-----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, MnrWUwUz1pX44/IGXSALlZDfek1VAegoWjyuuVINgO6up1pLYgahOhDcbd5W9Zpo xD6CbhxbUblxpka0YWsS/g== 0001017062-99-001949.txt : 19991117 0001017062-99-001949.hdr.sgml : 19991117 ACCESSION NUMBER: 0001017062-99-001949 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99754711 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 FOR THE PERIOD ENDED SEPTEMBER 30, 1999 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 1999 ------------------ [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to ________ Commission File Number 0-19627 ------- BIOLASE TECHNOLOGY, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 87-0442441 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 981 Calle Amanecer, San Clemente, CA 92673 (Address of Principal Executive Offices) (949) 361-1200 (Registrant's Telephone Number, Including Area Code) Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock, $.001 par value 17,732,565 - ----------------------------- ---------------------------- Title Class Number of Shares Outstanding at November 10, 1999 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 9 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 15 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 16 ITEM 2. Changes in Securities 16 ITEM 3. Defaults Upon Senior Securities 16 ITEM 4. Submission of Matters to a Vote of Security Holders 16 ITEM 5. Other Information 16 ITEM 6. Exhibits and Reports on Form 8-K 16 SIGNATURE PAGE 17
Page 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. - ----------------------------- BIOLASE TECHNOLOGY, INC. CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, 1999 December 31, 1998 (Unaudited) ------------- ------------ Assets: Current assets: Cash and cash equivalents $ 1,375,926 $ 424,539 Marketable securities - 251,485 Accounts receivable, less allowance of $118,511 in 1999 and $118,015 in 1998 812,886 563,236 Inventories, net of reserves of $275,873 in 1999 and $271,694 in 1998 985,199 1,930,117 Prepaid expenses and other current assets 163,245 168,725 ---------------- ----------------- Total current assets 3,337,256 3,338,102 Property and equipment, net 378,497 407,142 Patents, trademarks and licenses, less accumulated amortization of $145,577 in 1999 and $129,312 in 1998 132,658 147,199 Other assets 36,354 18,929 ---------------- ----------------- Total assets $ 3,884,765 $ 3,911,372 ================ ================= Liabilities and Stockholders' Equity: Current liabilities: Line of credit $ 1,341,925 $ 1,705,025 Accounts payable 473,381 806,335 Accrued expenses 1,083,250 701,016 Accrued costs related to dissolution of foreign subsidiary 9,231 37,144 ---------------- ----------------- Total current liabilities 2,907,787 3,249,520 ---------------- ----------------- Stockholders' equity: Preferred stock, par value $.001, 1,000,000 shares authorized: no shares issued and outstanding in 1999 or 1998 - - Common stock, par value, $.001, 50,000,000 shares authorized, issued 17,549,685 in 1999 and 16,312,007 in 1998 (after deducting 182,880 of escrow shares in 1999 and 1998) 17,550 16,312 Additional paid-in capital 41,717,723 38,614,948 Accumulated deficit (40,758,295) (37,969,408) ---------------- ----------------- Net stockholders' equity 976,978 661,852 ---------------- ----------------- Total liabilities and stockholders' equity $ 3,884,765 $ 3,911,372 ================ =================
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 Nine Months Ended September 30, September 30, -------------------------------- ------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Sales $ 2,012,824 $ 87,686 $ 5,205,062 $ 586,303 Cost of sales 1,196,822 203,651 3,032,791 704,819 --------------- -------------- -------------- -------------- Gross profit (loss) 816,002 (115,965) 2,172,271 (118,516) --------------- -------------- -------------- -------------- Operating expenses: Sales and marketing 723,915 396,704 1,870,710 969,451 General and administrative 409,140 405,697 1,546,894 1,139,667 Engineering and development 548,355 621,565 1,508,422 1,330,416 Write-off of purchased research and development costs - 5,134,920 - 5,134,920 --------------- -------------- -------------- -------------- Total operating expenses 1,681,410 6,558,886 4,926,026 8,574,454 --------------- -------------- -------------- -------------- Loss from operations (865,408) (6,674,851) (2,753,755) (8,692,970) Other income (expense) Interest income 12,157 25,294 36,211 46,427 Interest expense (20,228) (18,104) (71,343) (53,380) --------------- -------------- -------------- -------------- Net loss $ (873,479) $ (6,667,661) $ (2,788,887) $ (8,699,923) =============== ============== ============== ============== Loss per share - basic and diluted $ (0.05) $ (0.41) $ (0.16) $ (0.59) =============== ============== ============== ============== Weighted average shares outstanding 17,539,808 16,270,717 17,150,216 14,644,727 =============== ============== ============== ==============
