-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DuXmOeosa8uBr6GXNjTiSvAorxKa4bVmawUOYD06e44jpqFwS6uKsvGp2/6HFmu0 HCJlP155mIUS7oK3dp0veA== 0000892569-96-002468.txt : 19961121 0000892569-96-002468.hdr.sgml : 19961121 ACCESSION NUMBER: 0000892569-96-002468 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961119 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOLASE TECHNOLOGY INC CENTRAL INDEX KEY: 0000811240 STANDARD INDUSTRIAL CLASSIFICATION: DENTAL EQUIPMENT & SUPPLIES [3843] IRS NUMBER: 870442441 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-19627 FILM NUMBER: 96669360 BUSINESS ADDRESS: STREET 1: 981 CALLE AMANECER CITY: SAN CLEMENTE STATE: CA ZIP: 92673 BUSINESS PHONE: 7143611200 MAIL ADDRESS: STREET 1: 981 CALLE AMANECER CITY: SAN CLEMENTE STATE: CA ZIP: 92673 10QSB 1 FORM 10-QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Page 1 of 26 Sequentially Numbered Pages, Exhibit Index Located at Page 15 of 26 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 1996. ------------------ [ ] Transition report under 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 small business issuer as specified in its charter) DELAWARE 87-0442441 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 981 Calle Amanecer, San Clemente, CA 92673 (Address of Principal Executive Offices) (714) 361-1200 (Issuer's Telephone Number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 --- --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Common Stock, $.001 par value 13,127,949 - ----------------------------- ---------------------------- Title Class Number of Shares Outstanding at November 15, 1996 Transitional Small Business Disclosure Format (Check one): Yes No X --- --- 2 BIOLASE TECHNOLOGY, INC.
Page Number ----------- PART 1. Financial Information ITEM 1. Financial Statements: Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statement of Stockholders' Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis or Plan of Operation 10 PART II. Other Information ITEM 1. Legal Proceedings 13 ITEM 2. Changes in Securities 14 ITEM 3. Defaults Upon Senior Securities 15 ITEM 4. Submission of Matters to a Vote of Security 15 Holders ITEM 5. Other Information 15 ITEM 6. Exhibits and Reports on Form 8-K 15 SIGNATURE PAGE 16
Page 2 3 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements. - ------------------------------ BIOLASE TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS
(unaudited) September 30, 1996 December 31, 1995 ------------------ ----------------- ASSETS: Current assets: Cash and cash equivalents $ 124,510 $ 1,565,655 Accounts receivable, less allowance of $52,968 in 1996 and $64,617 in 1995 32,053 64,622 Inventories, net of reserves of $469,859 in 1996 and $491,335 in 1995 427,852 390,928 Prepaid expenses and other current assets 159,055 170,232 ------------ --------------- Total Current Assets 743,470 2,191,437 Property, plant and equipment, less accumulated depreciation of $1,002,204 in 1996 and $885,902 in 1995 212,253 289,016 Patents and licenses, less accumulated amortization of $327,614 in 1996 and 1995 28,860 10,070 Other assets 20,221 21,270 ------------ --------------- Total Assets $ 1,004,804 $ 2,511,793 ============ =============== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Current portion of long-term debt $ 6,786 $ 22,324 Accounts payable 139,075 41,880 Accrued expenses 371,173 404,752 Accrued costs related to dissolution of foreign subsidiary 66,805 109,748 Other current liabilities 132,805 89,000 ------------ --------------- Total Current Liabilities 716,644 667,704 ------------ --------------- Stockholders' Equity: Preferred stock, $.001 par value, 1,000,000 shares authorized; none issued -- -- Common stock, $.001 par value, 50,000,000 shares authorized; 11,321,191 and 11,241,164 issued and outstanding in 1996 and 1995, respectively 11,321 11,241 Additional paid-in capital 24,288,977 24,169,018 Accumulated deficit (24,012,138) (22,336,170) ------------ --------------- Net Stockholders' Equity 288,160 1,844,089 ------------ --------------- Total Liabilities and Stockholders' Equity $ 1,004,804 $ 2,511,793 ============ ===============
See accompanying notes to consolidated financial statements. Page 3 4 Item 1. Financial Statements (continued). - ------------------------------------------ BIOLASE TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ---------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Sales $ 132,098 $ 440,855 $ 436,850 $ 1,032,687 Cost of sales 118,937 247,907 390,832 706,302 ------------ ------------ ------------ ------------ Gross profit 13,161 192,948 46,018 326,385 ------------ ------------ ------------ ------------ Operating expenses: Sales and marketing 150,438 115,831 467,586 430,136 General and administrative 189,661 194,731 599,485 621,047 Engineering and development 239,972 132,411 666,900 685,815 Litigation and settlement costs 3,209 13,230 6,790 27,811 ------------ ------------ ------------ ------------ Total operating expenses 583,280 456,203 1,740,761 1,764,809 ------------ ------------ ------------ ------------ Loss from operations (570,119) (263,255) (1,694,743) (1,438,424) Other income: Interest income, net 1,881 6,825 18,775 8,514 ------------ ------------ ------------ ------------ Net loss $ (568,238) $ (256,430) $ (1,675,968) $ (1,429,910) ============ ============ ============ ============ Loss per share of common stock $ (0.05) $ (0.02) $ (0.15) $ (0.15) ============ ============ ============ ============ Weighted average shares outstanding 11,321,054 10,618,529 11,291,659 9,382,773 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. Page 4 5 Item 1. Financial Statements (continued). - ------------------------------------------ BIOLASE TECHNOLOGY, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
ADDITIONAL NET COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY ------ ------ ------- ------- ------ Balance at December 31, 1995 11,241,164 $ 11,241 $ 24,169,018 ($22,336,170) $ 1,844,089 Exercise of stock options 80,026 80 119,959 - 120,039 Issuance of shares for fractional interest on reverse split 1 - - - - Net loss - - - (1,675,968) (1,675,968) ------------------------------------------------------------------------ Balance at September 30, 1996 11,321,191 $ 11,321 $ 24,288,977 ($24,012,138) $ 288,160 ========================================================================
See accompanying notes to consolidated financial statements. Page 5 6 Item 1. Financial Statements (continued). - ------------------------------------------ BIOLASE TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, ----------------------------------- 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,675,968) $(1,429,910) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 116,302 140,187 Provision for bad debts - 332 Provision for inventory write-off - 7,373 Earned escrow shares of common stock - 29,374 Changes in operating assets and liabilities: Accounts receivable 32,569 (229,228) Inventories (36,924) 316,251 Prepaid expenses and other assets 12,226 (146,989) Accounts payable 97,195 (59,784) Accrued expenses 33,226 (19,113) Accrued costs related to dissolution of foreign subsidiary (42,943) (17,526) Other current liabilities (23,000) (14,651) ----------- ----------- NET CASH USED BY OPERATING ACTIVITIES (1,487,317) (1,423,684) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (39,539) (31,999) Additions to patents and licenses (18,790) (5,980) ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (58,329) (37,979) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of long-term debt (15,538) (15,716) Proceeds from issuance of common stock for cash - 1,292,707 Proceeds from exercise of stock options 120,039 61,650 Proceeds from exercise of stock purchase of warrants - 790,952 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 104,501 2,129,593 ----------- ----------- Increase (decrease) in cash and cash equivalents (1,441,145) 667,930 Cash and cash equivalents at beginning of period 1,565,655 1,162,041 ----------- ----------- Cash and cash equivalents at end of period $ 124,510 $ 1,829,971 =========== =========== Supplemental cash flow disclosure: Cash paid during the period for interest $ 3,024 $ 11,432 =========== ===========
