-----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, PlTzfR01K5yANNUqLFWT1vbxsNh3tnFW8plX3ROR8q6+ULy2DxSYGIXrAfB7XHBy QQun8FyjGLKLvpkUimP89A== 0001017062-98-001184.txt : 19980521 0001017062-98-001184.hdr.sgml : 19980521 ACCESSION NUMBER: 0001017062-98-001184 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980520 SROS: NASD 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-19627 FILM NUMBER: 98628830 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 10-Q 1 FORM 10-Q FOR PERIOD ENDED MARCH 31, 1998 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 1998 -------------- [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________ Commission File Number 0-19627 ------- BIOLASE TECHNOLOGY, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 87-0442441 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 981 Calle Amanecer, San Clemente, CA 92673 (Address of Principal Executive Offices) (714) 361-1200 (Registrant's Telephone Number, Including Area Code) Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock, $.001 par value 13,478,586 - ----------------------------- ---------------------------- Title Class Number of Shares Outstanding at April 30, 1998 BIOLASE TECHNOLOGY, INC.
Page Number ----------- PART 1. FINANCIAL INFORMATION ITEM 1. Financial Statements: Consolidated Condensed Balance Sheets 3 Consolidated Condensed Statements of Operations 4 Consolidated Condensed Statement of Stockholders' Equity 5 Consolidated Condensed Statements of Cash Flows 6 Notes to Consolidated Condensed Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 15 ITEM 2. Changes in Securities 15 ITEM 3. Defaults Upon Senior Securities 15 ITEM 4. Submission of Matters to a Vote of Security Holders 15 ITEM 5. Other Information 16 ITEM 6. Exhibits and Reports on Form 8-K 16 SIGNATURE PAGE 17
Page 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. - ----------------------------- BIOLASE TECHNOLOGY, INC. CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1998 December 31, 1997 (Unaudited) --------------- ----------------- Assets: Current assets: Cash and cash equivalents $ 114,279 $ 213,074 Marketable securities 108,658 627,817 Accounts receivable, less allowance of $117,464 in 1998 and 1997 1,137,153 1,060,252 Inventories, net of reserves of $620,949 in 1998 and 1997 1,394,286 1,008,777 Prepaid expenses and other current assets 98,813 110,094 ------------- ------------- Total current assets 2,853,189 3,020,014 Property and equipment, net 173,506 181,804 Patents, licenses and trademarks, less accumulated amortization of $330,466 in 1998 and 1997 131,352 95,508 Other assets 98,666 98,666 ------------- ------------- Total assets $ 3,256,713 $ 3,395,992 ============= ============= Liabilities and Stockholders' Equity: Current liabilities: Line of Credit $ 1,021,106 $ 301,233 Note Payable 250,000 - Accounts payable 223,610 481,240 Accrued expenses 418,995 480,440 Accrued costs related to dissolution of foreign subsidiary 37,144 38,069 ------------- ------------- Total current liabilities 1,950,855 1,300,982 ------------- ------------- Stockholders' equity: Preferred stock, par value $.001, 1,000,000 shares authorized: Series A 6% Redeemable Cumulative Convertible Preferred Stock, no shares issued and outstanding at March 31, 1998 and December 31, 1997 - - Common stock, par value, $.001, 50,000,000 shares authorized, issued 13,478,586 in 1998 and 13,462,636 in 1997 13,481 13,463 Additional paid-in capital 29,779,561 29,755,652 Unearned services (34,734) (50,766) Accumulated deficit (28,452,450) (27,623,339) ------------- ------------- Net stockholders' equity 1,305,858 2,095,010 ------------- ------------- Total liabilities and stockholders' equity $ 3,256,713 $ 3,395,992 ============= =============
See accompanying notes to consolidated condensed financial statements. Page 3 Item 1. Financial Statements (continued). - ---------------------------------------- BIOLASE TECHNOLOGY, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, -------------------------- 1998 1997 ---- ---- Sales $ 262,530 $ 134,405 Cost of sales 238,107 112,870 ---------- ---------- Gross profit 24,423 21,535 ---------- ---------- Operating expenses: Sales and marketing 305,259 273,803 General and administrative 253,780 235,987 Engineering and development 273,930 282,695 ---------- ---------- Total operating expenses 832,969 792,485 ---------- ---------- Loss from operations (808,546) (770,950) Interest income (expense), net (20,565) 3,216 ---------- ---------- Net loss $ (829,111) $ (767,734) ========== ========== Basic loss per share $ (0.06) $ (0.06) ========== ========== Weighted average shares outstanding 13,469,193 13,237,060 ========== ==========
See accompanying notes to consolidated condensed financial statements. Page 4 Item 1. Financial Statements (continued). - ---------------------------------------- BIOLASE TECHNOLOGY, INC. CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
Additional Net Preferred Stock Common Stock Paid-in Unearned Accumulated Stockholders' Shares Amount Shares Amount Capital Services Deficit Equity ------ ------ ------ ------ ------- -------- ------- ------ Balance at January 1, 1998 - $ - 13,462,636 $13,463 $29,755,652 ($50,766) ($27,623,339) $2,095,010 Exercise of stock options - - 15,950 18 23,909 - - 23,927 Earned escrow shares - - - - - 16,032 - 16,032 Net loss - - - - - - (829,111) (829,111) --------------------------------------------------------------------------------------------------- Balance at March 31, 1998 - $ - 13,478,586 $13,481 $29,779,561 ($34,734) ($28,452,450) $1,305,858 ===================================================================================================
