<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 September 30, 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
-------
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 17,732,565
- ----------------------------- ----------------------------
Title Class Number of Shares Outstanding
at November 10, 1999
<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 9
ITEM 3. Quantitative and Qualitative
Disclosures about Market Risk 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 16
ITEM 2. Changes in Securities 16
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
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- -----------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
(Unaudited)
------------- ------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 1,375,926 $ 424,539
Marketable securities - 251,485
Accounts receivable, less allowance of $118,511 in 1999
and $118,015 in 1998 812,886 563,236
Inventories, net of reserves of $275,873 in 1999 and $271,694 in 1998 985,199 1,930,117
Prepaid expenses and other current assets 163,245 168,725
---------------- -----------------
Total current assets 3,337,256 3,338,102
Property and equipment, net 378,497 407,142
Patents, trademarks and licenses, less accumulated
amortization of $145,577 in 1999 and $129,312 in 1998 132,658 147,199
Other assets 36,354 18,929
---------------- -----------------
Total assets $ 3,884,765 $ 3,911,372
================ =================
Liabilities and Stockholders' Equity:
Current liabilities:
Line of credit $ 1,341,925 $ 1,705,025
Accounts payable 473,381 806,335
Accrued expenses 1,083,250 701,016
Accrued costs related to dissolution of foreign subsidiary 9,231 37,144
---------------- -----------------
Total current liabilities 2,907,787 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 17,549,685 in 1999 and 16,312,007 in 1998
(after deducting 182,880 of escrow shares in 1999 and 1998) 17,550 16,312
Additional paid-in capital 41,717,723 38,614,948
Accumulated deficit (40,758,295) (37,969,408)
---------------- -----------------
Net stockholders' equity 976,978 661,852
---------------- -----------------
Total liabilities and stockholders' equity $ 3,884,765 $ 3,911,372
================ =================
</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 Nine Months Ended
September 30, September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 2,012,824 $ 87,686 $ 5,205,062 $ 586,303
Cost of sales 1,196,822 203,651 3,032,791 704,819
--------------- -------------- -------------- --------------
Gross profit (loss) 816,002 (115,965) 2,172,271 (118,516)
--------------- -------------- -------------- --------------
Operating expenses:
Sales and marketing 723,915 396,704 1,870,710 969,451
General and administrative 409,140 405,697 1,546,894 1,139,667
Engineering and development 548,355 621,565 1,508,422 1,330,416
Write-off of purchased research
and development costs - 5,134,920 - 5,134,920
--------------- -------------- -------------- --------------
Total operating expenses 1,681,410 6,558,886 4,926,026 8,574,454
--------------- -------------- -------------- --------------
Loss from operations (865,408) (6,674,851) (2,753,755) (8,692,970)
Other income (expense)
Interest income 12,157 25,294 36,211 46,427
Interest expense (20,228) (18,104) (71,343) (53,380)
--------------- -------------- -------------- --------------
Net loss $ (873,479) $ (6,667,661) $ (2,788,887) $ (8,699,923)
=============== ============== ============== ==============
Loss per share - basic and diluted $ (0.05) $ (0.41) $ (0.16) $ (0.59)
=============== ============== ============== ==============
Weighted average shares outstanding 17,539,808 16,270,717 17,150,216 14,644,727
=============== ============== ============== ==============
</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
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 - $ - 16,312,007 $16,312 $38,614,948
Private placement of common stock - - 1,116,000 1,116 2,746,884
Issuance of stock and warrants for earned services - - 64,800 65 176,904
Exercise of stock options - - 56,875 57 85,256
Extension of stock options - - - - 93,731
Issuance of shares for fractional interest on reverse split - - 3 - -
Net loss - - - - -
--------------------------------------------------------
Balance at September 30, 1999 - $ - 17,549,685 $17,550 $41,717,723
========================================================
<CAPTION>
Net
Accumulated Stockholders'
Deficit Equity
------- ------
<S> <C> <C>
Balance at January 1, 1999 ($37,969,408) $ 661,852
Private placement of common stock - 2,748,000
Issuance of stock and warrants for earned services - 176,969
Exercise of stock options - 85,313
Extension of stock options - 93,731
Issuance of shares for fractional interest on reverse split - -
Net loss (2,788,887) (2,788,887)
-----------------------------
Balance at September 30, 1999 ($40,758,295) $ 976,978
=============================
</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>
Nine Months Ended
September 30,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,788,887) $ (8,699,923)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 83,766 65,934
Issuance of common stock and warrants for earned services 176,969 63,094