See accompanying notes to consolidated financial statements. Page 6 7 BIOLASE TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 Note 1 The accompanying unaudited consolidated financial statements of BioLase Technology, Inc. (the "Company") have been prepared in accordance with the instructions to Form 10-QSB and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The Company's consolidated financial statements have been presented on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported net losses of $2,023,822, $3,050,333 and $7,549,262 for the years ended December 31, 1995, 1994, and 1993 respectively, a net loss of $1,675,968 for the nine-month period ended September 30, 1996, and has an accumulated deficit of $24,012,138 at September 30, 1996, which raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to obtain outside financing through either debt or equity financing and, ultimately, a movement to profitability through increased sales, continued engineering development, and on-going cost containment. The Company's focus has been realigned to emphasize the marketing of its hydro-kinetic tissue cutting systems (the Millennium(TM) series), laser systems and endodontic products, and continued development of biomaterial products and cost-effective laser technologies for medical and dental surgical applications. On October 16, 1996, the Company completed a private placement (the "Offering") which resulted in net proceeds of approximately $4,400,000. Although the proceeds received from the Offering provide the Company with the working capital necessary to market its Millennium(TM) series and to complete the development of its LaserBrush(TM), a hand-held laser toothbrush, the Company's current business plan anticipates a shortfall in working capital to occur in early 1999. (FLS) Financing the development of the Millennium(TM) series and other dental instruments and operations of the Company has been achieved principally through private placements of common stock and the exercise of stock options and warrants. During the three years ended December 31, 1995, the Company has raised approximately $9,776,000 of equity funds. Management believes that significant capital resources will be utilized to complete the FDA approval process to allow use of the Company's laser and hydro-kinetic products for domestic hard-tissue medical, dental and cosmetic surgical applications and to fund the Company's working capital needs in 1999. (FLS) The Company anticipates obtaining the necessary capital resources through the sale of equity securities in either public offerings or private placements, or through debt financing. (FLS) No assurance can be given, however, that the Company will be able to obtain such capital resources. (FLS) The consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainty regarding the Company's ability to continue as a going concern. Operating results for the three and nine-month periods ended September 30, 1996 and 1995 are not necessarily indicative of the results to be expected for the year ending December 31, 1996. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form 10-KSB for the year ended December 31, 1995. Page 7 8 Note 2
Inventories, net of reserves, (unaudited) consist of the following: September 30, 1996 December 31, 1995 ------------------ ----------------- Raw materials $ 171,479 $ 178,669 Work-in-process - - Finished goods 256,373 212,259 ------------------ ----------------- $ 427,852 $ 390,928 ================== ================= Note 3 - ------ Property, plant and equipment, (unaudited) at cost, consist of the following: September 30, 1996 December 31, 1995 ------------------ ----------------- Leasehold improvements $ 149,282 $ 149,282 Equipment and computers 710,613 674,575 Furniture and fixtures 107,208 103,707 Demonstration units 247,354 247,354 ------------------ ----------------- Total cost 1,214,457 1,174,918 Less, accumulated depreciation and amortization (1,002,204) (885,902) ------------------ ----------------- $ 212,253 $ 289,016 ================== =================
Note 4 Loss per share is based on the weighted average number of common shares outstanding. Common stock equivalents, which consist of stock options, have been excluded from per share calculations, as the effect of the assumed exercise of these common stock equivalents is anti-dilutive at September 30, 1996 and 1995. Note 5 As of December 31, 1995, the Company had net operating loss carryforwards for federal and state purposes of approximately $20 million and $8.6 million, respectively. The net operating loss carryforwards expire through 2010 and 2000, respectively. The utilization of net operating loss carryforwards may be limited under the provisions of Internal Revenue Code Section 382. Note 6 On October 16, 1996, the Company completed a private placement (the "Offering") pursuant to Regulation D promulgated under the Securities Act of 1933, as amended. In the Offering, the Registrant issued and sold 100 units, each consisting of 1 share of its Series A 6% Redeemable Cumulative Convertible Preferred Stock (the "Preferred Stock") and 5,000 Redeemable Common Stock Purchase Warrants (the "Warrants") expiring 1998 which are exercisable under certain conditions. Gross proceeds received from the Offering were $5,000,000, and net proceeds, after commissions of $400,000 and estimated expenses, were approximately $4,400,000. Page 8 9 Each share of Preferred Stock is convertible into a variable number of shares of Common Stock which cannot exceed 18,182 shares. The Warrants may be exercised under certain conditions to purchase Common Stock at $3.50 per share. In connection with the Offering, the Company issued an additional 190,910 Common Stock Purchase Warrants, expiring 1998, also exercisable at $3.50 per share. At November 15, 1996, the Company had received Elections to Convert with respect to 99 of the 100 shares of the Preferred Stock issued in conjunction with the Offering, which resulted in an aggregate conversion to 1,800,018 shares of Common Stock. The shares of Common Stock issued upon the conversion are "restricted securities" as defined in Rule 144 promulgated under the Securities Act of 1933, as amended. 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. The unaudited consolidated balance sheets of BioLase Technology, Inc. at September 30, 1996 presented below reflect the consolidated financial position of the Company on such date and such financial position as adjusted on a proforma basis to give effect to the Offering.