See accompanying notes to consolidated condensed financial statements. Page 5 Item 1. Financial Statements (continued). - ---------------------------------------- BIOLASE TECHNOLOGY, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31 ---------------------------------- 1998 1997 ---- ---- Cash flows from operating activities: Net loss $(829,111) $ (767,734) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 19,694 30,463 Issuance of common stock for services 16,032 - Changes in operating assets and liabilities: Accounts receivable (76,901) (5,470) Inventories (385,509) (141,548) Prepaid expenses and other current assets 11,281 (20,290) Accounts payable (257,630) 53,542 Accrued expenses (61,445) 21,093 Accrued costs related to dissolution of foreign subsidiary (925) (3,093) Other current liabilities - (3,980) --------- ---------- Net cash used by operating activities (1,564,514) (837,017) --------- ---------- Cash flows from investing activities: Sale of marketable securities 519,159 250,000 Additions to property and equipment (11,396) (60,286) Additions to patents, licenses and trademarks (35,844) (39,952) -------- ---------- Net cash provided by investing activities 471,919 149,762 -------- ---------- Cash flows from financing activities: Borrowings under line of credit 719,873 - Note payable 250,000 - Proceeds from issuance of common stock, net - 719,885 Proceeds from exercise of stock options 23,927 78,749 -------- ---------- Net cash provided by financing activities 993,800 798,634 -------- ---------- Increase (decrease) in cash and cash equivalents (98,795) 111,379 Cash and cash equivalents at beginning of period 213,074 349,457 -------- ---------- Cash and cash equivalents at end of period $ 114,279 $ 460,836 ========= ========== Supplemental cash flow disclosure: Cash paid during the period for interest $ 711 $ 913 ========= ========== Noncash financing activities Issuance of common stock for earned services $ 16,032 $ - ========= ==========
See accompanying notes to consolidated condensed financial statements. Page 6 BIOLASE TECHNOLOGY, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS MARCH 31, 1998 Note 1 - ------ The accompanying consolidated condensed financial statements of BioLase Technology, Inc. (the "Company") have been prepared by the Company without audit and do not include all disclosures required by generally accepted accounting principles for complete financial statements. The consolidated condensed balance sheet at December 31, 1997 was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, the consolidated condensed financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial condition of the Company as at and the results of operations for the three-month period ended March 31, 1998. The Company's consolidated condensed financial statements have been presented on the basis that the Company will continue as a going-concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported net losses of $2,823,910, $2,463,259 and $2,023,822 for the years ended December 31, 1997, 1996 and 1995, respectively, and a net loss of $829,111 for the three-month period ended March 31, 1998 and has an accumulated deficit of $28,452,450 at March 31, 1998. These recurring losses and the need for continued funding, discussed below, raise substantial doubt about the Company's ability to continue as a going-concern. The Company remains dependent upon its ability to obtain outside financing either through the issuance of additional shares of its common or preferred stock or through borrowings until it achieves sustained profitability through increased sales and product improvement through engineering and cost containment. The Company's focus has been realigned to emphasize the marketing of its laser-based HydroKinetic(TM) tissue cutting system, the Millennium(TM), its yet-to-be-released LaserBrush(TM) and a new reduced-power variation of the Millennium(TM), called DermaLase(TM), which is being configured to accommodate applications in dermatology and general soft-tissue surgery. Financing the development of laser-based medical and dental devices and instruments and the operations of the Company has been achieved principally through the private placements of preferred and common stock and the exercise of stock options and warrants. During the three years ended December 31, 1997, the Company has raised approximately $6,414,000 of equity funds. More recently, the Company raised an additional $3,593,000 in equity funds (see Note 7 to Consolidated Condensed Financial Statements). Management believes that significant additional resources will be required, commencing in the first half of 1999, to complete the processes designed to lead to FDA clearance to market the Company's laser-based technologies for various dental and medical applications in the United States and foreign countries, and to fund the Company's working capital needs. The Company expects to generate the necessary capital resources through the sale of its products, the issuance of equity securities in either public or private placements, or debt financing. No assurance can be given, however, that the Company will be able to obtain such capital resources. Based on