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 Preferred Stock Common Stock Paid-in Shares Amount Shares Amount Capital ------ ------ ------ ------ ------- Balance at January 1, 1999 - $ - 16,312,007 $16,312 $38,614,948 Private placement of common stock - - 1,116,000 1,116 2,746,884 Issuance of stock and warrants for earned services - - 64,800 65 176,904 Exercise of stock options - - 56,875 57 85,256 Extension of stock options - - - - 93,731 Issuance of shares for fractional interest on reverse split - - 3 - - Net loss - - - - - -------------------------------------------------------- Balance at September 30, 1999 - $ - 17,549,685 $17,550 $41,717,723 ======================================================== Net Accumulated Stockholders' Deficit Equity ------- ------ Balance at January 1, 1999 ($37,969,408) $ 661,852 Private placement of common stock - 2,748,000 Issuance of stock and warrants for earned services - 176,969 Exercise of stock options - 85,313 Extension of stock options - 93,731 Issuance of shares for fractional interest on reverse split - - Net loss (2,788,887) (2,788,887) ----------------------------- Balance at September 30, 1999 ($40,758,295) $ 976,978 =============================
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)
Nine Months Ended September 30, ------------------------------ 1999 1998 ---- ---- Cash flows from operating activities: Net loss $ (2,788,887) $ (8,699,923) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 83,766 65,934 Issuance of common stock and warrants for earned services 176,969 63,094 Extension of stock options 93,731 - Non-cash write-off of purchased research and development costs - 5,134,920 Provision for bad debts 496 69,123 Provision for inventory write-off 48,179 - Changes in operating assets and liabilities: Accounts receivable (250,146) 845,350 Inventories 896,739 (1,128,031) Prepaid expenses and other current assets (11,945) (483,775) Accounts payable (332,954) (63,467) Accrued expenses 382,234 23,054 Accrued costs related to dissolution of foreign subsidiary (27,913) (925) ------------ ------------ Net cash used by operating activities (1,729,731) (4,174,646) ------------ ------------ Cash flows from investing activities: Sale of marketable securities 251,485 2,119,159 Purchase of marketable securities - (2,525,000) Additions to property and equipment (38,856) (87,742) Additions to patents, trademarks and licenses (1,724) (63,877) ------------ ------------ Net cash provided (used) by investing activities 210,905 (557,460) ------------ ------------ Cash flows from financing activities: Borrowings under line of credit 184,000 1,082,513 Payments of line of credit (547,100) - Proceeds from issuance of common stock, net 2,748,000 3,592,800 Proceeds from exercise of stock options 85,313 58,426 ------------ ------------ Net cash provided by financing activities 2,470,213 4,733,739 ------------ ------------ Increase in cash and cash equivalents 951,387 1,633 Cash and cash equivalents at beginning of period 424,539 213,074 ------------ ------------ Cash and cash equivalents at end of period $ 1,375,926 $ 214,707 ============ ============ Supplemental cash flow disclosure: Cash paid during the period for interest $ 75,334 $ 53,710 ============ ============
See accompanying notes to consolidated condensed financial statements. Page 6 BIOLASE TECHNOLOGY, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS September 30, 1999 Note 1 - ------ The accompanying consolidated condensed financial statements of BioLase Technology, Inc. (the "Company") have been prepared by the Company without audit and do not include all disclosures required by generally accepted accounting principles for complete financial statements. The consolidated condensed balance sheet at December 31, 1998 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, the consolidated condensed financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial condition of the Company as of September 30, 1999 and the results of operations for the three and nine-month periods then ended. The Company's consolidated condensed financial statements have been presented on the basis that the Company will continue as a going-concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported net losses of $10,346,069, $2,823,910 and $2,463,259 for the years ended December 31, 1998, 1997 and 1996, respectively, and net losses of $873,479 and $2,788,887 for the three and nine- month periods ended September 30, 1999, respectively, and has an accumulated deficit of $40,758,295 at September 30, 1999. These recurring losses and the need for continued funding, discussed below, raise substantial doubt about the Company's ability to continue as a going-concern. The Company's business focuses on and is expected to continue to focus on the manufacturing and marketing of its Er, Cr:YSGG HydroKinetic(TM) laser-based tissue cutting system, the Millennium(R) initially for applications in the field of dentistry and its recently introduced diode laser systems, the Twilite(TM) and Hylite(TM), also for the field of dentistry. Financing the operations of the Company and the development of laser-based medical dental devices and instruments and the operations of the Company has been achieved principally through the private placements of preferred and common stock and the exercise of stock options and warrants. During the three years ended December 31, 1998, the Company has raised approximately $8,713,000 of equity funds. During the first quarter of 1999, the Company raised an additional $2,748,000, after commission and expenses, in equity funds. The Company believes that sales of its Millennium(R) system for certain dental hard tissue procedures coupled with sales from its recently introduced products, the Twilite(TM) and Hylite(TM) soft-tissue diode laser