September 30, 1996 (unaudited) ------------------------------------------------- Actual Adjustments Pro Forma ---------- ---------- ---------- Assets: Current assets: Cash and cash equivalents $ 124,510 $ 4,600,000 $ 4,724,510 Accounts receivable, less allowance of $52,968 32,053 32,053 Inventories, net of reserves of $469,859 427,852 427,852 Prepaid expenses and other current assets 159,055 (73,000) 86,055 ============ ============ ============ Total current assets 743,470 4,527,000 5,270,470 Property, plant and equipment, less accumulated depreciation of $1,002,204 212,253 212,253 Patents and licenses, less accumulated amortization of $327,614 28,860 28,860 Other assets 20,221 20,221 ------------ ------------ ------------ Total assets $ 1,004,804 $ 4,527,000 $ 5,531,804 ============ ============ ============ Liabilities and Stockholders' Equity: Current liabilities: Current portion of long-term debt $ 6,786 $ $ 6,786 Accounts payable 139,075 139,075 Accrued expenses 371,173 127,000 498,173 Accrued costs related to dissolution of foreign subsidiary 66,805 66,805 Other current liabilities 132,805 132,805 ------------ ------------ ------------ Total current liabilities 716,644 127,000 843,644 ============ ============ ============ Stockholders' equity: Preferred stock, $.001 par value, 1,000,000 shares authorized; 100 Series A shares issued on a proforma basis - - - Common stock $.001 par value, 50,000,000 shares authorized; 11,321,191 shares issued and outstanding 11,321 11,321 Additional paid-in-capital 24,288,977 4,400,000 28,688,977 Accumulated deficit (24,012,138) (24,012,138) ------------ ------------ ------------ Net stockholders' equity 288,160 4,400,000 4,688,160 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 1,004,804 $ 4,527,000 $ 5,531,804 ============ ============ ============
Page 9 10 Note 7 Since November 12, 1992, the Company's Common Stock has been authorized for inclusion on the Nasdaq SmallCap Market ("NASDAQ"). The Company's Common Stock is quoted on such system under the symbol "BLTI". Requirements for continued quotation on NASDAQ include maintenance of total assets of at least $2,000,000 and stockholders' equity of at least $1,000,000. At September 30, 1996, the Company was not in compliance with these requirements. The completion of the Offering on October 16, 1996 brought the Company's total assets and stockholders' equity into compliance with the NASDAQ continuing listing requirements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. RESULTS OF OPERATIONS - FISCAL THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 COMPARED WITH COMPARABLE 1995 PERIODS: Consolidated sales for the three and nine-month periods ended September 30, 1996 were $132,000 and $437,000, respectively, representing decreases of $309,000 and $596,000, respectively, from the $441,000 and $1,033,000 reported during the same periods in 1995. The Company's laser division reported sales for the 1996 third quarter of $42,000, a decrease of $301,000 from the $343,000 reported for the same period in 1995. The Company's endodontic division sales for the three and nine-month periods ended September 30, 1996 were comparable to those reported for the same periods in 1995. The decreases in sales within the laser division are due principally to reduced laser unit shipments to Germany, the primary user market for the Company's laser-based systems, reflecting a pending product introduction and the Company's desire to restructure its distribution arrangements in Germany, partially motivated by a desire to obtain a more experienced German distributor for the Company's new hydro-kinetic tissue cutting system, the Millennium(TM) series, which addresses a much broader market than the Company's previous laser systems. (The preceding sentence constitutes a forward looking statement [hereinafter identified as "FLS"]. Each of the forward looking statements in this Quarterly Report on Form 10-QSB is subject to various factors that could cause actual results to differ materially from the results anticipated in such forward looking statement, as more fully discussed in this Item 2 under "Forward Looking Statements".) The Company shipped its first production unit of Millennium(TM) to Germany for clinical evaluation and demonstration purposes during the third quarter of 1996. As a result of such evaluation and demonstration, additional features have been added to the Millennium(TM) series design, and the Company anticipates finalization of a new German distribution agreement in December, 1996. (FLS) Initial sales of the Company's new Millennium(TM) series to a German distributor are anticipated in the first quarter of 1997. (FLS) No assurance can be given that the Company will enter into a new distribution arrangement for the German market or that any such arrangement will be advantageous to the Company or will result in the sale of any significant number of Millennium(TM) systems or any other of the Company's laser-based systems. Domestically, the Company does not anticipate a significant increase in sales for its laser division unless and until it receives regulatory clearance to market its laser and hydro-kinetic systems for certain hard-tissue and other applications. (FLS) The Company has commenced clinical trials with its Millennium(TM) series utilizing its hydro-kinetic technology to obtain clinical data for its hard-tissue application to the Food and Drug Administration ("FDA"). The Company is in the process of applying for FDA approvals relating to dermatology and cosmetic surgery utilizing its hydro-kinetic technology. (FLS) Consolidated gross profits were only $13,000 during the three-month period ended September 30, 1996, down $180,000 from the $193,000 reported for the same period in 1995. Consolidated gross profits for the nine-month period ended September 30, 1996 decreased $280,000 to $46,000 from the $326,000 reported in the same period of 1995. These decreases are due principally to the reduction in sales of the Page 10 11 laser division. Product contribution margins in the 1996 and 1995 periods are similar; the disproportionate reduction in gross profits compared to sales is due principally to the lower absorption in 1996 of fixed overhead costs, which arises out of lower sales volume. The consolidated net loss for the three-month period ended September 30, 1996 was $568,000 compared to $256,000 for the same period in 1995, an increase of $312,000; the consolidated net loss position increased $246,000 to $1,676,000 during the nine-month period ended September 30, 1996 from a consolidated net loss of $1,430,000 reported for the same period in 1995. The increase in the net loss for the third quarter of 1996 compared to the same period in 1995 is due principally to lower sales volume coupled with an increase in operating expenses related primarily to an increase in engineering and development costs associated with the refinements of the Company's hydro-kinetic technology. The increase in consolidated net loss for the nine-month period ended September 30, 1996 as compared to the same period in 1995 is due principally to the reduction in consolidated sales volume. Consolidated sales and marketing expenses for the three and nine-month periods ended September 30, 1996 increased $34,000 and $38,000, respectively, to $150,000 and $468,000, respectively, from the $116,000 and $430,000 reported for the same periods in 1995. The increases are due principally to the Company's decision to commence promotion of its hydro-kinetic technology and products coupled with the commencement of advertising of the Company's endodontic supplies in various professional journals. The Company anticipates an increased level in sales and marketing expenses to support the launching of its Millennium(TM) systems to continue through 1997. (FLS) Increased