10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

¨ 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 000-19627

BIOLASE TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	87-0442441
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

981 Calle Amanecer

San Clemente, California 92673

(Address of Principal Executive Offices, including zip code)

(949) 361-1200

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.001 per share

(Title of class)

Indicate by check mark 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  ¨    No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

[Cover page 1 of 2 pages]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes  x    No  ¨

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter:

As of June 30, 2002, the aggregate market value of the voting and non-voting common equity held by non-affiliates was $102,142,534, based on the closing price per share of $5.79 for the Registrant’s common stock as reported on the Nasdaq National Market on such date multiplied by 20,027,948 shares of the Registrant’s common stock which were outstanding and held by non-affiliates on such date.

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: As of August 31, 2003, there were 21,539,571 shares of the Registrant’s common stock, par value $0.001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required in Part III of the Registrant’s Annual Report on Form 10-K for December 31, 2002, was incorporated therein by reference to portions of the Registrant’s definitive proxy statement for the Registrant’s 2003 Annual Meeting of Stockholders, which was filed with the Securities and Exchange Commission on March 27, 2003.

[Cover page 2 of 2 pages]

BIOLASE TECHNOLOGY, INC. AND SUBSIDIARIES

AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-K/A

FOR THE YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS*

	PART I
Item 1.	Business	5
	Available Information	14
Item 3.	Legal Proceedings	15
	PART II
Item 6.	Selected Consolidated Financial Data	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 8.	Financial Statements and Supplementary Data	39
Item 9A	Controls and Procedures	39
	PART III
Item 11.	Executive Compensation	41
	PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K.	43

* This Form 10-K/A amends only items identified in the Table of Contents, and no other information included in the Company’s Annual Report on Form 10-K is amended hereby. Information previously required under Item 14 of the Company’s Annual Report on Form 10-K is set forth under Item 9A of this Form 10-K/A, pursuant to new rules adopted after the original filing of the Form 10-K.

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INTRODUCTORY NOTE

As reported in the press release in the report of BioLase Technology, Inc. (the “Company”) on Form 8-K filed August 14, 2003, the Company decided to seek guidance from the Securities and Exchange Commission (“SEC”) regarding the accounting effect of certain language in the Company’s purchase order forms. To protect the Company’s right to payment, the forms stated that title to goods transferred to the customer upon receipt of full payment. Legally, this language only provided the Company a lien to secure payment.

One of the revenue recognition criteria of Staff Accounting Bulletin No. 101 (“SAB 101”), Revenue Recognition in Financial Statements, requires the transfer of title and the risks and rewards of ownership to the customer. Historically, the Company recognized revenue when it received a purchase order, goods were shipped and the other criteria for revenue recognition were met. As reported in the press release in the Company’s report on Form 8-K filed August 29, 2003, the Company is amending previously filed financial statements for all periods subsequent to the effective date of SAB 101 to recognize revenue with respect to domestic customers upon receipt of full payment. It was determined that under an interpretation of SAB 101 the language in the Company’s purchase order regarding title prevents revenue from being recognized until full payment is received. In addition, the Company is amending its previously filed financial statements to recognize revenue with respect to direct European customers upon installation of the equipment, which is when the customer is obligated to pay, and not upon shipment.

The purpose of this Amendment No. 1 on Form 10-K/A to the Company’s Annual Report is to:

(i) restate the Company’s consolidated financial statements as of December 31, 2002 and 2001, and for each of the three years ended December 31, 2002; and

(ii) modify certain disclosures in response to comments from the SEC in connection with the Company’s registration statement on Form S-3 filed on June 19, 2003 for the Company’s proposed stock offering.

In addition to this report on Form 10-K/A, the Company is filing amended Quarterly Reports on Form 10-Q/A to restate the Company’s financial statements for the periods ended March 31, 2002 through March 31, 2003. The Company is also filing its Quarterly Report on Form 10-Q for the period ended June 30, 2003, which was delayed while the Company sought SEC guidance on the revenue recognition issue. The Company will also file an amendment to its Current Report on Form 8-K/A relating to its acquisition of the American Dental Laser product line of American Medical Technologies, which was initially filed on June 4, 2003, and subsequently amended on June 23, 2003 and August 1, 2003.

The Company did not amend its annual reports on Form 10-K for years prior to 2002 because financial statements for 2001 and 2000 are contained in this Form 10-K/A. Similarly, the Company did not amend its Quarterly Reports on Form 10-Q for the quarterly periods in 2001 because financial statements for those periods are contained in the Forms 10-Q/A the Company is filing for 2002. You should not rely on the financial statements and other financial information contained in the Company’s Forms 10-K and 10-Q for periods prior to 2002. You should also not rely on any financial statements or financial information contained in the Company’s Forms 8-K that were filed before this Form 10-K/A.

Except where this report indicates that information is as of December 31, 2002 or another specific date, the information in this Form 10-K/A speaks as of the filing date of this Form 10-K/A. This report should be read in conjunction with Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2003 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, as well as the Company’s subsequent filings.

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CAUTIONARY STATEMENT

This report contains forward-looking statements, which include, but are not limited to, statements concerning projected operational plans, results of operations and financial condition, potential market applications and the market acceptance of our products, the competitive nature of and anticipated growth in our markets and the need for additional capital. These forward-looking statements are based on our current expectations, estimates, assumptions and projections about our industry and reflect management’s beliefs based on information available to us at the time of this report. Words such as “anticipates,” “expects,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” and variations of these words or similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict, including those set forth under “Risk Factors” in Item 7. These risks and uncertainties, some of which are more fully discussed below and in our other filings with the Securities and Exchange Commission include but are not limited to the following:

• Uncertainties relating to worldwide political stability, general economic conditions and trade policies;

• Uncertainties relating to government and regulatory policies;

• Unforeseen technological developments by competitors;

• The entry of new, well-capitalized competitors;

• The availability and pricing of materials used in the manufacture of our products;

• Uncertainties relating to the development, ownership and enforcement of intellectual property rights;

• Adverse changes in the financing and coverage of commercial health and dental plans;

• Adverse changes in the financial markets affecting the availability and cost of capital;

• The impact of natural disasters, including a major earthquake, on our operations; or

• The ability to attract and retain qualified personnel to grow and compete effectively.

Due to the foregoing risks and uncertainties, among others, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

The information contained in this report is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in the report and in our other reports filed with the Securities and Exchange Commission.

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PART 1

Item 1. Business

We design, manufacture and market proprietary dental laser systems that allow dentists, oral surgeons and other specialists to perform a broad range of common dental procedures, including cosmetic applications. Our systems provide clinically superior performance for many types of dental procedures, with less pain and faster recovery times than are generally achieved with drills and other dental instruments. We have clearance from the U.S. Food and Drug Administration to market our laser systems in the United States. We also have the approvals necessary to sell our laser systems in Canada, the European Union and other international markets.

Our primary product, the Waterlase system, uses a patented combination of water and laser to perform most procedures currently performed using dental drills, scalpels and other traditional dental instruments. We refer to our patented interaction of water with laser as YSGG Laser Hydrokinetics. YSGG is a shortened abbreviation referring to the unique crystal (Er, Cr: YSGG) laser used in the Waterlase, which contains the elements erbium, chromium, yttrium, scandium, gallium and garnet. This unique crystal laser produces energy with specific absorption and tissue interaction characteristics optimized for dental applications. Hydrokinetics refers to the interaction of laser with water to produce energy to cut tissue. Through YSGG Laser Hydrokinetics, the Waterlase system can precisely cut hard tissue, such as bone and teeth, and soft tissue, such as gums, with minimal or no damage to surrounding tissue. The Waterlase is the best selling dental laser system and we estimate it currently accounts for a majority of all dental lasers sold worldwide.

We also offer the LaserSmile system, which uses a laser to perform soft tissue and cosmetic procedures, including tooth whitening. The LaserSmile serves the growing markets for cosmetic and hygiene procedures. In May 2003, we acquired the American Dental Laser product line of American Medical Technologies, Inc., including the Diolase and Pulsemaster systems, which can be used for common soft tissue procedures. The Diolase and Pulsemaster, together with our Waterlase and LaserSmile systems, offer practitioners a broad product line with a range of features and price points. We also manufacture and sell accessories and disposables for our laser systems, such as handpieces, laser tips and tooth whitening gel.

We believe there is a large market for our products in the United States and abroad. According to the American Dental Association, there are over 160,000 practicing dentists in the United States. According to the World Federation of Dentistry, an international dental organization, there are at least 700,000 dentists worldwide, and we believe that a substantial percentage of them practice in major international markets outside the United States. The use of lasers in dentistry is growing. However, we believe only a small percentage of dentists currently use laser systems, and that there is a significant opportunity to increase sales of our products worldwide.

Our goal is to establish our laser systems as essential tools in dentistry and to continue our leading position in the dental laser market. Our sales and marketing efforts focus on educating dental professionals and patients on the benefits of our laser systems, particularly our Waterlase system. In 2002, we founded the World Clinical Laser Institute, an association that includes prominent dental industry leaders, to formalize our efforts to educate and train dentists and oral surgeons in laser dentistry. We participate in numerous other symposia and dental industry events to stimulate demand for our products. We have also developed numerous relationships with dental schools, research facilities and dental institutions, in the United States and abroad, which use our products for education and training. More than 20 institutions use our products, including St. Barnabas Hospital and the dental schools of Columbia University, Loma Linda University, Tufts University, University of Barcelona and University of Vienna. We believe this will expand awareness of our products among new generations of dental professionals.

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Company Background and Recent Events

From inception in 1987 until 1998, we were engaged primarily in the research and development of the use of water and laser technology. Our company was originally formed as Societe Endo Technic, SA, or SET, in 1984 in Marseilles, France, to develop and market various endodontic and laser products developed by Dr. Guy Levy, then chairman of the Endodontics Department at the University of Marseilles. In 1987, SET was moved to the United States and was merged with a public holding company, Pamplona Capital Corp. In 1994, we changed our name to BioLase Technology, Inc. Through the end of fiscal 2000, we were financed by approximately $42 million in stockholder investments through a series of private placements of stock and the exercise of warrants and stock options.