systems, should contribute to the Company's ability to generate working capital through higher sales volume and associated increased gross profits. Combined with the capital obtained during the first quarter of 1999 through the issuance of common stock, the Company expects to generate the necessary resources to continue with its 1999 and 2000 business plans through the sales of its products. Should its current operations fall short of providing such resources, the Company would need to obtain the necessary capital resources through other sources such as debt or equity financing. Page 7 No assurances can be given, however, that the Company will be able to achieve and sustain profitability or have other sources available to provide the capital resources necessary to continue its operations. If the Company were unable to obtain such financing, its ability to meet its obligations and to continue its operations would be adversely affected. The Company's consolidated condensed financial statements have been prepared under the assumption of a going concern. The consolidated condensed financial statements do not give effect to any adjustments that might be necessary if the Company were unable to meet its obligations or continue operations. Operating results for the three and nine-month periods ended September 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form 10-K, as amended, for the year ended December 31, 1998. Note 2 - ------
Inventories, net of reserves, September 30, 1999 December 31, 1998 consist of the following: (unaudited) ----------- ----------- Raw materials $ 532,929 $ 1,372,172 Work-in-process and subassemblies 432,847 183,889 Finished goods 19,423 374,056 ----------- ----------- $ 985,199 $ 1,930,117 =========== ===========
Note 3 - ------
Property and equipment, September 30, 1999 December 31, 1998 at cost, consist of the following: (unaudited) ----------- ----------- Leasehold improvements $ 170,927 $ 170,927 Equipment and computers 1,040,816 1,001,263 Furniture and fixtures 200,805 199,588 Demonstration units 247,354 247,354 ----------- ----------- Total cost 1,659,902 1,619,132 Less, accumulated depreciation and amortization (1,281,405) (1,211,990) ----------- ----------- $ 378,497 $ 407,142 =========== ===========
Page 8 Note 4 - ------
Accrued expenses consist of the following: September 30, 1999 December 31, 1998 (unaudited) ---------- -------- Accrued payroll and benefits $ 398,204 $152,124 Accrued professional fees 84,842 89,124 Accrued legal costs 165,240 144,166 Accrued warranty 131,000 40,315 Other 303,964 275,287 ---------- -------- $1,083,250 $701,016 ========== ========
Note 5 - ------ Basic and diluted loss per share is based on the weighted average number of common shares outstanding. Potential common stock, which consists of stock options and warrants, has been excluded from per share calculations, as the effect of the assumed exercise of this potential common stock is anti-dilutive at September 30, 1999 and 1998. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations. - -------------- Qualifying Statement With Respect To Forward-Looking Information: The United States Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. Such forward-looking statements are based upon the current expectations of the Company and speak only as of the date made. These forward-looking statements involve risks, uncertainties and other factors. The factors discussed below under "Forward- Looking Statements" and elsewhere in this Quarterly Report on Form 10-Q are among those factors that in some cases have affected the Company's historic results and could cause actual results in the future to differ significantly from the results anticipated in forward-looking statements made in this Quarterly Report on Form 10-Q, in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases and in oral statements made by authorized officers of the Company. When used in this Quarterly Report on Form 10-Q, the words "estimate," "project," "anticipate," "expect," "intend," "believe," "hope," "may" and similar expressions, as well as "will," "shall" and other indications of future tense, are intended to identify forward-looking statements. The following discussion should be read in conjunction with the consolidated condensed financial statements and notes thereto. Results of Operations - Three-month period ended September 30, 1999 as compared to the three-month period ended September 30, 1998: Sales for the three months ended September 30, 1999 were $2,012,824 compared to $87,686 for the same period in 1998, an increase of $1,925,138. The increase in sales Page 9 reported for the third quarter of 1999 compared to the same period in 1998 was due principally to increases in sales of the Company's Millennium(R) HydroKinetic laser system achieved primarily through the Company's increase in its domestic sales force, growing alliances with various international distributors and raising customer awareness of the Company's flagship laser product. 