marketing and advertising expenses are anticipated to continue during the fourth quarter of 1996 and the first quarter of 1997 in the Company's endodontic division as it develops a direct sales force utilizing independent representatives. (FLS) Consolidated general and administrative expenses for the three-month period ended September 30, 1996 were comparable to those reported during the same period in 1995. For the nine-month period ended September 30, 1996, consolidated general and administrative expenses decreased by $22,000 to $599,000 from the $621,000 reported during the same period in 1995. The decrease is due principally to substantial reductions in the Company's general insurance premiums from those experienced during the same period in 1995 partially offset by increased promotional expenses and legal costs related to intellectual property matters. See Part II, Item 1 - Legal Proceedings. Consolidated engineering and development expenses increased $108,000 to $240,000 during the three-month period ended September 30, 1996 from the $132,000 reported during the same period in 1995. The increase is due principally to the efforts devoted to completing the design of its hydro-kinetic tissue cutting system, the Millennium(TM) series, and the procurement of material to manufacture six prototypes to be used for clinical evaluation. Increased costs related to clinical studies undertaken in connection with the FDA approval process were incurred during the third quarter of 1996. The nine-month period ended September 30, 1996 reflected a slight decrease of $19,000 to $667,000 compared to the $686,000 reported for the same period in 1995. The decrease is due to reductions in engineering personnel since the first quarter of 1995, offset by the aforementioned increased costs in engineering design and regulatory expenses incurred in the third quarter of 1996. The Company anticipates these increased costs to continue through the fourth quarter of 1996 as it continues its efforts to obtain hard-tissue and other approvals for the Millennium(TM) series. (FLS) The Company is presently in the final engineering design phase of its patented LaserBrush(TM), a hand-held toothbrush that will utilize optical energy and specifically developed toothpaste compounds to illuminate, identify, and destroy bacteria within the intra-oral cavity. (FLS) Completion of the design and packaging of the LaserBrush(TM) is expected in early 1997 for release in the second quarter of 1997. (FLS) The Company has recently begun the development of FlavorFlow(TM), a water conditioning system that utilizes certain patent-pending technology for sanitizing and altering the flavor and scent of fluids typically administered during medical and dental surgical procedures. The Company anticipates completion of the design and the related packaging in early 1997. (FLS) Page 11 12 LIQUIDITY AND CAPITAL RESOURCES: The Company's liquidity at September 30, 1996 had declined significantly compared to December 31, 1995, due principally to the losses incurred. Working capital decreased $1,497,000 while cash and cash equivalents declined $1,441,000. Net cash used by operating activities for the nine-month period ended September 30, 1996 increased $64,000 compared to the same period in 1995 and is due principally to the decrease in sales experienced in 1996. Net cash used by investing activities for the nine-month period ended September 30, 1996 increased $20,000 over the same period in 1995 due to a slight increase in capital expenditures combined with an increase in capitalized patent and licensing costs related to the Company's patent-pending hydro-kinetic technology. Net cash provided by financing activities was $2,025,000 lower for the nine-month period ended September 30, 1996 than in the comparable 1995 period due principally to the absence in the first nine months of 1996 of private placement and warrant exercise proceeds; $922,000 and $370,000 of private placement proceeds were received in May and July of 1995, respectively; $791,000 of warrant exercise proceeds were received in September, 1995. The absence of such proceeds in 1996 was ameliorated to a minor extent by a $58,000 increase in proceeds received from the exercise of stock options. The Company completed a $5,000,000 private placement on October 16, 1996 that resulted in net proceeds estimated at $4,400,000. See Part II, Item 2 Changes In Securities. Giving effect to the completion of that placement on a proforma basis at September 30, 1996, the Company's cash and cash equivalents would be $4,725,000, working capital would be $4,427,000 and net stockholders' equity would be $4,688,000. See Note 6 of Notes to Consolidated Financial Statements in Part I, Item 1. The Company's consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Its viability as a going concern is dependent upon its ability to obtain outside financing either through the issuance of additional shares of its Common Stock or Preferred Stock, or through borrowings and, ultimately, a movement to profitability through increased sales, continued engineering development, and on-going cost containment. (FLS) The Company's focus has been realigned to emphasize the marketing of its hydro-kinetic tissue cutting systems (Millennium(TM) series), laser systems and endodontic products, and the continued development of biomaterial products and cost-effective laser technologies for medical, dental, dermatological and cosmetic surgical applications. Based on its current business plan, the Company believes that its working capital will remain adequate to meet its obligations through fiscal 1998, by which time it will need to obtain additional equity or debt financing. (FLS) The Company intends to pursue additional equity or debt financing to meet that anticipated need; however, there are no assurances that the Company will obtain the financing required to sustain its operations or that interim activities will not deplete working capital at a rate greater than that anticipated in the current business plan. (FLS) If the Company is unsuccessful in arranging necessary financing, its ability to meet its obligations would be impaired, and it may be unable to continue operations. (FLS) Should this occur, it would be necessary for the Company to undertake such other actions as may be appropriate to preserve asset values. (FLS) Financing the development of the Millennium(TM) series and other laser instruments, and operations of the Company has been achieved principally through private placements of common stock and the exercise of stock options and warrants. During the three years ended December 31, 1995, the Company has raised approximately $9,776,000 of equity funds. Management believes that significant capital resources will be utilized to complete the FDA approval process to allow use of the Company's laser and hydro-kinetic products for domestic hard-tissue medical, dental and cosmetic surgical applications, and to fund the Company's working capital needs in 1999. (FLS) The Company anticipates obtaining the necessary capital resources through the sale of equity securities in either public offerings or private placements, or through debt financing. (FLS) No assurance can be given, however, that the Company will be able to obtain such capital resources. (FLS) Page 12 13 FORWARD LOOKING STATEMENTS: The forward looking statements contained in this Quarterly Report on Form 10-QSB are subject to various risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated in such forward looking statements. Included among the important risks, uncertainties and other factors are those hereinafter discussed. Few of the forward looking statements in this Quarterly Report on Form 10-QSB deal with matters that are within the unilateral control of the Company. There is