further enhancement of
products embodying its HydroKinetic (TM) technology, including its Millennium
(TM) system, and not to further develop the LSTI technology.
The Company's efforts devoted to the LSTI technology since the date of
acquisition have not provided a basis for the Company either to revise or to
validate its estimates made at the time of acquisition regarding the time and
resources required to complete the development of the LSTI technology.
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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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOLASE TECHNOLOGY, INC.
a Delaware Corporation
Date: August 9, 1999 /s/ Jeffrey W. Jones
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Jeffrey W. Jones
President & Chief Executive Officer
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