1999 third quarter sales did not include any royalty income from the licensing arrangement of the Company's LazerSmile(TM) tooth whitening technology to a consumer oriented distributor. The one-year exclusive licensing agreement calls for BioLase to receive royalties on a total annual minimum quota of 500,000 units. Advertising of the product under the name of IGEA LazerWhite Tooth Whitening System has been placed in various specialty catalogs and cosmetic publications by the Licensee and the Company has been informed that the creation of a television infomercial is in-process. Cost of sales as a percentage of sales improved to 59%, or $1,196,822, during the third quarter of 1999 compared to 232%, or $203,651, reported for the comparable period in 1998. The improvement in cost of sales as a percentage of sales for the third quarter of 1999 compared to the rate for the same period in 1998 was due principally to the increased sales volume combined with improved production efficiencies, partially offset by increased indirect expenses reflecting the Company's present growth. Gross profit increased $931,967 to $816,002 during the three months ended September 30, 1999 from a gross loss of $115,965 reported for the comparable period in 1998 due principally to the increase in sales and an improved absorption rate of fixed overhead costs. The gross profit improvement also reflects the inclusion in 1999 of cost-effective features designed into the Company's flagship product, the Millennium(R). Operating expenses decreased $4,877,476 to $1,681,410 during the three months ended September 30, 1999 compared to the same period in 1998 due principally to the absence in 1999 of a $5,134,920 write-off of purchased research and development costs present in the same period in 1998. Absent this write-off in 1998, operating expenses for the third quarter of 1999 compared to the same period in 1998 increased $257,444, or 18%, reflecting increases in sales and marketing expenses of $327,211, or 82%, offset by a decrease in engineering and development expenses of $73,210, or 12%, while general and administrative expenses remained similar between the two periods. The increase in sales and marketing expense was due principally to (i) the increased sales level, (ii) an increase in the Company's sales infrastructure and (iii) increased participation at professional trade shows, both nationally and internationally. The decrease in engineering and development expense was due principally to the absence of expenses related to the Company's redesign of the Millennium(R) hand piece present during 1998, partially offset by increases in employee related expenses associated with increased engineering staffing during the third quarter of 1999. Interest income for the three months ended September 30, 1999 decreased $13,137 to $12,157 compared to the $25,294 reported for the same period in 1998, due principally to reduced balances in the Company's interest bearing accounts for working capital use. Interest expense had a modest increase of $2,124 to $20,228 during the third quarter of 1999 as compared to the same period in 1998. The increase in interest expense was due principally to slightly higher average balances related to the financing of the Company's commercial insurance premiums in 1999 compared to the same period in 1998. The Company's net loss decreased $5,794,182 to $873,479, or $0.05 per share, for the three months ended September 30, 1999 from $6,667,661, or $0.41 per share, for the same period in 1998. The 1998 third quarter loss included a $5,134,920 write-off of purchased Page 10 research and development costs. Absent this write-off in 1998, comparative results would reflect a $659,262 improvement in the net loss position to $873,479, or $0.05 per share, for the three months ended September 30, 1999 from a comparative net loss of $1,532,741, or $0.09 per share, for the same period in 1998. The reduction in the per share loss for the third quarter of 1999 was enhanced by an 8% increase in weighted average shares outstanding. Results of Operations - Nine-month period ended September 30, 1999 as compared to the nine-month period ended September 30, 1998: Sales during the first nine months of 1999 were $5,205,062 compared to $586,303 for the same period in 1998, an increase of $4,618,759. The increase was due principally to increases in sales of the Company's Millennium(R) HydroKinetic laser system. During the second quarter of 1999, the Company announced an exclusive distribution agreement with a home-consumer product distributor to manufacture and market the Company's LazerSmile Tooth Whitening product under the name IGEA LazerWhite Tooth Whitening System. The agreement provides for a royalty to be paid to the Company and includes a minimum annual sales quota of 500,000 units. The Company has received certain prepaid royalties against future sales of the LazerWhite system. Cost of sales as a percentage of sales improved to 58%, or $3,032,791, during the first nine months of 1999 compared to 120%, or $704,819, reported for the comparable period in 1998. The improvement in cost of sales as a percentage of sales for the first nine months of 1999 compared to the rate for the same period in 1998 was due principally to the increased sales volume combined with improved production efficiencies, partially offset by increased indirect expenses reflecting the Company's present growth. Gross profit for the first nine months of 1999 increased to $2,172,271, or 42% of sales, from a gross loss of $118,516 reported for the same period in 1998. The increase is due principally to higher sales volume and an improved absorption rate of fixed overhead costs, as well as the inclusion in 1999 of cost-effective features designed into the Company's flagship product, the Millennium(R). Operating expenses for