the Company's current business plan, the Company anticipates that it will need additional financing during the first half of 1999 to support additional working capital requirements should its existing and soon-to-be- released products meet with resistance of acceptance by the market. There are no assurances that the Company will be successful in obtaining such financing. If unsuccessful in arranging such financing, the Company may be Page 7 able to extend the period before additional financing is required by deferring the creation or satisfaction of various commitments and deferring the introduction of various products or entry into various markets. If the Company were unable to obtain such financing, its ability to meet its obligations and to continue its operations would be adversely affected. The Company's financial statements have been prepared under the assumption of a going concern. Failure to arrange such financing on acceptable terms and to achieve profitability would have an adverse effect on the financial position, results of operations, cash flows and prospects of the Company and ultimately its ability to continue as a going concern. Operating results for the three -month period ended March 31, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 1997.
Note 2 - ------ Inventories, net of reserves, March 31, 1998 consist of the following: (unaudited) December 31, 1997 ------------ ----------------- Raw materials $ 1,209,704 $ 804,631 Work-in-process 57,249 36,609 Finished goods 127,333 167,537 ----------- ----------- $ 1,394,286 $ 1,008,777 =========== =========== Note 3 - ------ Property and equipment, March 31, 1998 at cost, consist of the following: (unaudited) December 31, 1997 ----------- ----------------- Leasehold improvements $ 149,282 $ 149,282 Equipment and computers 764,303 754,152 Furniture and fixtures 169,664 168,419 Demonstration units 247,354 247,354 ----------- ----------- Total cost 1,330,603 1,319,207 Less, accumulated depreciation and amortization (1,157,097) (1,137,403) ----------- ----------- $ 173,506 $ 181,804 =========== ===========
Page 8
Note 4 - ------ Accrued expenses consist of the following: March 31, 1998 (unaudited) December 31, 1997 ----------- ----------------- Accrued professional fees $ 45,124 $ 82,876 Accrued legal and litigation costs 69,666 91,880 Accrued warranty 78,000 83,000 Accrued vacation 67,591 64,270 Other 158,614 158,414 -------- -------- $418,995 $480,440 ======== ========
Note 5 - ------ Basic loss per share is based on the weighted average number of common shares outstanding. Common stock equivalents, which consist of stock options, have been excluded from per share calculations, as the effect of the assumed exercise of these common stock equivalents is anti-dilutive at March 31, 1998 and 1997. Note 6 - ------ In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130, which is effective for fiscal years beginning after December 15, 1997, and requires restatement of earlier periods presented, establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. The implementation of SFAS No. 130 does not have a material effect on the Company's results of operations for the three-month period ended March 31, 1998. In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information". SFAS No. 131, which is effective for fiscal years beginning after December 15, 1997, and requires restatement of earlier periods presented, establishes standards for the way that a public enterprise reports information about key revenue-producing segments in the annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The implementation of SFAS No. 131 does not have a material effect on the Company's current reporting and disclosures for the three-month period ended March 31, 1998. Note 7 - ------ On April 21, 1998, the Company initiated two private placements (the "Offerings") pursuant to Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act") that closed on May 15, 1998. In the Offerings, the Company issued and sold 132 units, each unit consisting of 10,000 shares of the Company's common stock and 5,000 redeemable common stock purchase warrants (the "Unit Warrants"), expiring April 30, 2000. Gross proceeds received from the Offerings were $3,960,000 with net proceeds, after commissions and estimated expenses, of approximately $3,593,000. Page 9 The Company also issued to its placement agents for the Offerings non- redeemable warrants to purchase an aggregate of 64,000 shares of common stock (collectively, along with the Unit Warrants, the "Warrants"), expiring April 30, 2000. The exercise price of the Warrants is $3.75 per share. The shares of common stock issued, included those underlying shares to be issued upon exercise of the Warrants, are "restricted securities" as defined in Rule 144 promulgated under the Securities Act. Accordingly, such shares may be resold only pursuant to a registration statement under the Securities Act or in accordance with an exemption from such registration requirement. The Company is obligated to file a registration statement covering the resale of such shares of common stock within 45 days from May 15, 1998, the closing date. The unaudited consolidated condensed balance sheet of BioLase Technology, Inc. at March 31, 1998 presented below reflects the consolidated financial position of the Company on such date and such financial position as adjusted on a proforma basis to give effect to the Offerings.