Extension of stock options 93,731 -
Non-cash write-off of purchased research and development costs - 5,134,920
Provision for bad debts 496 69,123
Provision for inventory write-off 48,179 -
Changes in operating assets and liabilities:
Accounts receivable (250,146) 845,350
Inventories 896,739 (1,128,031)
Prepaid expenses and other current assets (11,945) (483,775)
Accounts payable (332,954) (63,467)
Accrued expenses 382,234 23,054
Accrued costs related to dissolution of foreign subsidiary (27,913) (925)
------------ ------------
Net cash used by operating activities (1,729,731) (4,174,646)
------------ ------------
Cash flows from investing activities:
Sale of marketable securities 251,485 2,119,159
Purchase of marketable securities - (2,525,000)
Additions to property and equipment (38,856) (87,742)
Additions to patents, trademarks and licenses (1,724) (63,877)
------------ ------------
Net cash provided (used) by investing activities 210,905 (557,460)
------------ ------------
Cash flows from financing activities:
Borrowings under line of credit 184,000 1,082,513
Payments of line of credit (547,100) -
Proceeds from issuance of common stock, net 2,748,000 3,592,800
Proceeds from exercise of stock options 85,313 58,426
------------ ------------
Net cash provided by financing activities 2,470,213 4,733,739
------------ ------------
Increase in cash and cash equivalents 951,387 1,633
Cash and cash equivalents at beginning of period 424,539 213,074
------------ ------------
Cash and cash equivalents at end of period $ 1,375,926 $ 214,707
============ ============
Supplemental cash flow disclosure:
Cash paid during the period for interest $ 75,334 $ 53,710
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 6
<PAGE>
BIOLASE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 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 September 30, 1999 and the results of operations for the three and
nine-month periods 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 net losses of $873,479 and $2,788,887 for the three and nine-
month periods ended September 30, 1999, respectively, and has an accumulated
deficit of $40,758,295 at September 30, 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) laser-based
tissue cutting system, the Millennium(R) initially for applications in the field
of dentistry and its recently introduced diode laser systems, the Twilite(TM)
and Hylite(TM), also for the field of dentistry.
Financing the operations of the Company and the development of laser-based
medical 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.
The Company believes that sales of its Millennium(R) system for certain
dental hard tissue procedures coupled with sales from its recently introduced
products, the Twilite(TM) and Hylite(TM) soft-tissue diode laser systems, should
contribute to the Company's ability to generate working capital through higher
sales volume and associated increased gross profits. Combined with the capital
obtained during the first quarter of 1999 through the issuance of common stock,
the Company expects to generate the necessary resources to continue with its
1999 and 2000 business plans 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.
Page 7
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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 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 and nine-month periods ended September 30,
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, as amended, for the year ended December 31, 1998.
Note 2
- ------
<TABLE>
<CAPTION>
Inventories, net of reserves, September 30, 1999 December 31, 1998
consist of the following: (unaudited)
----------- -----------
<S> <C> <C>
Raw materials $ 532,929 $ 1,372,172
Work-in-process and subassemblies 432,847 183,889
Finished goods 19,423 374,056
----------- -----------
$ 985,199 $ 1,930,117
=========== ===========
</TABLE>
Note 3
- ------
<TABLE>
<CAPTION>
Property and equipment, September 30, 1999 December 31, 1998
at cost, consist of the following: (unaudited)
----------- -----------
<S> <C> <C>
Leasehold improvements $ 170,927 $ 170,927
Equipment and computers 1,040,816 1,001,263
Furniture and fixtures 200,805 199,588
Demonstration units 247,354 247,354
----------- -----------
Total cost 1,659,902 1,619,132
Less, accumulated depreciation and amortization (1,281,405) (1,211,990)
----------- -----------
$ 378,497 $ 407,142
=========== ===========
</TABLE>
Page 8
<PAGE>
Note 4
- ------
<TABLE>
<CAPTION>
Accrued expenses consist
of the following: September 30, 1999 December 31, 1998
(unaudited)
---------- --------
<S> <C> <C>
Accrued payroll and benefits $ 398,204 $152,124
Accrued professional fees 84,842 89,124
Accrued legal costs 165,240 144,166
Accrued warranty 131,000 40,315
Other 303,964 275,287
---------- --------
$1,083,250 $701,016
========== ========
</TABLE>
Note 5
- ------
Basic and diluted loss per share is based on the weighted average number
of common shares outstanding. Potential common stock, which consists of stock
options and warrants, has been excluded from per share calculations, as the
effect of the assumed exercise of this potential common stock is anti-dilutive
at September 30, 1999 and 1998.