Since 1998, our objective has been to become the leading designer, manufacturer and marketer of laser systems for the dental industry. We have focused our efforts on receiving governmental clearances with the U.S. Food and Drug Administration as well as furthering the commercial success and viability of our water and laser technology via our direct sales campaign initiatives and intellectual property advancements. In 1998, we began the commercialization of our systems based on water and laser technology.

The selective pursuit of acquisitions represents an important component of our business strategy. We focus primarily on those candidates that will enable us to consolidate positions of leadership in our existing markets, further develop our portfolio of intellectual property, expand our strategic partnerships with leading companies and increase our capability and capacity to derive value for our customers and stockholders.

In December 2001, we formed BIOLASE Europe, GmbH, a wholly owned subsidiary based in Germany. In February 2002, BIOLASE Europe acquired a laser manufacturing facility in Germany and commenced manufacturing operations at that location. This acquisition has enabled us to initiate an expansion of our sales in Europe and neighboring regions. We purchased the facility for cash consideration of approximately Euros 1.2 million payable in installments through 2003, subject to reduction if we were unable to conclude a patent license arrangement with the seller and another company. We did not conclude that arrangement and the consideration was reduced in September 2003 to Euros 989,000 per the agreement. We are in discussions with the seller regarding a further reduction based on our belief that the seller failed to fulfill its responsibilities under the purchase agreement.

On May 21, 2003, we acquired the American Dental Laser product line and other dental laser assets of American Medical Technologies, Inc., or AMT, for approximately $5.8 million, consisting of $1.8 million in cash, 307,500 shares of our common stock and $134,000 in costs directly attributable to the acquisition. As a part of the purchase transaction, we and AMT agreed to dismiss with prejudice the lawsuit we had filed in October 2002 against AMT which alleged infringement of certain of our patents. In the dismissal, AMT acknowledged that it had infringed our intellectual property rights as identified in our complaint and recognized that the patents we had asserted in the legal action are valid and enforceable. The acquired assets included dental laser patents, customer lists, brand names and other intellectual property as well as laser systems, including the Diolase and Pulsemaster systems. The purchase price will be allocated to the assets based on their fair value. We intend to sell the Diolase and Pulsemaster systems both domestically and internationally under the American Dental Laser brand name, commencing in the second half of 2003. We expect sales of the new systems to begin in the second half of 2003.

Products

We have two principal product lines. Our BioLase product line includes the Waterlase and LaserSmile systems, which we developed through our own research and development. In May 2003, we acquired the American Dental Laser product line, which includes the Diolase and Pulsemaster systems.

We currently sell our products in over 20 countries. All of our laser systems have been cleared by the U.S. Food and Drug Administration for the applications listed below, which enables us to market the systems in the United States. Our systems have the CE Mark and may be sold in the European Union. Additionally, we have approval to sell our Waterlase system in Canada, Australia, New Zealand and other Pacific Rim countries.

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PRODUCT	SELECTED APPLICATIONS	TECHNOLOGY
BioLase Product Line
Waterlase System	Hard Tissue: Cavity preparation, caries removal, roughening or etching, root canal and other hard tissue surgical applications. Bone: Cutting, shaping, contouring, resection, crown lengthening (restorative), apicoectomy or amputation of root end, and other oral osseous or bone procedures. Soft Tissue: Incision, excision and biopsy of soft tissue, frenectomy, troughing, fibroma removal, hemostasis, aphthous oral ulcers, operculectomy and other soft tissue surgical applications. Cosmetic: Gingivectomy, gingivoplasty and crown lengthening.	Solid State Crystal, Erbium, Chromium: Yttrium, Scandium, Gallium, Garnet (Er, Cr: YSGG), Laser with Air-Water Spray
LaserSmile System	Soft Tissue: Incision, excision and biopsy of soft tissue, frenectomy, troughing, gingivoplasty and other soft tissue surgical applications. Cosmetic: Gingivectomy, gingivoplasty and tooth whitening.	Semiconductor Diode Laser
American Dental Laser Product Line
Diolase System	Soft Tissue: Incision, excision and biopsy of soft tissue, frenectomy, troughing and other soft tissue surgical applications. Cosmetic: Gingivectomy and gingivoplasty.	Semiconductor Diode Laser
Pulsemaster System	Soft Tissue: Incision, excision and biopsy of soft tissue, frenectomy, troughing, gingivectomy, gingivoplasty and other soft tissue surgical applications. Cosmetic: Gingivectomy and gingivoplasty.	Neodymium: Yttrium, Aluminum, Garnet (Nd:YAG), Crystal Laser

BioLase Product Line

The following are the two laser systems developed by our in-house team of engineers.

Waterlase System. The Waterlase laser uses an Er, Cr: YSGG crystal, which produces a unique wavelength optimized for dental applications. Using YSGG Laser Hydrokinetics, the Waterlase enables highly

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controlled cutting of bone and tooth with minimal to no damage to surrounding tissue, resulting in less trauma and pain than is achieved with dental drills or other dental instruments. The Waterlase can cut teeth or bone in narrow spaces with limited access for conventional instruments. By reducing or eliminating the water spray level, the Waterlase can also be used to perform a number of soft tissue procedures. Our Waterlase cuts soft tissue efficiently and provides effective coagulation in many types of soft tissue procedures. The approximate list price of the Waterlase system is $50,000.

LaserSmile System. The LaserSmile system uses a semiconductor diode laser primarily for use in soft tissue and cosmetic procedures, particularly tooth whitening. For tooth whitening, the LaserSmile is used with our proprietary gel to whiten teeth faster than competitive non-laser whitening systems. In addition, the high power of the LaserSmile makes it particularly effective in soft tissue procedures where deeper penetration and faster coagulation is desired. The approximate list price of the LaserSmile system is $23,000.

American Dental Laser Product Line

In May 2003, we acquired the American Dental Laser product line, including the Diolase and Pulsemaster systems. We believe that the Diolase system complements our Waterlase and LaserSmile systems and will enable us to increase market penetration by offering a broad line of laser systems with a range of features and price points.

Diolase System. Our recently acquired Diolase system uses a semiconductor diode laser for a range of dental soft tissue, cosmetic and hygiene procedures. The Diolase has simpler features than our other systems, and is positioned as an entry level laser system. The approximate list price of the Diolase system is $14,000.

Pulsemaster System. Our recently acquired Pulsemaster system uses the popular Nd:YAG crystal that is broadly accepted for a variety of soft tissue procedures. The Pulsemaster system is well established and has been adopted by many dental practitioners, especially for periodontal procedures. The Pulsemaster system performs many of the same functions as our existing LaserSmile system. As a result, we plan to make the Pulsemaster available only in limited quantities, on a made-for-order basis, to dental practitioners who express a strong preference for that system. The approximate list price of the Pulsemaster system is $27,500.

Related Accessories and Disposable Products

We also manufacture and sell disposable products and accessories for our laser systems. Our Waterlase system uses disposable laser tips of differing sizes and shapes depending on the procedures being performed. We also market flexible fibers, handpieces, tooth whitening gel and aftercare products for our LaserSmile system. In connection with our acquisition of the American Dental Laser product line, we acquired a complete line of accessories for the Diolase and Pulsemaster systems, as well as other accessories marketed under the American Dental Laser brand name.

Warranties and Insurance

Our laser systems sold to end-users and distributors are covered by a one-year and fourteen-month warranty, respectively, against defects in material and workmanship. Our warranty covers parts and service for direct sales and parts only for distributor sales with additional coverage on certain components for up to two years. We sell service contracts that cover the period after the expiration of our standard warranty coverage for our laser systems. Extended warranty coverage provided under our service contracts varies by the type of system and the level of service desired by the customer. In addition, we maintain product liability insurance with respect to our products with a general coverage limit of $12 million in the aggregate. Since commencing the sale of our systems, no product liability claims have been initiated against us.

Manufacturing

We manufacture, assemble and test our products at manufacturing facilities located in San Clemente, California, and Floss, Germany. We acquired our German manufacturing facility in 2002. We manufacture and install our systems and provide maintenance services for products sold in Europe and other international markets

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through our German operations. Sales of products manufactured at our German facility accounted for 9% of our revenue in 2002.

We use an integrated approach to manufacturing, including the assembly of laser heads, electronics and cabinetry, which allows us to maintain high quality and control cost. We obtain components and subassemblies for our products from third party suppliers, most of which are located in the United States. We generally purchase components and subassemblies from a limited group of suppliers through purchase orders. We have no written supply contracts with our key suppliers. Three key components used in our Waterlase system, which accounted for approximately 77% of our revenue in 2002, are each supplied by a separate single-source supplier. The Waterlase hand pieces are made by a leading European supplier of precision hand tools, and the laser crystal and fiber components are each made by a separate supplier. We have not experienced material delays from the suppliers of these three key components, and we have identified and tested alternative suppliers for each of these components. However, an unexpected interruption in a single source supplier could create manufacturing delays, and disrupt sales as we sought to replace the supplier, which we estimate could take up to three months.

Our manufacturing facilities are ISO 9001 certified. ISO 9001 certification provides guidelines for quality of company systems associated with the design, manufacturing, installation and servicing of company products. In addition, both the U.S. and German facilities are registered with the U.S. Food and Drug Administration and are compliant with the FDA’s Good Manufacturing Practice guidelines.

Marketing and Sales

Marketing

We currently market our laser systems in the United States, Canada, Australia and various countries throughout Europe and the Pacific Rim. Our marketing efforts are focused on increasing brand and specific product awareness among dental practitioners. We recently began efforts to increase awareness of the benefits of our products by marketing directly to patients.