MARCH 31, 1998 (UNAUDITED) --------------------------------------------------------------- ACTUAL ADJUSTMENTS PRO FORMA ------ ----------- --------- ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 114,279 $3,402,800 $ 3,517,079 Marketable securities 108,658 108,658 Accounts receivable, less allowance of $117,464 1,137,153 1,137,153 Inventories, net of reserves of $620,949 1,394,286 1,394,286 Prepaid expenses and other current assets 98,813 98,813 ----------- ---------- ---------- TOTAL CURRENT ASSETS 2,853,189 3,402,800 6,255,989 Property and equipment, net 173,506 173,506 Patents, licenses and trademarks, less accumulated amortization of $330,466 131,352 131,352 Other assets 98,666 98,666 ---------- ---------- ---------- TOTAL ASSETS $ 3,256,713 $3,402,800 $ 6,659,513 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Line of credit $ 1,021,106 $ $ 1,021,106 Note payable 250,000 (250,000) - Accounts payable 223,610 223,610 Accrued expenses 418,995 60,000 478,995 Accrued costs related to dissolution of foreign subsidiary 37,144 37,144 ------------ ---------- ------------ TOTAL CURRENT LIABILITIES 1,950,855 (190,000) 1,760,855 ------------ ---------- ------------ STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value, 1,000,000 shares authorized: Series A Redeemable Cumulative Preferred Stock, no shares issued and outstanding at March 31, 1998 - - Common stock, $.001 par value, 50,000,000 shares authorized; 13,478,586 shares issued and outstanding at March 31, 1998, 14,798,586 shares issued on a proforma basis 13,481 1,320 14,801 Additional paid-in capital 29,779,561 3,591,480 33,371,041 Unearned services (34,734) (34,734) Accumulated deficit (28,452,450) (28,452,450) ------------ ---------- ------------ NET STOCKHOLDERS' EQUITY 1,305,858 3,592,800 4,898,658 ------------ ---------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,256,713 $3,402,800 $ 6,659,513 ============ ========== ============
Page 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS. - -------------- The following discussion should be read in conjunction with the consolidated condensed financial statements and notes thereto. RESULTS OF OPERATIONS Sales were $263,000 during the first quarter of 1998, compared to $134,000 for the same period in 1997, an increase of $129,000, or 96%. The increase was related solely to the sales of Millennium(TM) systems in the first quarter of 1998 while the first quarter of 1997 reflected sales related to the phase-out of the Company's Nylad laser product line. Sales of endodontic products during the first quarter of 1998 were comparable to those reported for the same quarter in 1997. The German distributor of the Company's Millennium(TM) system has requested a partial redesign of the handpiece, which forms a portion of the delivery subsystem of the Millennium(TM), in order to address more effectively the requirements of its marketplace. While in the process of effecting this redesign, the Company has delayed shipment of additional Millennium(TM) systems to its German distributor. The Company believes that it is making substantial progress in the redesign of the handpiece and anticipates completion of the redesign during the second half of 1998, at which point, recommencement of Millennium(TM) shipments in conjunction with the distribution agreement should occur. (The preceding sentence constitutes a forward looking statement [hereinafter identified as "FLS"]. Each of the forward looking statements in this Quarterly Report on Form 10-Q is subject to various factors that could cause actual results to differ materially from the results anticipated in such forward looking statement, as more fully discussed in this Item 2 under "Forward Looking Statements".) None of the sales reported during the first quarter of 1998 were to the Company's German distributor. In July, 1997, the Company received clearance from the Food and Drug Administration ("FDA") to market a laser-based surgical tissue cutting system in the United States that utilizes a variation of the Millennium(TM) technology for a broad range of dermatological and general surgical soft tissue applications. In response to this clearance, the Company intends to introduce to the domestic market a laser-based system in a configuration that is designed for lower power settings than those of the Millennium(TM) system, under the name DermaLase(TM). (FLS) The Company is presently developing its marketing plan for the DermaLase(TM) system and anticipates commencement of production of DermaLase(TM) in the last half of 1998. (FLS) Gross profit for the first quarter of 1998 was comparable to the first quarter of 1997; however, the gross margin declined to 9% compared to the same period in 1997 due principally to the under absorption of fixed overhead costs incurred as a result of ramping up for higher production levels. These costs included the design and manufacturing of various test and production fixtures to improve manufacturing efficiencies and increased indirect costs to support higher levels of manufacturing. The gross profit from the sale of endodontic products during the first quarter of 1998 was comparable to that reported for the first quarter of 1997. Sales and marketing expenses increased $31,000 to $305,000 during the first quarter of 1998 compared to $274,000 reported for the comparable period in 1997. The increase is due principally to costs associated with the Company's establishment of a