the first nine months of 1999 increased $1,486,492, or 43%, compared to the same period in 1998, absent the write-off of purchased research and development costs recorded in 1998. Sales and marketing expenses during the first nine months of 1999 increased $901,259, or 93%, to $1,870,710 from the $969,451 reported for the same period in 1998, due principally to the significant rise in domestic and international sales volume. General and administrative expense during the first nine months of 1999 increased $407,227, or 36%, to $1,546,894 from $1,139,667 reported during the same period in 1998, due largely to increases in a severance arrangement and employee-related expenses absent during the same period in 1998. Engineering and development expenses increased $178,006, or 13%, to $1,508,422 from the $1,330,416 reported for the same period in 1998. The increase was due principally to higher engineering consulting fees and increased engineering staffing during 1999 to coincide with the Company's present growth. Interest income for the first nine months of 1999 was $36,211, a decrease of $10,216, or 22%, from the $46,427 reported for the same period in 1998, while interest expense increased $17,963, or 34%, to $71,343 from the $53,380 reported during the same period in 1998. The decrease in interest income was due to lower average balances of cash and marketable securities during the 1999 period compared to the balances held in interest-bearing accounts during Page 11 the 1998 period. The increase in interest expense was due principally to higher average outstanding balances under the Company's line of credit and financed insurance premiums during the first nine months of 1999 compared to 1998, with slightly higher interest rates experienced in 1999 versus 1998. The Company's net loss improved to $2,788,887, or $0.16 per share, for the first nine months of 1999 compared to a net loss of $8,699,923, or $0.59 per share, for the same period in 1998. The net loss for 1998 included a $5,134,920 write-off of purchased research and development costs; absent this write-off in 1998, the net loss would have been $3,565,003. Comparative results between the first nine months of 1999 versus 1998, excluding the $5,134,920 write-off in 1998, would be $2,788,887, or $0.16 per share, and $3,565,003, or $0.24 per share, respectively, an improvement in 1999 of $776,116, or 22% over 1998. The reduction in the per share loss for the first nine months of 1999 was enhanced by a 17% increase in weighted average shares outstanding. Acquisition of Laser Skin Toner, Inc. On July 2, 1998, the Company acquired substantially all of the assets of Laser Skin Toner, Inc., a development stage company ("LSTI"). The assets acquired related primarily to the proprietary in-process laser-based technology being developed by LSTI for non invasive laser treatment in the field of aesthetic skin rejuvenation, including all intellectual property rights consisting of patents, patent applications, a trademark application and certain know-how. At the time of the acquisition, the intellectual property embodying this developmental effort represented substantially all of LSTI's assets, and the developmental efforts did not appear applicable to any alternative use. At the time of acquisition, the Company intended to proceed with those additional research and development efforts needed to bring the product to market and to fund the costs from working capital. In anticipation of and then in response to the clearance it received in October 1998 from the FDA to market its Millennium(R) tissue cutting system for dental hard tissue applications, the Company shortly after acquiring the LSTI technology decided to focus its limited resources on the marketing of its Millennium(R) system, including a build-up of inventory and expansion of sales staff. The Company, though, did continue the clinical trials related to the LSTI technology. The Company has since determined that it is in the best interests of its stockholders to continue its focus on the marketing and further enhancement of products embodying its HydroKinetic technology, including its Millennium(R) system, and not to further develop the LSTI technology. The Company's efforts devoted to the LSTI technology since the date of acquisition have not provided a basis for the Company either to revise or to validate its estimates made at the time of acquisition regarding the time and resources required to complete the development of the LSTI technology. Financial Condition Cash and cash equivalents increased from $424,539 at December 31, 1998 to $1,375,926 at September 30, 1999 principally as a result of a private placement of Company common stock and stock purchase warrants in March 1999 that generated net proceeds of Page 12 $2,748,000 and the sale of $251,485 of marketable securities. These increases in cash and cash equivalents were offset primarily by cash used by operating activities aggregating $1,729,731, capital expenditures of $38,856 and a net $363,100 reduction in the balance outstanding under a bank line of credit. Marketable securities decreased $251,485 from December 31, 1998 to September 30, 1999 as a result of the sale of the securities, with the proceeds being placed in a money market account that is classified as a cash equivalent for use as working capital. Accounts receivable increased $249,650 from the $563,236 reported at December 