Dental Practitioners. We currently market our laser systems directly to dental practitioners through regional, national and international trade shows and seminars. We also use brochures, direct mailers, press releases, posters and other promotional materials, as well as print and electronic media news coverage. In 2002, we founded the World Clinical Laser Institute to formalize our efforts to educate and train dental practitioners in laser dentistry. The Institute conducts and sponsors educational programs domestically and internationally for dental practitioners, researchers and academicians, including two or three day seminars and training sessions involving in-depth discussions on the use of lasers in dentistry. In addition, we have developed relationships with research institutions, dental schools and clinical laboratories, which use our products in training and demonstrations. We believe these relationships will increase awareness of our products.

Patients. We recently began to market the benefits of our laser systems directly to patients through marketing and advertising programs, including print media and radio spots, sponsored jointly by dental practitioners and us in selected markets that we feel have strong growth potential. We believe that making patients aware of our laser systems and their benefits will increase demand for our products.

Sales

We currently sell our products primarily to dentists in general practice. The majority of the dentists in the United States, as well as the majority of our customers, are sole practitioners. As awareness of our laser systems increases, we expect an increase in demand for our products among group practices. We also expect our laser systems to gain acceptance among oral surgeons and other dental specialists, as they become better aware of the clinical benefits and new treatment options available through use of our laser systems.

International sales account for a significant portion of our revenue. International sales accounted for approximately 23% of our revenue in 2002, 20% of our revenue in 2001 and 41% of our revenue in 2000. Sales in Asia, Pacific Rim countries and Australia accounted for approximately 12% of our revenue in 2002, while sales in

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Europe and Canada accounted for 11% and 1% of our 2002 revenue, respectively. In 2001, sales in Europe accounted for approximately 9% of revenue for the year, whereas sales in Asia and Pacific Rim countries accounted for approximately 8% of the revenue. In 2000, sales in Europe accounted for approximately 24% of our revenue for the year, and sales in Asia and Pacific Rim countries accounted for approximately 11% of the revenue for the year.

Direct Sales. We sell products in the United States and Canada through our direct sales force, which is organized by region and consists of two regional managers and approximately 25 sales representatives. Each of our direct sales employees receives a base salary and commissions on sales. We plan to expand our direct sales force in territories that represent growing markets. We sell products in Germany through independent sales representatives who receive commissions on sales.

Distributors. Except for sales in Canada and Germany, we sell products outside the United States primarily through a network of independent distributors located in Europe, Asia and Australia. Generally, our distributors enter into exclusive agreements in which they purchase systems and disposables from us at a wholesale dealer price and resell them to dentists in their sales territories. All sales to distributors are final and we can terminate our arrangements with dealers and distributors for cause or non-performance. We have exclusive arrangements with certain distributors for select territories, under which distributors are generally required to satisfy certain minimum purchase requirements to maintain exclusivity. Sales to distributors are generally paid in advance or secured with a letter of credit.

Seasonality. We have experienced a distinct seasonal pattern over the past several years. The fourth quarter, ending December 31, has generally been the strongest quarter, and in 2002 accounted for approximately 30% of our revenue. By contrast, the first quarter is generally the slowest sales quarter and in 2002 accounted for only 18% of 2002 revenue. The second quarter is generally stronger than the first quarter and in 2002 accounted for approximately 27% of our 2002 revenue. The third quarter has generally been flat compared to the second quarter and accounted for approximately 25% of our revenue in 2002. We believe the seasonality demonstrated in the fourth and first quarters is due to the buying patterns of many dentists, including the response to certain tax advantages offered in the United States for capital equipment purchases. We also believe the lack of growth in the third quarter compared to the second quarter is due to general practice patterns in which vacations occur in the third quarter of the year. As a result of this seasonality, our growth metrics compare growth in a quarter to the same quarter in the prior year and is not focused on growth in consecutive quarters which has been and we expect will continue to be skewed by this seasonality effect.

Customer Service. We provide maintenance and support services through our support hotline, service personnel and network of factory-trained service technicians. We provide maintenance and support services in the United States and Germany through our employee service technicians. We train and maintain a network of service technicians trained at our factory locations, who provide maintenance and support services in all other countries where we do business. Our distributors are responsible for providing maintenance and support services for products sold by them. We provide parts to distributors at no additional charge for products covered under warranty.

Financing Options. Many dentists finance their purchases through third party leasing companies or banks. In these transactions, we receive payment in full from the leasing company or bank, or occasionally, from the dentist, who receives funds from the leasing company or bank. We understand the dentist pays the leasing company or bank in installments and we do not bear the credit risk that the dentist might not make payments. The leasing companies and banks do not have recourse to us for a dentist’s failure to make payments. Approximately 36% of our revenue in 2002 was generated from dentists who financed their purchase through National Technology Leasing Corporation, an equipment-leasing broker. National Technology Leasing arranges financing through banks. We have an agreement with National Technology Leasing, which requires us to refer to National Technology Leasing dentists who request a referral to a leasing company. In exchange, National Technology Leasing agreed to publish specific lease rates to be used for lease contracts submitted to it on certain terms and conditions. Additionally, National Technology Leasing has agreed to be available at our trade shows, seminars, symposiums and other sales events, participate in product promotions and otherwise be available to our customers. Our customers are under no obligation to finance the purchase or lease of any equipment through National Technology Leasing and we refer only those customers that request a referral from us. If leasing arrangements were no longer available through National Technology Leasing or the banks with which it deals, we believe our customers would be able to obtain

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financing through a variety of other leasing companies or banks that frequently approach us to provide financing for our products.

Research and Product Development

Research and development activities are essential to maintaining and enhancing our business. We believe our research and development team has demonstrated its ability to develop innovative products that meet evolving market needs. Our research and development group consists of 12 individuals with medical device and laser development experience and other relevant backgrounds, the majority of whom have degrees in physics or engineering, including three Ph.D.s. During the years ended December 31, 2002, 2001 and 2000, our research and development expenses were approximately $1.7 million, $1.5 million and $2.3 million, respectively. We intend to focus our research and development activities on improving our existing products and extending our product range in order to provide dental practitioners and patients with less painful and clinically superior laser systems.

Intellectual Property and Proprietary Rights

We rely, in part, on a combination of patents, trademarks, trade secrets, copyright and other intellectual property rights to protect our technology. We have over 60 issued patents and numerous pending patents. More than half of our existing patents were issued in the United States, and the rest were issued in Europe and in other countries. Our patents are directed to the use of laser and water in dentistry, laser energy exciting water, laser characteristics, fluid conditioning, laser accessories, laser technology development and other technologies for dental and medical applications. We have patent applications pending and plan to apply for other patents in the future as we develop new technologies. While we hold a variety of patents covering a broad range of technologies incorporated in our products, we rely on approximately one half of our patents in particular to protect the core technology incorporated in our systems, including our Waterlase system, which accounted for approximately 77% of our revenue in 2002. Four of these patents expire in 2009, and the balances have expiration dates ranging from 2010 to 2015.

We are currently involved in two patent lawsuits related to our Waterlase system with Diodem, LLC, a privately held California limited liability company. In May 2003, we initiated a lawsuit against Diodem, in which we are seeking a judicial declaration that technology in our Waterlase does not infringe four patents owned by Diodem. Diodem was founded by the former chief executive officer of Premier Laser Systems, Inc., a medical laser company which filed for bankruptcy protection in March 2000. Diodem claims to have acquired the four patents at issue in the case from Premier Laser. Also, in May 2003, Diodem added us as a party to a patent infringement lawsuit it had previously filed. Diodem alleges that the technology in our Waterlase system infringes the four patents it acquired from Premier Laser. Diodem’s suit seeks monetary damages, an injunction and other relief. Both of these lawsuits are in their preliminary stages, and may proceed for an extended period of time. Although the outcome of these actions cannot be determined with certainty, we believe our technology and products do not infringe any valid patent rights owned by Diodem, and we intend to continue to vigorously defend against Diodem’s infringement action and pursue our declaratory relief action against Diodem.

Competition

We compete with a number of companies that market traditional dental products, such as dental drills, as well as other companies that market laser technologies in dental and other medical markets. In the domestic hard tissue dental market, we believe our Waterlase product primarily competes with laser systems manufactured by Hoya ConBio, a subsidiary of Hoya Photonics, a large Japanese manufacturer primarily of optics and crystals, and OpusDent Ltd., a subsidiary of Lumenis, an Israeli company. In the international market, our Waterlase system competes primarily with products manufactured by several other companies, including KaVo, Deka Dental Corporation and Fotona d.d.

The Waterlase system also competes with non-laser based systems, including traditional high and low-speed dental drills and air abrasion systems that are used for dental procedures. Our LaserSmile system competes with other laser systems, as well as with scalpels, scissors and a variety of other cutting tools that have been traditionally used to perform soft tissue procedures. The LaserSmile also competes directly with a number of laser systems manufactured by a variety of companies, including the companies named above. In the market for tooth

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whitening, the LaserSmile competes with other products and instruments used by dentists, as well as tooth whitening strips and other over the counter products.

Traditional and commonly used cutting tools are less expensive for performing dental procedures. For example, a high speed drill or an electrosurge device can be purchased for less than $1,000 each. However, we believe our systems offer substantial benefits that outweigh cost concerns. In addition, our systems are not designed to perform certain functions that high speed drills can perform, such as cutting metal fillings and certain polishing and grinding functions. High speed drills will still be needed for these functions, and our systems are not intended to replace all applications of the high speed drill.

We also compete on the basis of proprietary technology, product features, performance, service and reputation. Some of the manufacturers that develop competing laser systems have greater financial, marketing and technical resources than we do. In addition, some competitors have developed, and others may attempt to develop, products with applications similar to those performed by our laser systems.