domestic dental sales force. General and administrative expenses were $254,000 during the first quarter of 1998, an increase of $18,000, or 8% as compared to $236,000 reported during the comparable period in 1997. The increase was due principally to greater costs related to advertising and promotion of the Company through various publications and investor forums combined with a slight increase Page 11 in employee related expenses; the increase was partially offset by reductions in the Company's legal fees from the same period in 1997. Engineering and development expenses reported during the first quarter of 1998 were comparable to those reported during the same period in 1997. The Company anticipates an increase of approximately 35% in such costs during the second quarter of 1998 as a result of the redesign of the Millennium(TM) handpiece and the finalization of the soon-to-be-released LaserBrush(TM) design. (FLS) Interest expense, net, increased $24,000 to $21,000 during the first quarter of 1998 compared to interest income, net of $3,000 reported during the comparable period in 1997. The increase in interest expense was due to the Company's utilization of its line of credit established for the financing of inventories while the reduction in interest income was due to the liquidation of certain invested funds to meet the Company's working capital needs. FINANCIAL CONDITION Cash, cash equivalents and marketable securities decreased an aggregate of $618,000 during the first three months of 1998 due principally to (i) cash used by operations of $1,565,000, and (ii) expenditures related to capital equipment and patent and trademark applications, aggregating $47,000, offset by (a) proceeds of $720,000 received from utilization of the Company's credit facility established for the financing of inventories, (b) proceeds of $250,000 received from a note which was subsequently converted to equity in connection with a private placement (see Note 7 to Consolidated Condensed Financial Statements), and (c) proceeds received from the exercise of employee stock options, aggregating $24,000. Working capital declined $817,000 to $902,000 at March 31, 1998, compared to the $1,719,000 reported at December 31, 1997. The decline was due principally to: (i) decreases in cash, cash equivalents and marketable securities aggregating $618,000, offset by increases in (a) accounts receivable of $77,000 as a result of extended terms offered to the Company's German distributor and shipments of Millennium(TM) in March 1998, and (b) inventories of $386,000 resulting from increased purchases of long-lead item material; and (ii) increases of $720,000 and $250,000 related to the Company's line of credit and note payable, respectively, partially offset principally by reductions in (a) accounts payable of $258,000 and (b) accrued expenses of $61,000. Cash used by operations for the first three months of 1998 increased by $727,000 from cash used during the first three months of 1997 due principally to (i) an additional $61,000 in net loss reported and (ii) increased levels in accounts receivable and inventories associated with Millennium(TM) sales and production coupled with decreases principally in accounts payable and accrued expenses. Net cash provided by investing activities increased by $322,000 during the first three months of 1998 as compared to the same period in 1997 due to an increase of $269,000 in sales of U. S. Treasury Notes and a reduction in cash used for capital equipment expenditures and additions to patents, licenses and trademarks, aggregating $53,000. Net cash provided by financing activities increased by $195,000 during the first quarter of 1998 from the comparable period in 1997 due to proceeds received from borrowings under the Company's line of credit and a note payable of $720,000 and $250,000, respectively, offset by reductions of $720,000 and $55,000 in proceeds received from issuance of common stock and exercises of stock options, respectively. The Company recorded revenue from its shipments of Millennium(TM) units during the second half of 1997, which amount was reflected as an account receivable in the Company's audited consolidated balance sheet at December 31, 1997 with anticipated payment in the first quarter of 1998. (FLS) In order to promote the introduction of the Millennium(TM) system in Germany, the Company provided its distributor introducing that system in Germany, the first market to be approached, with extended payment terms on its receivable of $885,000. Page 12 LIQUIDITY AND CAPITAL RESOURCES The Company remains dependent upon its ability to obtain outside financing either through the issuance of additional shares of its common or preferred stock or through borrowings until it achieves sustained profitability through increased sales and product improvement through engineering and cost containment. (FLS) The Company's focus has been realigned to emphasize the marketing of its laser-based HydroKinetic(TM) tissue cutting system, the Millennium(TM), its yet-to-be-released LaserBrush(TM) and a new reduced-power variation of the Millennium(TM), called DermaLase(TM), which is being configured to accommodate applications in dermatology and general soft-tissue surgery. (FLS) Financing the development of laser-based medical and dental devices and instruments and the operations of the Company has been achieved principally through the private placements of preferred and common