31, 1998 to $812,886 at September 30, 1999. The increase is due principally to orders shipped at the end of September 1999 for which payments were received in October 1999. Inventories at September 30, 1999 were $985,199 compared to $1,930,117 at December 31, 1998, a decrease of $944,918. The decrease was due principally to the Company's use of higher levels of inventory and improved inventory management. The Company believes that its business does not presently operate in a normalized cycle in which information regarding inventory turns would be meaningful but that such information will become meaningful once productions and deliveries of Millennium(R) systems are normalized. Prepaid expenses and other current assets at September 30, 1999 were comparable to those reported at December 31, 1998. Current liabilities decreased $341,733 from December 31, 1998 to September 30, 1999, due principally to net repayments made on a line of credit amounting to $363,100 and reductions in accounts payable of $332,954, offset principally by a $382,234 increase in accrued expenses. The increase in accrued expenses consists principally of increases in (i) employee related expenses due to the Company's 1999 change in its payroll cycle, (ii) warranty reserves due to the greater number of laser systems in the field, and (iii) other accrued expenses associated with the Company's growth. Capital expenditures during the first nine months of 1999 totaled $38,856 related primarily to the purchase of personal computers to accommodate the increase in personnel at the Company. Patents, trademarks and licenses were comparable to those reported at December 31, 1998, less normal amortization for the first nine months of 1999. Stockholders' equity increased $315,126 to $976,978 at September 30, 1999 from $661,852 at December 31, 1998 due to (i) net proceeds of $2,748,000 received from a private placement in March, 1999, (ii) proceeds of $85,313 received from the exercise of stock options, (iii) issuance of stock and warrants for earned services aggregating $176,969, and (iv) a $93,731 value ascribed to an extension of stock options related to a severance agreement; all of which was offset by the 1999 nine-month loss of $2,788,887. Liquidity and Capital Resources The Company's business now focuses on and is expected to continue to focus on the manufacturing and marketing of its Er,Cr:YSGG HydroKinetic(TM) tissue cutting system, the Millennium(R) and its recently introduced Twilite(TM) and Hylite(TM) diode laser systems, initially for applications in the field of dentistry. Financing the development of laser-based medical and dental devices and instruments and the operations of the Company has been achieved principally through the private Page 13 placements of preferred and common stock and the exercise of stock options and warrants. During the three years ended December 31, 1998, the Company has raised approximately $8,713,000 of equity funds. During the first quarter of 1999, the Company raised an additional $2,748,000, after commission and expenses, in equity funds. The Company's increased sales of its flagship product, the Millennium(R) system for certain dental hard and soft tissue procedures, combined with sales from the Company's recently introduced products, the Twilite(TM) and Hylite(TM) soft-tissue diode laser systems, should contribute to the Company's ability to generate working capital through higher sales volume and associated increased gross profits. Combined with the capital generated from the March 1999 issuance and sale of securities, the Company expects to generate the necessary resources to continue with its 1999 and 2000 business plans through the sales of its products. Should its current operations fall short of providing such resources, the Company would need to obtain the necessary capital resources through other sources such as debt or equity financing. No assurances can be given, however, that the Company will be able to achieve and sustain profitability or have other sources available to provide the capital resources necessary to continue its operations. If the Company were unable to obtain such financing, its ability to meet its obligations and to continue its operations would be adversely affected. The Company's financial statements have been prepared under the assumption of a going concern. The consolidated condensed financial statements do not give effect to any adjustments that might be necessary if the Company were unable to meet its obligations or continue operations. At September 30, 1999, the Company had $1,341,925 outstanding under a revolving credit agreement with a bank. The revolving credit agreement provides for borrowings of up to $2,500,000 for the financing of inventory and is collateralized by substantially all of the Company's accounts receivable and inventories. The interest rate is fixed throughout the term of the credit agreement and is computed based upon LIBOR plus 0.5% at the time of any borrowings. The Company is required to reduce the outstanding loan balance by an amount equal to the cost of goods sold associated with sales of inventory upon collection of sales proceeds. The current revolving credit agreement expires on December 1, 1999, by which time the Company hopes to negotiate a renewal of the present line with its present bank or establish a replacement line with another bank. The Company will be required to