substantial government regulation of the manufacture and sale of medical products, including many of the Company's products, by governmental agencies in the United States and foreign countries. These governmental agencies often have considerable discretion in determining whether and when to approve the marketing of the Company's products that have not yet received such approval. The availability of equity and debt financing to the Company is affected by, among other things, domestic and world economic conditions and the competition for funds. Rising interest rates might affect the feasibility of debt financing that is offered. Potential investors and lenders will be influenced by their evaluations of the Company and its products and comparisons with alternative investment opportunities. The Company's products do not provide the exclusive means for accomplishing an objective, and customers may choose alternative means. Many of the Company's competitors have much greater financial resources and technical capabilities than does the Company, which may enable such competitors to design and produce superior products or to market their products in a manner that achieves commercial success even in the face of technical superiority on the part of the Company's products. The Company's patents may not offer effective protection against competitors. Competitors may be able to design around the Company's patents or employ technologies not covered by such patents. In addition, the Company's patents may be challenged, and even if such patents are upheld, the diversion of financial and human resources associated with patent litigation could adversely affect the Company. The Company may be found to be violating the patents of others and forced to obtain a license under such patents or modify the design of its products. Rapid technological developments are expected to continue in the industries in which the Company competes. The Company may not be able to develop, manufacture and market products which meet changing user requirements or which successfully anticipate or respond to technological changes on a cost-effective and timely manner. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company was a real party in interest in an interference proceeding in the United States Patent and Trademark Office which was concluded in September, 1996. This proceeding entitled Vassiliadis v. Levy was initiated on April 22, 1993, and arose out of patentt applications asserting conflicting claims to the technology involved in cutting tooth tissue with laser radiation in the presence of a cooling fluid. U.S. Patent No. 5,020,995 covering this technology has been issued and is owned by the Company. The interference proceeding resulted in a confirmation of the originality of certain technology owned by the Company and the validity of certain patent claims directed to procedures for cutting tooth tissue with laser radiation in the presence of water. In addition, that patent continues to include a valid claim for methods of removing tooth tissues from the wall of a tooth canal, which involves delivering pulsed laser radiation to the wall of the tooth canal via an optical fiber. The interference also resulted in the disallowance of certain dependent claims within the patent; management believes that such disallowance Page 13 14 will not have a material adverse effect upon the Company, its proprietary technology, its prospects or its results of operations. (FLS) From time to time, the Company is involved in legal proceedings incidental to its business. It is management's opinion that these actions, individually and in the aggregate, will not have a material adverse effect on the Company's financial condition, and that adequate provision has been made for the resolution of such actions and proceedings. ITEM 2. CHANGES IN SECURITIES. On October 16, 1996, the Company sold and issued one hundred (100) units (the "Units"), each consisting of one (1) share of its Series A 6% Redeemablee Cumulative Convertible Preferred Stock (a "Share") and redeemable stock purchase warrants expiring December 31, 1998 (the "Warrants") entitling the holders thereof to purchase up to five thousand (5,000) shares of the Company's Common Stock, $.001 par value per share ("Common Stock"). PacVest Associates, Inc. acted as the principal placement agent in connection with the offer and sale of the Units. The Units were offered and sold to "accredited investors", as defined in Rule 501 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The Units were offered and sold at a price of Fifty Thousand Dollars ($50,000) per Unit, which generated gross cash proceeds of Five Million Dollars ($5,000,000) from the sale of 100 Units. The Company paid a placement fee equal to eight percent (8%) of the gross proceeds, or Four Hundred Thousand Dollars ($400,000) with respect to the sale of the 100 Units. After placement fees and other expenses, the Company reaalized net proceeds of approximately Four Million Four Hundred Thousand Dollars ($4,400,000). In addition, the Company issued to the principal placement agent and others involved in the offering of the Units stock purchase warrants expiring December 31, 1998 entitling the holders thereof to purchase an aggregate of one hundred ninety thousand nine hundred ten (190,910) shares of Common Stock at an exercise price of Three Dollars and Fifty Cents ($3.50) per share. The Units were offered and sold pursuant to the exemptions from the registration requirements of the Securities Act afforded under Section 4(2) of the Securities Act and Rule 505 promulgated under the Securities Act, based on the fact that the Units were offered and sold solely to accredited investors. During the thirty (30) days following October 16, 1996, each Share was convertible into eighteen thousand one hundred eighty-two (18,182) shares of Common Stock. Based on a nominal $50,000 conversion value of eachh Share, this represents an effective conversion price of Two Dollars and Seventy-Five Cents ($2.75) per share of Common Stock. By November 15, 1996, ninety-nine (99) of the one hundred (100) outstanding Shares had been converted into an aggregate of one million eight hundred thousand eighteen (1,800,018) shares of Common Stock. Commencing January 14, 1997, the remaining one (1) Share, which has a nominal conversion value of Fifty Thousand Dollars ($50,000), may be converted into shares of Common Stock at a conversion price (the "Formula Conversion Price") equal to eighty percent (80%) of the average closing price of a share of Common Stock in the principal market in which it then trades during the five trading days immediately preceding the date on which the Shares are presented for conversion; provided, however, that the Formula Conversion Price shall neither exceed Five Dollars and Fourteen Cents ($5.14) nor be less than Two Dollars and Seventy-Seven Cents ($2.77). For the first sixty (60) days coommencing January 14, 1997, the Share is only partially convertible, and it is fully convertible on and after March 15, 1997. If the remaining outstanding Share is not previously converted, it will be deemed to have been presented for conversion into Common Stock and to have been converted on October 16, 1998 or at the option of the Company's Board of Directors at an earlier time when a letter of intent or agreement between the Company and one or more broker-dealers is in effect with a view towards an underwritten public offering of Company securities. The Share is redeemable under certain circumstances, and the Page 14 15 holder thereof is entitled to receive cumulative dividends at the rate of Seven Hundred Fifty Dollars ($750) per quarter. The Warrants entitle the holders thereof under specified conditions to purchase shares of Common Stock at an exercise price of Three Dollars and Fifty Cents ($3.50) per share through December 31, 1998. Under certain circumstances, the Company may call the Warrants for redemption. The Warrants are transferable only under very limited circumstances to estates of holders who are natural persons and to successors by merger or otherwise by operation of law to holders who are not natural persons. The purchaser (or permitted successor) of each Unit shall be entitled to exercise (i) one-third (1/3) of the Warrants constituting part of that Unit if such purchaser remains the record holder through February 13, 1997 of the Share constituting part of the Unit or all of the shares of Common Stock into which such Share is converted; (ii) an additional one-third (1/3) of the such Warrants if such purchaser remains the record holder through June 13, 1997 of the Share constituting part of the Unit or all of the shares of Common Stock into which such Share is converted; and (iii) the final one-third (1/3) of such Warrants if such purchaser remains the record holder through October 11, 1997 of the Share constituting part of the Unit or all of the shares of Common Stock into which such Share is converted. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS The following exhibit is being filed with this Quarterly Report on Form 10-QSB. 4. Instruments Defining the Rights of Holders, including Indentures 4.3 Certificate of Designations, Preferences and Rights of Series A 6% Redeemable Cumulative Convertible Preferred Stock of BioLase Technology, Inc. 27 Financial Data Schedule (b) REPORTS ON FORM 8-K On October 18, 1996, the Registrant filed a Current Report on Form 8-K announcing its completion of a $5,000,000 private placement (the "Offering") pursuant to Regulation D promulgated under the Securities Act of 1933, as amended. Balance sheets at August 31, 1996, and as at August 31, 1996 on a proforma basis to give effect to the Offering, were included with the Current Report. Page 15 16 SIGNATURE PAGE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BIOLASE TECHNOLOGY, INC. a Delaware Corporation Date: November 19, 1996 /s/ Donald A. La Point ---------------------------------------- Donald A. La Point President & Chief Executive Officer Date: November 19, 1996 /s/ Stephen R. Tartamella ---------------------------------------- Stephen R. Tartamella Vice President & Chief Financial Officer Page 16 EX-4.3 2 CERT. OF DESIGNATIONS PREF. & RIGHTS SERIES A STK 1 EXHIBIT 4.3 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK OF BIOLASE TECHNOLOGY, INC. 2 Exhibit 4.3 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A 6% REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK OF BIOLASE TECHNOLOGY, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware: BIOLASE TECHNOLOGY, INC., a Delaware corporation (the "Corporation"), certifies that pursuant to the authority contained in Article THIRD of its Restated Certificate of Incorporation, and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, its Board of Directors has adopted the following resolution creating a series of its $.001 par value Preferred Stock designated as Series A 6% Redeemable Cumulative Convertible Preferred Stock: RESOLVED, that a series of the class of authorized $.001 par value Preferred Stock of the Corporation be hereby created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A 6% Redeemable Cumulative Convertible Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting such series shall be one hundred (100). Section 2. Dividends and Distributions. The holders of Series A Preferred Stock shall be entitled to receive out of funds legally available therefor cash dividends at the quarterly rate of Seven Hundred Fifty Dollars ($750) per share, and no more. Such dividends shall be cumulative, shall accrue on each share of Series A Preferred Stock from the date of issuance thereof, whether or not earned or declared by the Board of Directors, and shall be payable, on the last business day of each calendar quarter in each year (each such date being referred to herein as a "Quarterly Dividend Accrual Date"), commencing December 31, 1996. Dividends payable on shares of Series A Preferred Stock for any period less than a full calendar quarter shall be computed on the basis of the actual number of days elapsed and a ninety (90) day quarter. 3 No dividends or other distributions shall be made with respect to the Common Stock or any other stock of the Corporation ranking junior with respect to the payment of dividends to the Series A Preferred Stock until cumulative dividends on the Series A Preferred Stock for all past dividend periods shall have been declared and paid or set aside for payment. Section 3. Voting Rights. Except as otherwise required by law, the holder of each share of Series A Preferred Stock shall have one vote with respect to such share, and such votes shall be counted together with all other shares of stock of the Corporation having general voting power and not separately as a class. Section 4. Reacquired Shares. Any shares of the Series A Preferred Stock converted, redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired promptly upon the acquisition thereof and upon their retirement shall return to the status of authorized but unissued shares of $.001 par value Preferred Stock. Section 5. Liquidation, Dissolution or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the Corporation, subject to the prior preferences and other rights of any stock ranking senior to the Series A Preferred Stock, but before any distribution or payment shall be made to the holders of stock ranking junior to the Series A Preferred Stock, the holders of the Series A Preferred Stock shall be entitled to be paid with respect to each share of Series A Preferred Stock the sum of (A) Fifty Thousand Dollars ($50,000) and (B) an amount equal to the difference calculated by subtracting (i) all dividends paid on such share of Series A Preferred Stock since the issuance of such share from (ii) six percent (6%) per annum on Fifty Thousand Dollars ($50,000) for the period from the date of issuance of such share of Series A Preferred Stock through the date on which such liquidation, dissolution or other winding up of the Corporation is finally determined and no more, and in particular no further payment shall be made in respect of any dividends previously accrued or declared but not yet paid. Such payment shall be made in cash or property taken at its fair value as determined by the Board of Directors, or both, at the election of the Board of Directors. If such payment shall -2- 4 have been made to the holders of the Series A Preferred Stock of all amounts to which such holders shall be entitled and if payment shall have been made in full to the holders of any stock ranking senior to or on a parity with the Series A Preferred Stock, the remaining assets and funds of the Corporation shall be distributed among the holders of stock ranking junior to the Series A Preferred Stock, according to their respective shares and priorities. If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the net assets of the Corporation distributable among the holders of all outstanding shares of the Series A Preferred Stock and of any stock on a parity therewith shall be insufficient to permit the payment in full to such holders of the preferential amounts to which they are entitled, then the entire net assets of the Corporation remaining after the distributions to holders of any stock ranking senior to the Series A Preferred Stock of the full amounts to which they may be entitled shall be distributed among the holders of the Series A Preferred Stock and of any stock on a parity therewith, ratably in proportion to the full amounts to which they would otherwise be respectively entitled. Neither the consolidation or merger of the