Government Regulation

Our products are regulated as medical devices. Accordingly, our product development, testing, labeling, manufacturing, processes and promotional activities are regulated extensively by government agencies in the United States and other countries in which we market and sell our products. We have clearance from the U.S. Food and Drug Administration, or FDA, to market our laser systems in the United States. We also have the approvals necessary to sell our laser systems in Canada, the European Union and other international markets. We are currently pursuing regulatory approval to market and sell our products in Japan.

United States

In the United States, the FDA regulates the design, manufacture, distribution, quality standards and marketing of medical devices. We have clearance from the FDA to market our Waterlase and LaserSmile systems in the United States for dental procedures on both adult and pediatric patients. In 1998, we received FDA clearance to market the Millennium, the earlier generation of our current Waterlase system, for certain dental hard tissue applications. This clearance allowed us to commence domestic sales and marketing of our technology for hard and soft tissue applications. During 1999 and 2000, to meet the demand for soft-tissue and cosmetic dentistry applications, we designed a semiconductor diode laser system, which is now marketed as our LaserSmile system. We received FDA clearance to market the system for a variety of soft-tissue medical applications in September 1999. In 2001, we received FDA clearance to market the LaserSmile system for cosmetic tooth whitening.

In 2002 and 2003, our Waterlase system became the first laser system to receive FDA clearance for three new types of procedures. In 2002, we received clearance to market the Waterlase system for root canal, encompassing all four of the fundamental steps of the procedure. We also received clearance in 2002 to market this system for cutting, shaving, contouring and resection of oral osseous tissues, or bone. In January 2003, we received FDA clearance to market the Waterlase for use in apicoectomy surgery, a procedure for root canal infections and complications that includes cutting gum, bone (to access the infected area) and the apex of the tooth to access the infected area. The clearance also relates to flap surgical procedures. Flaps are frequently performed in conjunction with many procedures, including periodontal, implant placement and recovery, extraction of wisdom teeth, exposure of impacted teeth for orthodontics as well as additional procedures.

Our newly acquired Diolase system received FDA clearances in 1997 to be marketed for a variety of soft tissue dental applications. FDA clearances were issued in 1994 to market the Pulsemaster system for a number of soft tissue procedures. We are in the process of transferring those clearances to our company.

As we develop new products and applications or make any significant modifications to our existing products, we will need to obtain the regulatory approvals necessary to market such products for dental, cosmetic and other medical procedures in our target markets. There are two principal methods by which FDA regulated devices may be marketed in the United States: pre-market approval, or PMA, and 510(k) clearance. A PMA application is required for a device that does not qualify for consideration for 510(k) clearance. The review period for a PMA

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application is fixed at 180 days, but the FDA typically takes much longer to complete the review. As part of the approval of a PMA application, the FDA typically requires human clinical testing to determine safety and efficacy of the device. To conduct human clinical testing, typically the FDA must approve an Investigational Device Exemption, or an IDE. To date, none of our products have required a PMA application.

To obtain 510(k) clearance, we must demonstrate that our device for which clearance is sought is substantially equivalent to a previously cleared 510(k) device or other appropriate predicate device. The FDA’s stated intention is to review 510(k) notifications as quickly as possible, generally within 90 days. However, the complexity of a submission or a requirement for additional information will typically extend the review period beyond 90 days. Domestic marketing of the product must be deferred until clearance is received from the FDA. In some instances, an IDE is required for clinical trials for a 510(k) clearance. If a request for 510(k) clearance is turned down by the FDA, then a PMA may be required. We intend to utilize the 510(k) notification procedure whenever possible. To date, all of our products that have been subject to regulation by the FDA have qualified for 510(k) clearance.

After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new 510(k) clearance, or could even require a PMA application. The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or a PMA is obtained.

The FDA also imposes various requirements on manufacturers and sellers of products it regulates under its jurisdiction, such as labeling, manufacturing practices, record keeping and reporting. The FDA also may require post-marketing practices, record keeping and reporting requirements.

We also are subject to unannounced inspections by the FDA for both the U.S. and BIOLASE Europe offices, and the Food and Drug Branch of the California Department of Health Services, and these inspections may include the manufacturing facilities of our subcontractors.

We are also subject to regulation under the Radiation Control for Safety and Health Act of 1968, or the Safety Act, administered by the Center for Devices and Radiological Health, or CDRH, of the FDA. The CDRH controls energy emissions of light and sound and electronic waves from electronic products. These regulations require a laser manufacturer to file new product and annual reports, to maintain quality control, product testing and sales records, to distribute appropriate operation manuals, to incorporate certain design and operating features in lasers sold to end-users and to certify and label each laser sold to end-users as one of four classes of lasers based on the level of radiation from the laser. In addition, various warning labels must be affixed to the product and certain protective devices must be installed, depending upon the class of product. Under the Safety Act, we are also required to register with the FDA as a medical device manufacturer and are subject to inspection on a routine basis by the FDA for compliance with Good Manufacturing Practice, or GMP, regulations. The GMP regulations impose certain procedural and documentation requirements upon us relevant to our manufacturing, testing and quality control activities. We believe both of our facilities comply with the GMP guidelines. The CDRH is empowered to seek remedies for violations of these regulatory requirements under the Federal Food, Drug and Cosmetic Act. We believe that we are currently in substantial compliance with these regulations.

Various state dental boards are considering the adoption of restrictions on the use of lasers by dental hygienists. Approximately 30 states currently allow dental hygienists to use lasers to perform certain dental procedures. In addition, dental boards in a number of states are considering educational requirements regarding the use of dental lasers. The scope of these restrictions and educational requirements is not now known, and they could have an adverse effect on sales of our laser-based products.

Failure to comply with applicable regulatory requirements can result in an enforcement action by the FDA, which may include any of the following sanctions:

• fines, injuctions and civil penalties;

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• recall or seizure of our products;

• operating restrictions, partial suspension or total shutdown of production;

• refusing our request for 510(k) clearance or PMA approval of new products;

• withdrawing 510(k) clearance or PMA approvals that are already granted; and

• criminal prosecution.

International

Foreign sales of our laser-based products are subject to the regulatory requirements of the foreign country or, if applicable, the harmonized standards of the European Union. These regulatory requirements vary widely among the countries and may include technical approvals, such as electrical safety, as well as demonstration of clinical efficacy. We have a CE Mark for our Waterlase and LaserSmile systems, which permits us to commercially distribute these systems throughout the European Union. We rely on export certifications from the FDA to comply with certain regulatory requirements in several foreign jurisdictions, such as New Zealand, Canada and countries in Western Europe. We also received clearance to market our Waterlase and LaserSmile systems in Canada and Australia for a variety of applications. We are currently working to meet certain foreign country regulatory requirements for certain of our products, including Japan. There can be no assurance that additional approvals in Japan or elsewhere will be obtained.

Other Regulatory Requirements

In addition to the regulatory framework for product clearances and approvals, we are subject to extensive and frequently changing regulations under many other laws administered by U.S. and foreign governmental agencies on the national, state and local levels, including requirements regarding occupational health and safety and the use, handling and disposing of toxic or hazardous substances.

Third Party Reimbursement

Many procedures performed with our laser systems are covered by insurance to the same extent as they would be if performed using traditional dental instruments. Most therapeutic procedures performed with our laser systems are reimbursable to a certain extent under dental insurance plans, whereas cosmetic procedures are not. International market acceptance for our products may depend, in part, on the availability of reimbursement within prevailing health care payment systems. Reimbursement and health care payment systems in international markets vary significantly by country, and include both government-sponsored health care and private insurance.

Employees

At August 31, 2003, we had 135 full-time employees, including 11 employees in our German facility. This represents an increase of 26 employees or 24% from 109 employees a year ago. Our employees are not represented by any collective bargaining agreement and we believe our employee relations are good.

Available Information

Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through our Web site (www.biolase.com) as soon as reasonably practicable after we electronically file the material with, or furnish it to, the Securities and Exchange Commission. Refer to the Introductory Note for previously filed financial statements which should not be relied upon.

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Item 3. Legal Proceedings

On October 31, 2002, we filed a lawsuit in the U. S. District Court for the Central District of California, Southern Division, against American Medical Technologies, Inc. (“AMT”). In the lawsuit, we alleged that AMT was infringing certain patents we own, which relate to the use of laser technology in the medical and dental fields. Our claims arose out of AMT’s offer to sell and sale in the United States of a dental device that uses laser and water technology. We were seeking an award of monetary damages and injunctive relief against AMT. We settled the lawsuit in connection with our acquisition of the American Dental Laser product line from AMT in May 2003.

We are currently involved in two related patent lawsuits with Diodem, LLC, a California limited liability company. On May 2, 2003, we initiated a civil action in the U.S. District Court for the Central District of California against Diodem. In this lawsuit we are seeking a judicial declaration against Diodem that technology we use in our laser systems does not infringe four patents owned by Diodem. Diodem was founded by Collete Cozean, the former chief executive officer of Premier Laser Systems, Inc., a medical laser company which filed for bankruptcy protection in March 2000. Diodem claims to have acquired the four patents at issue in the case from Premier Laser. In 2000 we initiated a patent infringement lawsuit against Premier Laser seeking damages and to prevent Premier from selling competing dental lasers on the grounds that they infringed on certain of our patents. The lawsuit was stayed by the bankruptcy court after Premier filed for bankruptcy.

In response to our lawsuit against Diodem, on May 5, 2003, Diodem added us as a party to an infringement lawsuit it had previously filed in the U.S. District Court for the Central District of California. The other parties to this lawsuit are American Medical Technologies, Inc., Lumenis and its subsidiary OpusDent, Ltd., and Hoya Photonics and its subsidiary Hoya ConBio. OpusDent and Hoya ConBio manufacture and sell dental lasers pursuant to patents originally licensed to them by American Medical Technologies. We acquired the licensed patents and related license agreements in our acquisition of the American Dental Laser product line from American Medical Technologies. Diodem’s lawsuit relates both to our Waterlase and to the patents and licenses we acquired from American Medical Technologies. Diodem alleges that technology used in our Waterlase infringes the four patents it acquired from Premier Laser. Diodem also alleges that the products sold by OpusDent and Hoya ConBio pursuant to the licenses we acquired from American Medical Technologies infringe on the patents Diodem acquired from Premier Laser. Diodem’s infringement suit seeks treble damages, a preliminary and permanent injunction from further alleged infringement, attorneys’ fees and other unspecified damages. Both of these lawsuits are in their preliminary stages, and may proceed for an extended period of time.