renew, pay off or refinance the existing line of credit by December 1, 1999. No assurances can be given that the Company will be able to renew or refinance the line of credit or that the terms on which it may be able to renew or refinance the line of credit will be as favorable as the terms of the existing line. If the Company is unable to renew or refinance and therefore required to repay the line of credit, the diversion of resources to that purpose may adversely affect the Company's operations and financial condition. The Company has received a verbal commitment by the same bank to renew the revolving credit agreement for one year to December 1, 2000 under the same terms and conditions in place with the present revolving credit agreement. The Company and bank are in the process of consummating the renewal agreement and anticipate execution of the renewal agreement by December 1, 1999. The Company is presently continuing its analysis of its computer software and hardware requirements. Its present software and hardware is personal computer based and is unaltered from its original purchased state except for those upgrades offered by the suppliers of such software. The Company has received assurances from the suppliers of the software it presently employs that such software Page 14 is Year 2000 ("Y2K") compliant. The Y2K problem arises out of the convention by which years have been represented in computer programs by a two digit number representing the final two digits in the year's designation and concern that time sensitive components could fail or provide erroneous output if they do not correctly recognize years beginning with 20 rather than 19. The Company currently has limited information regarding the Y2K compliance status of its principal suppliers of goods and services and of its principal customers. The Company has initiated formal communications with all such suppliers and customers with respect to the status of such persons' computer systems in terms of Y2K compliance. If any suppliers or principal customers lack systems that are Y2K compliant, the Company will attempt to establish communications channels with such suppliers and customers that bypass the non- compliant computer systems. There is a single source supplier of optic fiber for the Millennium(R) which could not be easily replaced if it has non-compliant systems, and in the event such supplier had a non-compliant system, the Company would attempt to also establish communications channels with such supplier that bypass the supplier's non-compliant computer system. There can be no assurance however that the Company would be successful in establishing such communications channels or locating new suppliers and an inability to do so could create difficulties in the Company obtaining certain components used in its manufacturing process. The Company believes that the costs associated with monitoring Y2K compliance by suppliers and customers and dealing with any non- compliance will not be material. Should any of the Company's principal suppliers and customers fail to become Y2K compliant in a timely manner and should the Company be unable to establish alternate communications channels, the impact could result in a material adverse effect on the Company's business, financial condition, results of operations and cash flow. Item 3. Quantitative and Qualitative Disclosures about Market Risk. - -------------------------------------------------------------------- Not Applicable Page 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings. - --------------------------- See Item 3 "Legal Proceedings" included within the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1998 for information regarding certain pending legal proceedings. From time to time, the Company is involved in legal proceedings incidental to its business. It is management's opinion that pending actions, individually and in the aggregate, will not have a material adverse effect on the Company's financial condition, and that adequate provision has been made for the resolution of such actions and proceedings. Item 2. Changes in Securities. - ------------------------------- None Item 3. Defaults Upon Senior Securities. - ----------------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- None Item 5. Other Information. - --------------------------- None Item 6. Exhibits and Reports on Form 8-K. - ------------------------------------------ (a) Exhibits 27. Financial Data Schedule (electronic filing only) (b) Reports on Form 8-K None Page 16 SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BIOLASE TECHNOLOGY, INC. a Delaware Corporation Date: November 15, 1999 /s/ Jeffrey W. Jones ---------------------- --------------------------- Jeffrey W. Jones President & Chief Executive Officer Date: November 15, 1999 /s/ Stephen R. Tartamella --------------------- --------------------------- Stephen R. Tartamella Vice President & Chief Financial Officer Page 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED CONDENSED BALANCE SHEET AT SEPTEMBER 30, 1999 AND ITS CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 JUL-01-1999 SEP-30-1999 1,375,926 0 931,937 (118,511) 985,199 3,337,256 1,659,902 (1,281,405) 3,884,765 2,907,787 0 0 0 17,550 959,428 3,884,765 2,012,824 2,012,824 1,196,822 1,196,822 548,355 0 20,228 (873,479) 0 (873,479) 0 0 0 (873,479) (0.05) (0.05)
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