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, in 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 September 30, 1999 as compared
to the three-month period ended September 30, 1998:
Sales for the three months ended September 30, 1999 were $2,012,824
compared to $87,686 for the same period in 1998, an increase of $1,925,138. The
increase in sales
Page 9
<PAGE>
reported for the third quarter of 1999 compared to the same period in 1998 was
due principally to increases in sales of the Company's Millennium(R)
HydroKinetic laser system achieved primarily through the Company's increase in
its domestic sales force, growing alliances with various international
distributors and raising customer awareness of the Company's flagship laser
product. 1999 third quarter sales did not include any royalty income from the
licensing arrangement of the Company's LazerSmile(TM) tooth whitening technology
to a consumer oriented distributor. The one-year exclusive licensing agreement
calls for BioLase to receive royalties on a total annual minimum quota of
500,000 units. Advertising of the product under the name of IGEA LazerWhite
Tooth Whitening System has been placed in various specialty catalogs and
cosmetic publications by the Licensee and the Company has been informed that the
creation of a television infomercial is in-process.
Cost of sales as a percentage of sales improved to 59%, or $1,196,822,
during the third quarter of 1999 compared to 232%, or $203,651, reported for the
comparable period in 1998. The improvement in cost of sales as a percentage of
sales for the third quarter of 1999 compared to the rate for the same period in
1998 was due principally to the increased sales volume combined with improved
production efficiencies, partially offset by increased indirect expenses
reflecting the Company's present growth.
Gross profit increased $931,967 to $816,002 during the three months ended
September 30, 1999 from a gross loss of $115,965 reported for the comparable
period in 1998 due principally to the increase in sales and an improved
absorption rate of fixed overhead costs. The gross profit improvement also
reflects the inclusion in 1999 of cost-effective features designed into the
Company's flagship product, the Millennium(R).
Operating expenses decreased $4,877,476 to $1,681,410 during the three
months ended September 30, 1999 compared to the same period in 1998 due
principally to the absence in 1999 of a $5,134,920 write-off of purchased
research and development costs present in the same period in 1998. Absent this
write-off in 1998, operating expenses for the third quarter of 1999 compared to
the same period in 1998 increased $257,444, or 18%, reflecting increases in
sales and marketing expenses of $327,211, or 82%, offset by a decrease in
engineering and development expenses of $73,210, or 12%, while general and
administrative expenses remained similar between the two periods. The increase
in sales and marketing expense was due principally to (i) the increased sales
level, (ii) an increase in the Company's sales infrastructure and (iii)
increased participation at professional trade shows, both nationally and
internationally. The decrease in engineering and development expense was due
principally to the absence of expenses related to the Company's redesign of the
Millennium(R) hand piece present during 1998, partially offset by increases in
employee related expenses associated with increased engineering staffing during
the third quarter of 1999.
Interest income for the three months ended September 30, 1999 decreased
$13,137 to $12,157 compared to the $25,294 reported for the same period in 1998,
due principally to reduced balances in the Company's interest bearing accounts
for working capital use. Interest expense had a modest increase of $2,124 to
$20,228 during the third quarter of 1999 as compared to the same period in 1998.
The increase in interest expense was due principally to slightly higher average
balances related to the financing of the Company's commercial insurance premiums
in 1999 compared to the same period in 1998.
The Company's net loss decreased $5,794,182 to $873,479, or $0.05 per
share, for the three months ended September 30, 1999 from $6,667,661, or $0.41
per share, for the same period in 1998. The 1998 third quarter loss included a
$5,134,920 write-off of purchased
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<PAGE>
research and development costs. Absent this write-off in 1998, comparative
results would reflect a $659,262 improvement in the net loss position to
$873,479, or $0.05 per share, for the three months ended September 30, 1999 from
a comparative net loss of $1,532,741, or $0.09 per share, for the same period in
1998. The reduction in the per share loss for the third quarter of 1999 was
enhanced by an 8% increase in weighted average shares outstanding.
Results of Operations - Nine-month period ended September 30, 1999 as compared
to the nine-month period ended September 30, 1998:
Sales during the first nine months of 1999 were $5,205,062 compared to
$586,303 for the same period in 1998, an increase of $4,618,759. The increase
was due principally to increases in sales of the Company's Millennium(R)
HydroKinetic laser system.
During the second quarter of 1999, the Company announced an exclusive
distribution agreement with a home-consumer product distributor to manufacture
and market the Company's LazerSmile Tooth Whitening product under the name IGEA
LazerWhite Tooth Whitening System. The agreement provides for a royalty to be
paid to the Company and includes a minimum annual sales quota of 500,000 units.