Corporation into or with another corporation, nor the sale of all or substantially all of the assets of the Corporation to another corporation, shall be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this Section 5. In the case of a proposed voluntary liquidation, dissolution or other winding up of the Corporation, the Corporation shall mail at least thirty (30) days before such voluntary liquidation, dissolution or other winding up of the Corporation is finally determined a notice to each holder of record of shares of Series A Preferred Stock, addressed to the holder at the address of such holder appearing on the books of the Corporation or given by the holder to the Corporation for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Corporation is located. Such notice shall include (i) a description of the proposed voluntary liquidation, dissolution or other winding up of the Corporation and (ii) an statement of the date on which a final determination with respect thereto is anticipated. Section 6. Conversion. The Series A Preferred Stock shall be convertible into Common Stock as follows: -3- 5 (A) Optional Conversion. Subject to and upon compliance with the provisions of this Section 6, the holder of any shares of Series A Preferred Stock shall have the right at such holder's option, at any time or from time to time during the first thirty (30) days following the initial issuance of shares of Series A Preferred Stock but only during said thirty (30) day period, to convert any share of Series A Preferred Stock into eighteen thousand one hundred eighty-two (18,182) fully paid and nonassessable shares of Common Stock upon the terms hereinafter set forth. In addition, subject to and upon compliance with the provisions of this Section 6 the holder of any shares of Series A Preferred Stock shall have the right at such holder's option, at any time or from time to time on and after the ninetieth (90th) day following the initial issuance of shares of Series A Preferred Stock but not before the ninetieth (90th) day following such initial issuance, to convert any shares of Series A Preferred Stock into fully paid and nonassessable shares of Common Stock at the Conversion Price (as hereinafter defined) in effect on the Conversion Date (as hereinafter defined) upon the terms hereinafter set forth. (B) Automatic Conversion. Each share of Series A Preferred Stock then outstanding shall automatically be converted on the second (2nd) anniversary of the initial issuance of shares of Series A Preferred Stock, without any further act of the Corporation or the holders thereof, into fully paid and nonassessable shares of Common Stock at the Conversion Price then in effect. In addition, in the event (i) the Corporation has entered into a letter of intent or agreement, conditional or unconditional, with one or more broker-dealers with a view towards an underwritten public offering of Common Stock or other securities of the Corporation pursuant to an effective registration statement under the Securities Act of 1933, as amended, and (ii) such letter of intent or agreement has not been terminated or suspended and remains in force and effect, then the Corporation at the option of the Board of Directors of the Corporation may effect the automatic conversion of all outstanding shares of Series A Preferred Stock on the date that the Board of Directors takes such action effecting automatic conversion. Upon the automatic conversion of outstanding shares of Series A Preferred Stock, the Corporation shall forthwith mail a notice to each holder of record of shares of Series A Preferred Stock, addressed to the holder at the address of such holder appearing on the books of the -4- 6 Corporation or given by the holder to the Corporation for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Corporation is located. The notice shall include (i) the class of shares automatically converted, (ii) the Conversion Date on which the shares of Series A Preferred Stock were automatically converted, (iii) the Conversion Price in effect on such Conversion Date and (iv) the procedure to be followed to obtain the shares of Common Stock into which such shares of Series A Preferred Stock have been automatically converted. (C) Conversion Price. Commencing on the ninetieth (90th) day following the initial issuance of shares of Series A Preferred Stock, each share of Series A Preferred Stock shall be convertible into a number of shares of Common Stock equal to the quotient determined by dividing (i) the sum of (a) Fifty Thousand Dollars ($50,000) and (b) an amount equal to the difference calculated by subtracting (x) all dividends paid on the share of Series A Preferred Stock being converted since the issuance of such share from (y) six percent (6%) per annum on Fifty Thousand Dollars ($50,000) for the period from the date of issuance of such share of Series A Preferred Stock through the Conversion Date by (ii) the Conversion Price in effect on the Conversion Date. The "Conversion Price" at which shares of Common Stock shall be so issuable upon conversion of shares of Series A Preferred Stock shall be equal to eighty percent (80%) of the average closing price of the Common Stock in the principal market in which it is then traded, as determined by the Corporation's Board of Directors but if then traded on a national securities exchange, the Nasdaq National Market System or the Nasdaq SmallCap Market one of such markets must be determined to be such principal market, for the five (5) trading days immediately preceding, but not including, the Conversion Date; provided, however, that in no event shall the Conversion Price either (a) exceed the one hundred thirty percent (130%) of the average closing price of Common Stock in the principal market in which it is then traded, as determined by the Corporation's Board of Directors, for the five (5) trading days preceding, but not including, the date of the initial issuance of shares of Series A Preferred Stock (the "Closing Average Price") or (b) be less than the greater of (I) seventy percent (70%) of the Closing Average Price and (II) Two Dollars ($2.00). (D) Mechanics of Conversion. The holder of any shares of Series A Preferred Stock may exercise the conversion right specified in Section 6(A) by surrendering to the Corporation or any transfer agent of the Corporation for the Series A -5- 7 Preferred Stock the certificate or certificates for the shares to be converted, accompanied by written notice, in a form designated by the Corporation and available to such holder at the principal executive offices of the Corporation, specifying the number of shares to be converted and providing representations regarding compliance with applicable securities laws and regulations. Upon the occurrence of an event specified in Section 6(B), the outstanding shares of Series A Preferred Stock shall be converted automatically without any further action by the Corporation or the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or such transfer agent; provided that the Corporation shall not be obligated to issue to any such holder certificates evidencing the shares of Common Stock issuable upon such conversion unless certificates evidencing the shares of Series A Preferred Stock deemed converted are delivered either to the Corporation or such transfer agent. Conversion shall be deemed to have been effected on the date when such written notice of an election to convert (in the form designated by the Corporation) and certificates for the shares to be converted are received by the Corporation or such transfer agent or on a date specified in Section 6(B), as the case may be, and such date is referred to herein as the "Conversion Date". As promptly as practicable thereafter (and after surrender of the certificate or certificates representing the