Although the outcome of these actions cannot be determined with certainty, we believe our technology and products do not infringe any valid patent rights owned by Diodem, and we intend to continue to vigorously defend against Diodem’s infringement action and pursue our declaratory relief action against Diodem.

We are not currently subject to any other material pending or threatened legal proceedings.

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PART II

Item 6. Selected Consolidated Financial Data

The following table sets forth selected consolidated financial data for the periods presented. You should read this data along with our Consolidated Financial Statements and related Notes contained elsewhere in this report and in our subsequent reports filed with the SEC, as well as the section of this report and our other reports entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	Years Ended December 31,
	2002		2001			2000			1999			1998
	(Restated) (2)
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Net sales	$	27,257	$	16,546		$	9,495		$	7,004		$	1,465
Gross profit		16,772		9,608			4,679			2,852			47
Operating expenses (1)		15,423		10,845			8,340			7,601			10,369
Income (loss) from operations		1,412		(1,158	)		(3,661	)		(4,749	)		(10,322	)
Cumulative effect of change in accounting principle		—		—			(34	)		—			—
Net income (loss)		1,498		(1,281	)		(3,789	)		(4,798	)		(10,346	)
Cumulative effect of change in accounting principle per share:
Basic		—		—			0.00			—			—
Diluted		—		—			0.00			—			—
Net income (loss) per share:
Basic		0.08		(0.07	)		(0.20	)		(0.28	)		(0.69	)
Diluted		0.07		(0.07	)		(0.20	)		(0.28	)		(0.69	)
Shares used in computing net income (loss) per share:
Basic		19,929		19,510			19,171			17,254			15,062
Diluted		21,303		19,510			19,171			17,254			15,062
	December 31,
	2002		2001			2000			1999			1998
	(Restated) (2)
	(in thousands)
Consolidated Balance Sheet Data:
Working capital	$	1,418	$	201		$	(268	)	$	(1,331	)	$	89
Total assets		16,003		8,253			6,822			2,672			3,911
Long-term liabilities		142		205			1,175			—			—
Stockholders’ equity (deficit)		3,121		645			994			(939	)		662

(1) In 1998, there was a $5.1 million write-off of in-process research and development costs related to the purchase of the assets of Laser Skin Toner, Inc.

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(2) See Management’s Discussion and Analysis of Financial Condition and Results of Operations under Restatement of Financial Statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our results of operations and financial condition should be read together with the consolidated financial statements and the notes to those statements included elsewhere in this report. This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in any forward-looking statements as a result of a variety of factors, including those discussed in “Risk Factors” and elsewhere in this report.

Restatement of Financial Statements

Staff Accounting Bulletin No. 101 (“SAB 101”), Revenue Recognition in Financial Statements, requires the transfer of title and the risks and rewards of ownership to the customer prior to the recognition of revenue. We originally prepared our financial statements on the basis that this transfer of title occurred upon shipment. Subsequent to the issuance of our consolidated financial statements as of and for the year ended December 31, 2002, it was determined, with respect to sales to domestic customers, that title transferred upon receipt of full payment, due to a clause in our purchase orders. As a result, we have restated our consolidated financial statements as of December 31, 2002 and December 31, 2001 and for each of the three years in the period ended December 31, 2002 to defer revenue upon shipment and to recognize it upon receipt of full payment for our domestic customers. We have reflected the impact of this change, as measured at January 1, 2000, as the cumulative effect of a change in accounting principle for the adoption of SAB 101. The $34,000 cumulative effect of change in accounting principle was recognized as income during the year ended December 31, 2000. It was also determined that revenue recognition for products shipped directly to customers in Europe, which we commenced in 2002, is appropriate at the time of installation, which is when the customer is obligated to pay, and not at the time of shipment as recognized in the previously filed financial statements. In conjunction with these revisions, we have deferred the revenue, the related cost of inventory and related sales commissions. Our revenue recognition policy in Note 3 has been revised to reflect these changes.

As a result of the restatement, our net revenue for 2002 decreased by $1,942,000, our gross profit decreased by $1,325,000 and our net income was reduced by $1,132,000 ($0.05 per fully diluted share). For 2001, our net revenue decreased by $1,341,000 our gross profit decreased by $980,000 and our net loss increased by $873,000 ($0.05 per fully diluted share). In 2000 our net loss increased by $61,000 ($0.01 per fully diluted share).

The statements of operations have been restated as follows:

Year Ended December 31, 2002	As Reported			Restated
Net sales	$	29,199,000		$	27,257,000
Cost of sales		11,102,000			10,485,000
Operating expenses		15,616,000			15,423,000
Income from operations		2,481,000			1,412,000
Net income	$	2,630,000		$	1,498,000
Net income per share:
Basic	$	0.13		$	0.08
Diluted	$	0.12		$	0.07
Year Ended December 31, 2001	As Reported			Restated
Net sales	$	17,887,000		$	16,546,000
Cost of sales		7,299,000			6,938,000
Operating expenses		10,952,000			10,845,000
Loss from operations		(364,000	)		(1,158,000	)
Net loss	$	(408,000	)	$	(1,281,000	)
Net loss per share:
Basic	$	(0.02	)	$	(0.07	)
Diluted	$	(0.02	)	$	(0.07	)

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Year Ended December 31, 2000	As Reported			Restated
Net sales	$	9,657,000		$	9,495,000
Cost of sales		4,829,000			4,816,000
Operating expenses		8,462,000			8,340,000
Loss from operations		(3,634,000	)		(3,661,000	)
Loss before cumulative effect of change in accounting principle		(3,728,000	)		(3,755,000	)
Cumulative effect of change in accounting principle		—			(34,000	)
Net loss	$	(3,728,000	)	$	(3,789,000	)
Cumulative effect of change in accounting principle per share:
Basic	$	0.00		$	0.00
Diluted	$	0.00		$	0.00
Net loss per share:
Basic	$	(0.19	)	$	(0.20	)
Diluted	$	(0.19	)	$	(0.20	)

The balance sheets have been restated as follows:

December 31, 2002	As Reported		Restated
Working capital	$	3,484,000	$	1,481,000
Total assets		14,395,000		16,003,000
Stockholders’ equity		5,187,000		3,121,000

December 31, 2001	As Reported		Restated
Working capital	$	1,135,000	$	201,000
Total assets		7,561,000		8,253,000
Stockholders’ equity		1,579,000		645,000

Overview

We are the world’s leading dental laser company. We design, manufacture and market proprietary dental laser systems that allow dentists, oral surgeons and other specialists to perform a broad range of common dental procedures, including cosmetic applications. Our systems provide superior performance for many types of dental procedures, with less pain and faster recovery times than are generally achieved with drills and other dental instruments. We have clearance from the U. S. Food and Drug Administration to market our laser systems in the United States. We also have the approvals necessary to sell our laser systems in Canada, the European Union and other international markets. Since 1998, we have sold more than 2,000 laser systems in over 20 countries.

We have the following principal product lines: (i) Waterlase system; (ii) LaserSmile system; (iii) American Dental Laser products, including the Diolase and Pulsemaster systems, and (iv) related accessories and disposables for use with our laser systems. Our product, the Waterlase system, is used for hard and soft tissue dental procedures, and can be used to perform most procedures currently performed using dental drills, scalpels and other traditional dental instruments. The LaserSmile system is used for a range of soft tissue procedures and tooth whitening. Our newly acquired Diolase and Pulsemaster systems are primarily used for soft tissue procedures. We also manufacture and sell accessories and disposables, such as handpieces, laser tips and tooth whitening gel, for use with our dental laser systems.

Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses for each period.

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The following represents a summary of our critical accounting policies, defined as those policies that we believe are: (i) the most important to the portrayal of our financial condition and results of operations, and (ii) that require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

Revenue Recognition. We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, or SAB 101, as amended by SAB 101A and 101B. SAB 101 requires that four basic criteria must be met before revenue can be recognized:

• persuasive evidence of an arrangement exists;

• delivery has occurred and title and the risks and rewards of ownership have been transferred to our customer or services have been rendered;

• the price is fixed and determinable; and

• collectibility is reasonably assured.

Assuming that all of the above criteria have been met, we record revenue for domestic sales when we receive payment in full, due to a clause in our purchase order that states title transfers upon payment in full; we record revenue for international direct sales when the product is installed, which is when the customer is obligated to pay; and we record revenue for sales to distributors upon delivery.

Valuation of Accounts Receivable. We maintain an allowance for uncollectible accounts receivable to estimate the risk of extending credit to customers. The allowance is estimated based on customer compliance with credit terms, the financial condition of the customer and collection history where applicable. Additional allowances could be required if the financial condition of our customers were to be impaired beyond our estimates.

Valuation of Inventory. Inventory is valued at the lower of cost (estimated using the first-in, first-out method) or market. We periodically evaluate the carrying value of inventories and maintain an allowance for obsolescence to adjust the carrying value as necessary to the lower of cost or market. The allowance is based on physical and technical functionality as well as other factors affecting the recoverability of the asset through future sales. Unfavorable changes in estimates of obsolete inventory would result in an increase in the allowance and a decrease in gross profit.

Valuation of Long-Lived Assets. Property, plant and equipment, intangible and certain other long-lived assets are amortized over their useful lives. Useful lives are based on our estimate of the period that the assets will generate revenue or otherwise productively support our business goals. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through future business operations. In our estimate, no provision for impairment is currently required on any of our long-lived assets.