The Company has received certain prepaid royalties against future sales of the
LazerWhite system.
Cost of sales as a percentage of sales improved to 58%, or $3,032,791,
during the first nine months of 1999 compared to 120%, or $704,819, reported for
the comparable period in 1998. The improvement in cost of sales as a percentage
of sales for the first nine months of 1999 compared to the rate for the same
period in 1998 was due principally to the increased sales volume combined with
improved production efficiencies, partially offset by increased indirect
expenses reflecting the Company's present growth.
Gross profit for the first nine months of 1999 increased to $2,172,271, or
42% of sales, from a gross loss of $118,516 reported for the same period in
1998. The increase is due principally to higher sales volume and an improved
absorption rate of fixed overhead costs, as well as the inclusion in 1999 of
cost-effective features designed into the Company's flagship product, the
Millennium(R).
Operating expenses for the first nine months of 1999 increased $1,486,492,
or 43%, compared to the same period in 1998, absent the write-off of purchased
research and development costs recorded in 1998. Sales and marketing expenses
during the first nine months of 1999 increased $901,259, or 93%, to $1,870,710
from the $969,451 reported for the same period in 1998, due principally to the
significant rise in domestic and international sales volume. General and
administrative expense during the first nine months of 1999 increased $407,227,
or 36%, to $1,546,894 from $1,139,667 reported during the same period in 1998,
due largely to increases in a severance arrangement and employee-related
expenses absent during the same period in 1998. Engineering and development
expenses increased $178,006, or 13%, to $1,508,422 from the $1,330,416 reported
for the same period in 1998. The increase was due principally to higher
engineering consulting fees and increased engineering staffing during 1999 to
coincide with the Company's present growth.
Interest income for the first nine months of 1999 was $36,211, a decrease
of $10,216, or 22%, from the $46,427 reported for the same period in 1998, while
interest expense increased $17,963, or 34%, to $71,343 from the $53,380 reported
during the same period in 1998. The decrease in interest income was due to lower
average balances of cash and marketable securities during the 1999 period
compared to the balances held in interest-bearing accounts during
Page 11
<PAGE>
the 1998 period. The increase in interest expense was due principally to higher
average outstanding balances under the Company's line of credit and financed
insurance premiums during the first nine months of 1999 compared to 1998, with
slightly higher interest rates experienced in 1999 versus 1998.
The Company's net loss improved to $2,788,887, or $0.16 per share, for the
first nine months of 1999 compared to a net loss of $8,699,923, or $0.59 per
share, for the same period in 1998. The net loss for 1998 included a $5,134,920
write-off of purchased research and development costs; absent this write-off in
1998, the net loss would have been $3,565,003. Comparative results between the
first nine months of 1999 versus 1998, excluding the $5,134,920 write-off in
1998, would be $2,788,887, or $0.16 per share, and $3,565,003, or $0.24 per
share, respectively, an improvement in 1999 of $776,116, or 22% over 1998. The
reduction in the per share loss for the first nine months of 1999 was enhanced
by a 17% increase in weighted average shares outstanding.
Acquisition of Laser Skin Toner, Inc.
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.
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(R) 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(R) system, including a build-up of
inventory and expansion of sales staff. The Company, though, did continue the
clinical trials related to the LSTI technology.
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 technology, including its Millennium(R)
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.
Financial Condition
Cash and cash equivalents increased from $424,539 at December 31, 1998 to
$1,375,926 at September 30, 1999 principally as a result of a private placement
of Company common stock and stock purchase warrants in March 1999 that generated
net proceeds of
Page 12
<PAGE>
$2,748,000 and the sale of $251,485 of marketable securities. These increases in
cash and cash equivalents were offset primarily by cash used by operating
activities aggregating $1,729,731, capital expenditures of $38,856 and a net
$363,100 reduction in the balance outstanding under a bank line of credit.
Marketable securities decreased $251,485 from December 31, 1998 to
September 30, 1999 as a result of the sale of the securities, with the proceeds
being placed in a money market account that is classified as a cash equivalent
for use as working capital.
Accounts receivable increased $249,650 from the $563,236 reported at
December 31, 1998 to $812,886 at September 30, 1999. The increase is due
principally to orders shipped at the end of September 1999 for which payments
were received in October 1999.
Inventories at September 30, 1999 were $985,199 compared to $1,930,117 at
December 31, 1998, a decrease of $944,918. The decrease was due principally to
the Company's use of higher levels of inventory and improved inventory
management. 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 productions and
deliveries of Millennium(R) systems are normalized.