stock and the exercise of stock options and warrants. During the three years ended December 31, 1997, the Company has raised approximately $6,414,000 of equity funds. More recently, the Company raised an additional $3,593,000 in equity funds (see Note 7 to Consolidated Condensed Financial Statements). Management believes that significant additional resources will be required, commencing in the first half of 1999, to complete the processes designed to lead to FDA clearance to market the Company's laser-based technologies for various dental and medical applications in the United States and foreign countries, and to fund the Company's working capital needs. (FLS) The Company expects to generate the necessary capital resources through the sale of its products, the issuance of equity securities in either public or private placements, or debt financing. No assurance can be given, however, that the Company will be able to obtain such capital resources. (FLS) Based on the Company's current business plan, the Company anticipates that it will need additional financing during the first half of 1999 to support additional working capital requirements should its existing and soon-to-be- released products meet with resistance of acceptance by the market. (FLS) There are no assurances that the Company will be successful in obtaining such financing. (FLS) If unsuccessful in arranging such financing, the Company may be able to extend the period before additional financing is required by deferring the creation or satisfaction of various commitments and deferring the introduction of various products or entry into various markets. (FLS) If the Company were unable to obtain such financing, its ability to meet its obligations and to continue its operations would be adversely affected. (FLS) The Company's financial statements have been prepared under the assumption of a going concern. Failure to arrange such financing on acceptable terms and to achieve profitability would have an adverse effect on the financial position, results of operations, cash flows and prospects of the Company and ultimately its ability to continue as a going concern. (FLS) The Company is presently analyzing various computer software and hardware to meet its operational needs and anticipates capital expenditures to increase significantly during 1998 in connection with the acquisition of such software and hardware. (FLS) The Company's present software and hardware is personal computer based and is unaltered from its original purchased state except for those upgrades offered by the manufacturer of such software. The Company believes that its present software and hardware is Year 2000 compliant and intends to obtain certification of such for any future purchases of computer software and hardware. Additionally, the ability of third parties with whom the Company transacts business to adequately address their Year 2000 issues is outside the control of the Company. There can be no assurance that the failure of the Company or such third parties to adequately address their respective Year 2000 issues will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. (FLS) Page 13 FORWARD LOOKING STATEMENTS The forward looking statements contained in this Quarterly Report on Form 10-Q are subject to various risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated in such forward looking statements. Included among the important risks, uncertainties and other factors are those hereinafter discussed. Few of the forward looking statements in this Quarterly Report on Form 10-Q deal with matters that are within the unilateral control of the Company. There is substantial government regulation of the manufacture and sale of medical products, including many of the Company's products, by governmental agencies in both the United States and foreign countries. These governmental agencies often have considerable discretion in determining whether and when to approve the marketing of the Company's products that have not yet received such approval. The availability of equity and debt financing to the Company is affected by, among other things, domestic and world economic conditions and the competition for funds. Rising interest rates might affect the feasibility of debt financing that is offered. Potential investors and lenders will be influenced by their evaluations of the Company and its products and comparisons with alternative investment opportunities. The Company's products do not provide the exclusive means for accomplishing an objective, and customers may choose alternative means. Many of the Company's competitors have much greater financial resources and technical capabilities than does the Company, which may enable such competitors to design and produce superior products or to market their products in a manner that achieves commercial success even in the face of technical superiority on the part of the Company's products. The Company's patents may not offer effective protection against competitors. Competitors may be able to design around the Company's patents or employ technologies not covered by such patents. In addition, the Company's patents may be challenged, and even if such patents are upheld, the diversion of financial and human resources associated with patent litigation could adversely affect the Company. The Company may be found to be violating the patents of others and forced to obtain a license under such patents or modify the design