Warranty Cost. Products sold directly to end-users are covered by a warranty against defects in material and workmanship for a period of one year. Products sold internationally to distributors are covered by a warranty on parts for up to fourteen months with additional coverage on certain components for up to two years. We accrue a warranty reserve to estimate the risk of incurring costs to provide warranty services. The accrual is based on our historical experience and our expectation of future conditions. An increase in warranty claims or in the costs associated with servicing those claims would result in an increase in the accrual and a decrease in gross profit.

Litigation and Other Contingencies. We regularly evaluate our exposure to threatened or pending litigation and other business contingencies. Because of the uncertainties related to the amount of loss from litigation and other business contingencies, the recording of losses relating to such exposures requires significant judgment about the potential range of outcomes. As additional information about current or future litigation or other contingencies becomes available, we will assess whether such information warrants the recording of additional expense relating to contingencies. To be recorded as expense, a loss contingency must be both probable and measurable. If a loss contingency is material but is not both probable and estimable, we will disclose it in notes to the financial statements.

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Results of Operations

The following table sets forth certain data from our consolidated income statements for the years ended December 31, 2002, 2001 and 2000, expressed as a percentage of net sales:

	Years Ended December 31,
	2002		2001	2000
	(Restated)
Net sales	100.0	%	100.0 %		100.0	%
Cost of sales	38.5		41.9		50.7
Gross profit	61.5		58.1		49.3
Other income	0.2		0.5		—
Operating expenses
Sales and marketing	39.4		44.2		44.4
General and administrative	11.0		12.2		19.4
Engineering and development	6.2		9.2		24.1
Total operating expense	56.6		65.6		87.9
Income (loss) from operations	5.1		(7.0)		(38.6	)
Non-operating income (loss)	0.4		(0.7)		(1.0	)
Income (loss) before cumulative effect of change in accounting principle	5.5		(7.7)		(39.6	)
Cumulative effect of change in accounting principle	—		—		(0.4	)
Net income (loss)	5.5	%	(7.7 )%		(40.0	)%

Net Sales. Net sales consists of sales of our laser systems, related disposables and accessories and service revenue. We have at various times experienced fluctuations in sales due to seasonality. In our experience, sales in the first quarter typically are lower than average, and sales in the fourth quarter typically are stronger than average, due to the buying patterns of dental professionals. The fourth quarter of 2002 accounted for 30% of our net sales for the year, whereas the first quarter of 2002 accounted for 18% of net sales for the year. Sales in the third quarter tend to be even with and may sometimes be lower than sales in the second quarter due to vacation patterns. The third quarter accounted for 25% of our net sales in 2002, whereas the second quarter accounted for 27% of our net sales in 2002. Our historical seasonality pattern is a recurring trend that we expect to continue. Consequently we do not necessarily match the timing of our expenditures to the expected quarterly seasonality effects on revenue but rather anticipate the expected sales over the full year as a determinant of our spending levels. Since many of our costs are fixed in the short term, if we have a shortfall in sales resulting from a change in our historical seasonality pattern, or otherwise, we may be unable to reduce expenses quickly enough to avoid losses.

Many dentists finance their purchases through third party leasing companies or banks. In these transactions, we receive payment in full from the leasing company or bank, or from the dentist, who receives funds from the leasing company or bank. The dentist pays the leasing company or bank in installments and we do not bear the credit risk that the dentist might not make payments. The leasing companies and banks do not have recourse to us for a dentist’s failure to make payments. Approximately 36% of our revenue in 2002, 43% of our revenue in 2001 and 38% of our revenue in 2000 were generated from dentists who financed their purchase through National Technology Leasing Corporation, an equipment leasing company.

Cost of Sales. Cost of sales is comprised of all costs to manufacture our products, including materials, labor and related overhead costs such as depreciation, warranty and service costs.

Sales and Marketing. Sales and marketing expenses consist of salaries and benefits, commissions, and other costs related to our direct sales force, advertising costs and expenses related to trade shows and seminars.

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General and Administrative. General and administrative expenses consist of salaries and benefits of administrative personnel as well as insurance, professional and regulatory fees and provisions for doubtful accounts.

Engineering and Development. Engineering and development expenses consist of engineering personnel salaries and benefits, prototype supplies, contract services and consulting fees related to product development.

Non-Operating Income (Loss). Non-operating income (loss) consists of interest income and expense, foreign currency gains and losses and similar items not directly related to our operations. Interest income relates to interest earned on our cash balances, and interest expense relates to interest costs on our line of credit. We generate a substantial portion of our revenue from the sale of products outside the United States. Sales to customers or distributors outside the United States accounted for approximately 23% of our revenue for the year ended December 31, 2002. Sales in Europe and Canada accounted for approximately 11% of our revenue for the year ended December 31, 2002, while sales in Asia and countries in the Pacific Rim accounted for approximately 12% of our revenue for 2002. Our sales in Europe are denominated principally in Euros, and our sales in other international markets are denominated in dollars. As we do not engage in hedging transactions to offset foreign currency fluctuations, we are at risk for changes in the value of the dollar relative to the value of the Euro. An increase in the relative value of the dollar would lead to less income from sales denominated in Euros unless we increase prices, which may not be possible due to competitive conditions in Europe. Conversely, a decrease in the relative value of the dollar would lead to more income from sales denominated in Euros. Additionally, we are obligated to repay the debt on our German facility in Euros. Thus, we are also at risk for changes in the value of the dollar relative to the Euro with respect to our obligation to repay the debt on our German facility. An increase in the value of the dollar relative to the Euro would reduce the cost associated with repayment of the debt on our German facility, whereas a decrease in the relative value of the dollar would increase the cost associated with repayment of the debt on our German facility.

Income Taxes. At this time, no provision for income tax is recognized due to the availability of net operating loss carry forwards. At such times as the recoverability of deferred tax assets, including the net operating loss carry forwards, becomes more likely realizable than not, we will reduce the valuation allowance against our deferred tax assets, record an income tax benefit and subsequently record a provision for income taxes for financial statement purposes based on the amount of taxable net income.

Year Ended December 31, 2002 Compared With Year Ended December 31, 2001

Comparing the results of operations between the prior years, the most significant change affecting operating results is the increase in sales. Sales for the year ended December 31, 2002 increased 65% over sales for the year ended December 31, 2001.

Net Sales. Net sales for the year ended December 31, 2002 were $27.3 million, an increase of $10.8 million, as compared with net sales of $16.5 million for the year ended December 31, 2001. The increase in sales in both 2002 and 2001 resulted from the increased number of units sold of our laser systems. Our Waterlase system accounted for 77% of net sales in 2002 and 82% of net sales in 2001. Our LaserSmile system was introduced in the third quarter of 2001 and accounted for 18% of net sales in 2002 as compared with 16% of net sales in 2001.

International sales for the year ended December 31, 2002 were $6.2 million, or 23% of total net sales, as compared with $3.3 million, or 20% of total net sales, for the year ended December 31, 2001. The increase in international sales in 2002 was the result of a renewed effort to strengthen our network of international distributors after concentrating our resources in 2001 in the domestic market. The formation of BIOLASE Europe in 2002 and the acquisition of a production and service facility in Germany was an important step to increase our visibility in Europe as well as to improve our ability to service European customers. Sales of products manufactured at our German facility accounted for 9% of our revenue in 2002. In comparison, all of our revenue in 2001 was generated from the sale of products manufactured in the United States. We plan to continue to add resources to our international sales program to take advantage of the large market potential and we expect that our international sales will continue to grow over time as a percentage of our total net sales. Although most of our international sales are made through independent distributors, we began making direct sales to dentists in Europe in 2002 with the support of our German distributor. Based on the overall increase and detailed review of sales, we have increased our allowance on accounts receivable from $108,000 at December 31, 2001 to $202,000 at December 31, 2002.

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Gross Profit. Gross profit for the years ended December 31, 2002 and 2001 was $16.8 million and $9.6 million, respectively. The gross margin on sales for those same periods was 62% and 58%, respectively. The increase in both gross profit and gross margin was attributable to leveraging the increase in our net sales against fixed and partially fixed manufacturing costs, reflecting better absorption of fixed manufacturing costs. The increase in gross profit is also due to increased manufacturing efficiencies and design changes through engineering and product development, which reduced the cost of materials by 10%. These efficiencies and cost savings were partially offset by the start-up costs for our German production and service facility of approximately $165,000 in 2002 and the addition of production resources of approximately $621,000 to support anticipated sales growth. While we believe there is additional leverage to be realized from future increases in sales, increases in fixed costs will also accompany growth and may constrain increases in gross margin. In addition, an increase in the mix of sales to international distributors will also tend to decrease gross profit since such sales are made at wholesale prices.

Other Income. Other income consists of gain on sale of assets. The gain on sale of assets for the year ended December 31, 2002 of $63,000 was related to the sale and leaseback of our manufacturing facility in San Clemente, California in March 2001. This sale resulted in a gain of $316,000, which is being recognized over the remaining term of the lease, which expires in 2006. Gain on sales of assets in 2001 included this amortization of deferred gain plus a gain on the sale of certain other assets.

Operating Expenses

Operating expenses for the year ended December 31, 2002 were $15.4 million, or 57% of net sales, as compared with $10.8 million, or 66% of net sales, for the year ended December 31, 2001. Most of the increases in operating expenses for each year were sales and marketing costs that were incurred to generate the increase in sales, including a growing sales force and related expenses.