Prepaid expenses and other current assets at September 30, 1999 were
comparable to those reported at December 31, 1998.
Current liabilities decreased $341,733 from December 31, 1998 to September
30, 1999, due principally to net repayments made on a line of credit amounting
to $363,100 and reductions in accounts payable of $332,954, offset principally
by a $382,234 increase in accrued expenses. The increase in accrued expenses
consists principally of increases in (i) employee related expenses due to the
Company's 1999 change in its payroll cycle, (ii) warranty reserves due to the
greater number of laser systems in the field, and (iii) other accrued expenses
associated with the Company's growth.
Capital expenditures during the first nine months of 1999 totaled $38,856
related primarily 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 nine months of 1999.
Stockholders' equity increased $315,126 to $976,978 at September 30, 1999
from $661,852 at December 31, 1998 due to (i) net proceeds of $2,748,000
received from a private placement in March, 1999, (ii) proceeds of $85,313
received from the exercise of stock options, (iii) issuance of stock and
warrants for earned services aggregating $176,969, and (iv) a $93,731 value
ascribed to an extension of stock options related to a severance agreement; all
of which was offset by the 1999 nine-month loss of $2,788,887.
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(R) and its recently introduced Twilite(TM) and
Hylite(TM) diode laser systems, initially for applications in the field of
dentistry.
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
Page 13
<PAGE>
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.
The Company's increased sales of its flagship product, the Millennium(R)
system for certain dental hard and soft tissue procedures, combined with sales
from the Company's recently introduced products, the Twilite(TM) and Hylite(TM)
soft-tissue diode laser systems, should contribute to the Company's ability to
generate working capital through higher sales volume and associated increased
gross profits. Combined with the capital generated from the March 1999 issuance
and sale of securities, the Company expects to generate the necessary resources
to continue with its 1999 and 2000 business plans 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 September 30, 1999, the Company had $1,341,925 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
December 1, 1999, by which time the Company hopes to negotiate a renewal of the
present line with its present bank or establish a replacement line with another
bank. The Company will be required to renew, pay off or refinance the existing
line of credit by December 1, 1999. No assurances can be given that the Company
will be able to renew or refinance the line of credit or that the terms on which
it may be able to renew or refinance the line of credit will be as favorable as
the terms of the existing line. If the Company is unable to renew or 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 has received a verbal commitment by the same bank to
renew the revolving credit agreement for one year to December 1, 2000 under the
same terms and conditions in place with the present revolving credit agreement.
The Company and bank are in the process of consummating the renewal agreement
and anticipate execution of the renewal agreement by December 1, 1999.
The Company is presently continuing its analysis of its computer software
and hardware requirements. Its 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 presently employs that
such software
Page 14
<PAGE>
is Year 2000 ("Y2K") compliant.
The Y2K 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 Y2K 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 Y2K compliance. If any suppliers or principal customers lack
systems that are Y2K compliant, the Company will attempt to establish
communications channels with such suppliers and customers that bypass the non-
compliant computer systems. There is a single source supplier of optic fiber for
the Millennium(R) 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 also 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 establishing such communications
channels or 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 Y2K compliance by suppliers and customers and dealing with any non-
compliance will not be material. Should any of the Company's principal suppliers
and customers fail to become Y2K compliant in a timely manner and should the
Company be unable to establish alternate communications channels, the impact
could result in 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
Page 15
<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, 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.
Item 2. Changes in Securities.
- -------------------------------
None
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
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: November 15, 1999 /s/ Jeffrey W. Jones
---------------------- ---------------------------
Jeffrey W. Jones
President & Chief Executive
Officer
Date: November 15, 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 SEPTEMBER 30, 1999 AND ITS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE-MONTH
PERIODS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,375,926
<SECURITIES> 0
<RECEIVABLES> 931,937
<ALLOWANCES> (118,511)
<INVENTORY> 985,199
<CURRENT-ASSETS> 3,337,256
<PP&E> 1,659,902
<DEPRECIATION> (1,281,405)
<TOTAL-ASSETS> 3,884,765
<CURRENT-LIABILITIES> 2,907,787
<BONDS> 0
0
0
<COMMON> 17,550
<OTHER-SE> 959,428
<TOTAL-LIABILITY-AND-EQUITY> 3,884,765
<SALES> 2,012,824
<TOTAL-REVENUES> 2,012,824
<CGS> 1,196,822
<TOTAL-COSTS> 1,196,822
<OTHER-EXPENSES> 548,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,228
<INCOME-PRETAX> (873,479)
<INCOME-TAX> 0
<INCOME-CONTINUING> (873,479)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (873,479)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