of its products. Rapid technological developments are expected to continue in the industries in which the Company competes. The Company may not be able to develop, manufacture and market products which meet changing user requirements or which successfully anticipate or respond to technological changes on a cost-effective and timely manner. While the Company believes that its technology incorporated into its Millennium(TM) surgical tissue cutting system should be effective in a broad range of medical and dental applications, this belief (except with respect to dental hard tissue and certain dermatological applications, for which clinical research has been and is being conducted) is based largely on preliminary in vitro and in vivo research and extrapolation of observations in such clinical research. No assurances can be given that the Company's Millennium(TM) technology will prove to be applicable to, or will find market acceptance in, any medical or dental fields or that the Company will receive clearance from the FDA or other regulatory agencies to market the Millennium(TM) system or other products embodying its HydroKinetic(TM) technology or variations thereof for any additional applications or in any additional jurisdictions. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. - -------------------------------------------------------------------- Not Applicable Page 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. - --------------------------- See Item 3 "Legal Proceedings" included within the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1997 for information regarding certain pending legal proceedings. From time to time, the Company is involved in legal proceedings incidental to its business. It is management's opinion that pending actions, individually and in the aggregate, will not have a material adverse effect on the Company's financial condition, and that adequate provision has been made for the resolution of such actions and proceedings. ITEM 2. CHANGES IN SECURITIES. - ------------------------------- On April 21, 1998, the Company initiated two private placements (the "Offerings") pursuant to Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act") that closed on May 15, 1998. In the Offerings, the Company issued and sold 132 units, each unit consisting of 10,000 shares of the Company's common stock and 5,000 redeemable common stock purchase warrants (the "Unit Warrants"), expiring April 30, 2000. Gross proceeds received from the Offerings were $3,960,000 with net proceeds, after commissions and estimated expenses, of approximately $3,593,000. The placement agents for the Offerings, PacVest Associates, Inc. and EuroCapital Limited, received cash commissions equal to 8% of gross proceeds to the Company for 128 of the 132 units sold. The Company also issued to its placement agents for the Offerings non-redeemable warrants to purchase an aggregate of 64,000 shares of common stock (collectively, along with the Unit Warrants, the "Warrants"), expiring April 30, 2000. The exercise price of the Warrants is $3.75 per share. The units were sold to an aggregate of 29 individuals and entities qualifying as "accredited investors", as defined in Rule 501 of Regulation D. The Company relied on the exemption from registration provided by Rule 506 of Regulation D, as each purchaser represented to the Company that it met one of the categories of accredited investor set forth in Rule 501 and was aware of the restrictions on resale set forth below. In addition, neither the Company nor the placement agents offered or sold the units by any form of general solicitation or advertising. The shares of common stock issued, included those underlying shares to be issued upon exercise of the Warrants, are "restricted securities" as defined in Rule 144 promulgated under the Securities Act. Accordingly, such shares may be resold only pursuant to a registration statement under the Securities Act or in accordance with an exemption from such registration requirement. The Company is obligated to file a registration statement covering the resale of such shares of common stock within 45 days from May 15, 1998, the closing date. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. - ----------------------------------------- None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------------------------------------------------------------- None Page 15 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 SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BIOLASE TECHNOLOGY, INC. a Delaware Corporation Date: May 20, 1998 /s/ Donald A. La Point -------------- ---------------------- Donald A. La Point President & Chief Executive Officer Date: May 20, 1998 /s/ Stephen R. Tartamella -------------- ------------------------- Stephen R. Tartamella Vice President & Chief Financial Officer Page 17 EX-27 2 FINANCIAL DATA SCHEDULE -- ARTICLE 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF BIOLASE TECHNOLOGY, INC. AND ITS SUBSIDIARY AS OF MARCH 31, 1998 AND THE RELATED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS, STOCKHOLDER'S EQUITY AND CASH FLOWS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 114,279 108,658 1,254,617 (117,464) 1,394,286 2,853,189 1,330,603 (1,157,097) 3,256,713 1,950,855 0 0 0 13,481 1,292,377 3,256,713 262,530 262,530 238,107 238,107 0 0 20,565 (829,111) 0 (829,111) 0 0 0 (829,111) (0.06) 0
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