Sales and Marketing. Sales and marketing expenses for the year ended December 31, 2002 was $10.8 million, or 39% of net sales, as compared with $7.3 million, or 44% of net sales, for the year ended December 31, 2001. The increase in absolute dollars from year to year was attributable to higher commission expense related to the increased sales and to the cost of additional sales personnel of approximately $600,000 in the United States. In addition during 2002, we expanded the scope of our nationwide seminar-marketing program and our sponsorship of education and training programs for existing and potential customers, as a result of which we incurred additional expenses of $871,000. Although growing 47% in 2002 in absolute dollars, sales and marketing expense as a percentage of net sales decreased from 44% in 2001 to 39% in 2002 due to the increase in sales generated by these efforts. In 2002, in addition to a number of local and regional symposiums, we sponsored two national and two international symposiums presented by the World Clinical Laser Institute, an organization that provides education and training in laser dentistry.

General and Administrative. General and administrative expenses for the year ended December 31, 2002 was $3.0 million, or 11% of net sales, as compared with $2.0 million, or 12% of net sales, for the year ended December 31, 2001. The increase in absolute dollars in 2002 was due to administrative costs associated with the operations of BIOLASE Europe of $140,000, increases in the costs of legal fees relating to regulatory compliance and various legal proceedings in the amount of $201,000, and increases in the infrastructure needed to support the growth of our sales. Insurance premiums increased in 2001 as a result of the increase in net sales and increased by $328,000 in 2002 both as a result of the increase in sales and as a result of general insurance market conditions. We expect additional increases in 2003 due to adverse markets for workers compensation, group health insurance and liability insurance.

Engineering and Development. Engineering and development expenses for the year ended December 31, 2002 was $1.7 million, or 6% of net sales, as compared with $1.5 million, or 9% of net sales, for the year ended December 31, 2001. The increase in absolute dollars in 2002 was related to new product development and enhancements. The decrease in research and development expenses as a percent of net sales reflects the larger sales base and fluctuations in the scope of current research and development projects.

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Non-Operating Income (Loss)

Unrealized Gain on Forward Exchange Contract. In the year ended December 31, 2002, we recognized an unrealized gain on forward contracts of $152,000 due to the increase in the fair market value of our forward exchange contract.

Interest Income. Interest income for the year ended December 31, 2002 was $18,000 compared with $44,000 in 2001. Even though our cash balances have increased over this period, continuing reductions in interest rates have resulted in lower interest income.

Interest Expense. Interest expense was $135,000 for the year ended December 31, 2002 compared with $167,000 in 2001. Interest expense in 2002 included the amortization of the cost of issuing stock in connection with the extension of our line of credit in December 2001. Interest expense in 2001 included three months of interest on the note payable on our San Clemente manufacturing facility, which was sold and leased back in March 2001.

Income Tax. No provision for income tax was recognized for the year ended December 31, 2002 due to the availability of net operating loss carry forwards. No income tax benefit was recognized in the year ended December 31, 2002 as there was no assurance that the benefit of the net operating loss carry forwards would be realized. At such time as the recoverability of deferred tax assets, including the net operating loss carry forward, becomes more likely realizable than not, we will reduce the valuation allowance against our deferred tax assets, record an income tax benefit and subsequently record a provision for income tax for financial statement purposes based on the amount of taxable net income. As of December 31, 2002, we had net operating loss carry forwards for federal and state purposes of approximately $34.9 million and $7.5 million, respectively, which began expiring in 2001. As of December 31, 2002, we had research and development credit carryforwards for federal and state purposes of approximately $332,000 and $170,000, respectively. The utilization of net operating loss and credit carry forwards may be limited under the provisions of Internal Revenue Code Section 382 and similar state provisions.

Year Ended December 31, 2001 Compared With Year Ended December 31, 2000

Comparing the results of operations between the prior years, the most significant change affecting operating results is the increase in sales. Sales for the year ended December 31, 2001 increased 74% over sales for the year ended December 31, 2000.

Net Sales. Net sales in 2001 were $16.5 million, an increase of $7.0 million, as compared with net sales of $9.5 million in 2000. This increase was due to a 176%, or $7.6 million growth in domestic sales of our Waterlase system. The Waterlase systems accounted for approximately 84% of net sales for the year ended December 31, 2001, as compared with 97% of net sales for the year ended December 31, 2000. Domestic sales also increased by $1.5 million in the third and fourth quarters of 2001 due to the introduction of our LaserSmile system. These increases were offset by a 28%, or $1.1 million decrease in international sales in 2001 as we concentrated our resources on growing sales in the domestic market.

Gross Profit. Gross profit increased 104% to $9.6 million in 2001 from $4.7 million in 2000. Gross margin increased from 49% of net sales in 2000 to 58% of net sales in 2001. This increase was the result of spreading the fixed costs of manufacturing over more units, an improvement in labor productivity, and engineering cost reductions, which collectively produced a 9% reduction in the material components of the products.

Other Income. Other income consists of gain on sale of assets. The gain on sale of assets of $79,000 in 2001 is related to two transactions. In 2000, we purchased our San Clemente manufacturing facility and offices in order to avoid moving our operations. In 2001, we sold the facility and leased it back for a five-year term with an additional five year option, resulting in a gain of $316,000. We are recognizing that gain for accounting purposes over the term of the lease. In 2001, we recognized $48,000 of this gain. We also sold inventory and assets relating to our inactive subsidiary, Societe Endo Technic, in 2001 for a gain of $31,000.

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Operating Expenses

Sales and Marketing. Sales and marketing expenses for the year ended December 31, 2001 was $7.3 million, or 44% of net sales, as compared with $4.2 million, or 44% of net sales, for the year ended December 31, 2000. The increase in absolute dollars was due to the 85% increase in net sales in 2001 and included increased sales commissions and increased cost of $536,000 associated with an increase in the number of sales representatives. Marketing costs also increased by $945,000 as we increased the number of trade shows, seminars and symposiums that we attended and sponsored.

General and Administrative. General and administrative expenses for the year ended December 31, 2001 was $2.0 million, or 12% of net sales, as compared with $1.8 million, or 19% of net sales, for the year ended December 31, 2000. The increase in absolute dollars in 2001 related to the cost of infrastructure needed to support the growth of the business.

Engineering and Development. Engineering and development expenses for the year ended December 31, 2001 was $1.5 million, or 9% of net sales, as compared with $2.3 million, or 24% of net sales, for the year ended December 31, 2000. This decrease was related to the change in the development cycle for our products. Engineering costs also decreased by approximately $100,000 as a result of process improvements, which reduced the number of employees needed to sustain the activities of the function.

Non-Operating Income (Loss)

Interest Income. Interest income for the year ended December 31, 2001 was $44,000 compared with $69,000 for the period ended December 31, 2000. Even though our cash balances have increased over this period, continuing reductions in interest rates have resulted in lower interest income.

Interest Expense. Although the variable interest rate on our line of credit decreased with other short-term interest rates in 2001, we incurred interest expense on the mortgage note payable that financed the purchase of our facility. The interest expense from the mortgage note for three months of 2001 offset the decrease in interest on our line of credit.

Cumulative Effect of Change in Accounting Principle

Effective January 1, 2000, we adopted SAB 101 resulting in a $34,000 cumulative effect of change in accounting principle. There was no change in accounting principle for the year ended December 31, 2001.

Liquidity and Capital Resources

At December 31, 2002 we had $1.4 million in net working capital as compared to $201,000 at December 31, 2001. Our principal source of liquidity at December 31, 2002 consisted of our cash balance of $3.9 million. Prior to 2001 we financed the development of our products and our operations through the private placement of common stock and the exercise of stock options and warrants. For the year ended December 31, 2002, our sources of cash were funds provided from operating activities of $635,000 and the exercise of stock options and warrants of $1.0 million. These sources of cash were reduced by investments in property and equipment of $478,000. The net effect on cash of operating, investing and financing transactions for the year ended December 31, 2002 was an increase of $1.3 million.

Accounts receivable, net, increased 127% to $5.0 million at December 31, 2002 from $2.2 million at December 31, 2001. This increase was due to the higher sales volume experienced in 2002. Inventories, net, increased 48% to $2.8 million at December 31, 2002 from $1.9 million at December 31, 2001. The increase was due to increased production to meet estimated sales demand.

As discussed in Note 7 to the Consolidated Financial Statements, 672,500 warrants with a weighted average exercise price of $2.46 are outstanding and are scheduled to expire in 2003. All of the warrants were exercised by June 30, 2003.

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Several key indicators of liquidity are summarized in the following table (in thousands, except ratio amounts):

	Years Ended December 31,
	2002		2001			2000
Working capital (deficit) (restated)	$	1,418	$	201		$	(268	)
Cash provided by (used in) operations		635		(1,037	)		(3,778	)
Proceeds from the exercise of stock options and warrants		1,035		803			3,201
Current ratio (restated)		1.1		1.0			0.9
Accounts receivable collection period (days)		44.5		32.1			20.3
Inventory turnover		5.3		5.1			4.8

At December 31, 2002 we had $1.8 million outstanding under a $1.8 million revolving credit facility with BSI AG. This same amount was outstanding at December 31, 2001. In May 2003, we secured a $5.0 million credit facility through Bank of the West. The facility with Bank of the West is secured by all of our assets, is for a term of one year, bears interest at LIBOR plus 2.25% and is payable on demand upon expiration of the stated term. Approximately $1.8 million was drawn immediately to pay off the bank line of credit with BSI AG. At August 31, 2003, we had $1.8 million outstanding under our revolving credit facility with Bank of the West. Under the terms of our credit line with Bank of the West, we are subject to certain covenants, which include, among other things, covenants to maintain a specified minimum tangible net worth and a specified ratio of current assets to current liabilities, and a covenant to maintain profitability. If we fail to satisfy these covenants and we fail to cure any breach of these covenants within a specified number of days after receipt of notice, Bank of the West could accelerate the entire amount borrowed by us and cancel the line of credit. We currently have $6.6 million in available cash as of June 30, 2003. We believe any cancellation of our bank line would not have a material impact on our liquidity and that our cash from operations and our current cash balances will be sufficient to finance the cost of our operations. As a result of the restatement of our financial statements for the years ended December 31, 2002, 2001 and 2000, our accumulated deficit increased and our net tangible equity decreased as of June 30, 2003. Consequently we are not in compliance with three covenants: timely reporting of our financial statements for the period ended June 30, 2003, minimum tangible net equity, which is $6,897,000 as compared with a minimum required tangible net equity of $7,000,000, and the ratio of total liabilities to tangible net equity, which is 1.91 as compared with a maximum ratio of 1.75. We have obtained waivers from the bank for each item of non-compliance as of June 30, 2003. We anticipate that we will be in compliance on these items as of September 30, 2003.