shares of Series A Preferred Stock so being converted to the Corporation or such transfer agent in the case of conversions pursuant to Section 6(B)), the Corporation shall issue and deliver to or upon the written order of such holder a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled and a check or cash with respect to any fractional interest in a share of Common Stock as provided in Section 6(E) hereof. The person in whose name the certificate or certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the applicable Conversion Date. Upon conversion of only a portion of the number of shares covered by a certificate representing shares of Series A Preferred Stock surrendered for conversion (in the case of conversion pursuant to Section 6(A) hereof), the Corporation shall issue and deliver to or upon the written order of the holder of the certificate so surrendered for conversion, at the expense of the Corporation, a new certificate covering the number of shares of Series A Preferred Stock representing the unconverted portion of the certificate so surrendered. -6- 8 (E) Fractional Shares. No fractional shares of Common stock or scrip shall be issued upon conversion of any shares of Series A Preferred Stock. If more than one share of Series A Preferred Stock shall be surrendered for conversion at any one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series A Preferred Stock so surrendered. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series A Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest of the Conversion Price. (F) Conversion Adjustments. The number of shares of Common Stock issuable upon conversion of shares of Series A Preferred Stock shall be subject to adjustment from time to time as follows: (i) If the Corporation shall (a) declare a dividend or make a distribution on its Common Stock in shares of its Common Stock; (b) subdivide or reclassify the outstanding Common Stock into a greater number of shares, or (c) combine or reclassify the outstanding Common Stock into a smaller number of shares and such event shall have a record date during a period over which the Conversion Price is being calculated, the closing price of a share of Common Stock prior to such record date shall be proportionately adjusted so that it applies to the number of shares of Common Stock which such share would have represented had such record date occurred immediately prior to the period over which the Conversion Price is being calculated. (ii) In case of any consolidation with or merger of the Corporation with or into another corporation, or in case of any sale, lease or conveyance to another corporation of the assets of the Corporation as an entirety or substantially as an entirety, each share of Series A Preferred Stock shall, after the date of such consolidation, merger, sale, lease or conveyance, be convertible into the number of shares of stock or other securities or property (including cash) to which the Common Stock issuable (at the time of such consolidation, merger, sale, lease or conveyance) upon conversion of such share of Series A Preferred Stock would have been entitled upon such consolidation, merger, sale, lease or conveyance; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the Series A Preferred Stock shall be appropriately adjusted so as -7- 9 to be applicable, as nearly as may reasonably be, to any shares of stock or other securities or property thereafter deliverable on the conversion of the shares of the Series A Preferred Stock. (iii) All calculations under this Section 6(F) shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be. Section 7. Redemption. (A) Conditions to Redemption. At any time on or after the one hundred eightieth (180th) day following the initial issuance of shares of Series A Preferred Stock, the shares of Series A Preferred Stock are subject to redemption, out of funds legally available therefor, in whole or from time to time in part, at the option of the Board of Directors of the Corporation. (B) Redemption Price. The redemption price per share of Series A Preferred Stock shall be the sum, payable in cash, of (A) Sixty Thousand Dollars ($60,000) and (B) an amount equal to the difference calculated by subtracting (i) all dividends paid on such share of Series A Preferred Stock since the issuance of such share from (ii) six percent (6%) per annum on Fifty Thousand Dollars ($50,000) for the period from the date of issuance of such share of Series A Preferred Stock through the date of redemption and no more (the "Redemption Price"), and in particular no further payment shall be made in respect of any dividends previously declared but not yet paid. (C) Selection of Shares for Partial Redemption. If only a portion of the then outstanding shares of Series A Preferred Stock is to be redeemed, the redemption shall be carried out prorata or, at the option of the Board of Directors of the Corporation, the shares to be redeemed shall be selected by lot. (D) Mechanics of Redemption. Promptly following the determination to redeem all or a portion of the outstanding shares of the Series A Preferred Stock is made, the Corporation shall mail a notice of redemption to each holder of record of shares of Series A Preferred Stock so to be redeemed, addressed to the holder at the address of such holder appearing on the books of the Corporation or given by the holder to the Corporation for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Corporation is locate. Such notice shall be -8- 10 given not later than twenty-eight (28) days prior to the date fixed for redemption. The notice shall include (i) the class of shares or the part of the class of shares to be redeemed, (ii) the date fixed for redemption, (iii) the Redemption Price or the formula for determining the Redemption Price, and (iv) the place at which the shareholders may obtain payment of the Redemption Price upon surrender of their share certificates. On the date fixed for the redemption, the shares of Series A Preferred Stock called for redemption shall no longer be outstanding, and the holders thereof shall cease to be shareholders of the Corporation with respect to the shares so redeemed on the date fixed for redemption and shall be entitled thereafter only to receive the Redemption Price without interest upon surrender of the share certificate or certificates representing the shares so redeemed. Section 8. Exclusion of Other Rights. Except as may otherwise be required by law, the shares of Series A Preferred Stock shall not have any preferences or relative, participating, optional or other special rights, other than those specifically set forth in this resolution (as such resolution may be amended from time to time) and in the Corporation's Restated Certificate of Incorporation. The shares of Series A Preferred Stock shall have no preemptive or subscription rights. IN WITNESS WHEREOF, BIOLASE TECHNOLOGY, INC. has caused this CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A 6% REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK to be duly executed by its Vice President and Secretary, and has caused its corporate seal to be affixed thereto this 20th day of September, 1996. BIOLASE TECHNOLOGY, INC. By: /s/ Stephen R. Tartamella -------------------------- Stephen R. Tartamella Vice President & Secretary -9- EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AT SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-QSB AT AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996. 1 U.S. DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 124,510 0 85,021 52,968 427,852 743,470 1,214,457 1,002,204 1,004,804 716,644 0 0 0 11,321 276,839 1,004,804 436,850 436,850 390,832 390,832 666,900 0 3,023 (1,675,968) 0 (1,675,968) 0 0 0 (1,675,968) (.15) (.15)
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