We purchased our production facility in Germany in February 2002 for cash consideration of approximately Euros 1.2 million payable in installments through 2003, subject to reduction in certain circumstances. The maximum consideration was reduced in September 2003 to Euros 989,000 in accordance with the terms of the agreement with the seller. However, we are in discussions with the seller regarding a further reduction based on the seller’s failure to fulfill its responsibilities under the purchase agreement. The purchase agreement provides for a payment of Euros 582,000 by April 1, 2003, which has not been paid pending these discussions. Payments of Euros 175,000 and 232,000 are required under the purchase agreement to be paid on September 30 and December 1, 2003 respectively. Outstanding amounts under the purchase agreement bear interest at less than one percent per annum.

On May 21, 2003 we acquired the American Dental Laser product line from American Medical Technologies, Inc., or AMT, for approximately $5.8 million. The assets acquired included dental laser patents, customer lists, brand names and other intellectual property as well as laser products. No outstanding debt of AMT was assumed in the transaction. The consideration paid by us consisted of approximately $1.8 million cash, $134,000 in transaction costs directly attributable to the acquisition and 307,500 shares of common stock with a fair value of approximately $3.8 million. For purposes of computing the purchase price, the value of the common stock of $12.38 per share was determined by taking the average closing price of our common stock as quoted on the Nasdaq National Market between May 19, 2003 and May 23, 2003.

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We had no material commitments for capital expenditures as of December 31, 2002 and have not entered into any material commitments after that date.

The following table presents our expected cash requirements for contractual obligations outstanding as of December 31, 2002 (in thousands):

					Years Ending December 31,
	December 31, 2002		2003		2004		2005		2006
Line of credit	$	1,792	$	1,792	$	—	$	—	$	—
Debt		1,220		1,220		—		—		—
Operating leases		841		270		261		249		61
Total	$	3,853	$	3,282	$	261	$	249	$	61

We believe that our current cash balances, cash expected to be generated from our operations, together with additional cash expected to be received through the exercise of stock options will be adequate to meet our debt service requirements and sustain our operations for at least the next twelve months. Beyond the next twelve months, if we continue to grow our sales volume at approximately the rate it has grown over the past several years, the adequacy of our cash balances to meet operating and capital needs will depend on our ability to continue to generate sufficient cash flow from operations and our ability to borrow the funds necessary to support that growth rate. We my also address our financing needs beyond the next twelve months through the sale of equity securities. If such debt or equity is needed, we cannot assure you that we would be able to obtain such additional capital resources in a timely manner, on acceptable terms, or at all. If we were unable to raise additional funds, we might have to defer the creation or satisfaction of various commitments, defer the introduction of various products or entry into various markets, or otherwise scale back our operations. Such circumstances would have an adverse effect on our financial position, results of operations and cash flows.

Selected Quarterly Financial Data

	Quarters Ended
	March 31,			June 30,		September 30,			December 31,
	(in thousands, except per share data)
	(Restated) (2)
2002
Net sales	$	5,011		$	7,264	$	6,859		$	8,123
Gross profit		3,113			4,335		4,117			5,207
Income from operations		162			561		414			275
Net income		132			652		382			332
Net income per share (1):
Basic		0.01			0.03		0.02			0.02
Diluted		0.01			0.03		0.02			0.02
2001
Net sales	$	2,643		$	4,713	$	3,970		$	5,220
Gross profit		1,447			2,840		2,376			2,945
Income (loss) from operations		(1,028	)		154		(244	)		(40	)
Net (loss) income		(1,098	)		128		(256	)		(55	)
Net (loss) income per share (1):
Basic		(0.06	)		0.01		(0.01	)		0.00
Diluted		(0.06	)		0.01		(0.01	)		0.00

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(1) Net income per common share calculations for each of the quarters were based upon the weighted average number of shares outstanding for each period, and the sum of the quarters may not necessarily be equal to the full year net income per common share amount.

(2) The Company has amended Quarterly reports on Form 10-Q/A to restate the Company’s financial statements for the interim periods ended March 31, 2002, June 30, 2002 and September 30, 2002. See Management’s Discussion and Analysis of Financial Condition and Results of Operations under Restatement of Financial Statements.

Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 145, Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections. The significant items from SFAS 145 that are relevant to us are the provisions regarding extinguishment of debt and the accounting for sale-leaseback transactions. The provisions of this statement are applicable for financial statements issued on or subsequent to May 15, 2002. The adoption of this statement did not have an impact on our consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force, or EITF, Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The provisions of this statement are effective for exit or disposal activities initiated after December 31, 2002. We expect the adoption of this statement will not have an impact on our consolidated financial statements.

In November 2002, the EITF reached a consensus on Issue No. 00-21. Accounting for Revenue Arrangements with Multiple Deliverables. This Issue provides guidance on when and how to separate elements of an arrangement that may involve the delivery or performance of multiple products, services and rights to use assets into separate units of accounting. The guidance in the consensus is effective for revenue arrangements entered into in fiscal periods, interim or annual, beginning after June 15, 2003. We will adopt Issue No. 00-21 in the quarter beginning July 1, 2003. We do not believe that the adoption of Issue No. 00-21 will have a material impact to our consolidated financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, or FIN 45. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also requires that at the time a company issues a guarantee, the company must recognize an initial liability for the fair market value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions of FIN 45 apply on a prospective basis to guarantees issued or modified after December 31, 2002. We expect the adoption of this statement will not have a significant impact on our consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123. This amendment provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirement of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for fiscal years ending after December 15, 2002. Since we are continuing to account for stock-based compensation according to APB 25, our adoption of SFAS No. 148 requires us to provide prominent disclosures about the effects of FAS 123 on reported income and will require us to disclose these affects in the interim financial statements as well.

In May 2003, the FASB issued SFAS No. 150, Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in

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some circumstances) because that financial instrument embodies an obligation of the issuer. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We do not believe that the adoption of SFAS 150 will have a material impact to our consolidated financial position, results of operations, or cash flows.

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Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all the other information in this prospectus before making an investment decision about our common stock. While the risks described below are the ones we believe are most important for you to consider, these risks are not the only ones that we face. If any of the following risks actually occurs, our business, operating results or financial condition could suffer, the trading price of our common stock could decline and you could lose all or part of your investment.

Risks Relating to Our Business

Our quarterly sales and operating results may fluctuate in future periods and we may fail to meet expectations, which may cause the price of our common stock to decline.

Our quarterly sales and operating results have fluctuated and are likely to continue to vary from quarter to quarter due to a number of factors, many of which are not within our control. If our quarterly sales or operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Factors that might cause quarterly fluctuations in our sales and operating results include the following:

• variation in demand for our products, including variation due to seasonality;

• our ability to research, develop, introduce, market and gain market acceptance of new products and product enhancements in a timely manner;

• our ability to control costs;

• the size, timing, rescheduling or cancellation of significant customer orders;

• the introduction of new products by competitors;

• long sales cycles and fluctuations in sales cycles;

• the availability and reliability of components used to manufacture our products;

• changes in our pricing policies or those of our suppliers and competitors, as well as increased price competition in general;

• the mix of our domestic and international sales, and the risks and uncertainties associated with our international business;

• costs associated with any future acquisitions of technologies and businesses;

• limitations on our ability to use net operating loss carryforwards under the provisions of Internal Revenue Code Section 382 and similar provisions under applicable state laws;

• developments concerning the protection of our proprietary rights; and

• general global economic and political conditions, including international conflicts and acts of terrorism.

A significant amount of our sales in any quarter may consist of sales through distributors. Sales from distributors accounted for approximately 17% of our revenue in 2002, and no single distributor accounted for more than 10% of our sales in any given quarter. As a result, the timing of orders by distributors may impact our quarter-to-quarter results. The loss of or a substantial reduction in orders from distributors could seriously harm our business, financial condition and results of operations. Additionally, the amount of expenses we incur, in part, depends on our expectations regarding future sales. In particular, we expect to continue incurring substantial expenses relating to the marketing and promotion of our products. Since many of our costs are fixed in the short term, if we have a shortfall in sales, we may be unable to reduce expenses quickly enough to avoid losses. Accordingly, you should not rely on quarter-to-quarter comparisons of our operating results as an indication of our future performance.

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Dentists and patients may be slow to adopt laser technologies, which could limit the market acceptance of our products.

Our dental laser systems represent relatively new technologies in the dental market. Currently, only a small percentage of dentists use lasers to perform dental procedures. Our future success will depend on our ability to increase demand for our products by demonstrating to a broad spectrum of dentists and patients the potential performance advantages of our laser systems over traditional methods of treatment and over competitive laser systems. Dentists have historically been and may continue to be slow to adopt new technologies on a widespread basis. Factors that may inhibit adoption of laser technologies by dentists include cost, and concerns about the safety, efficacy and reliability of lasers. Economic pressure may make dentists reluctant to purchase substantial capital equipment or invest in new technologies. Patient acceptance will depend in part on the recommendations of dentists and specialists as well as other factors, including without limitation, the relative effectiveness, safety, reliability and comfort of our systems as compared with those of other instruments and methods for performing dental procedures. The failure of dental lasers to achieve broad market acceptance would have an adverse effect on our business, financial condition and results of operations. We cannot assure you that we will have sufficient resources to continue to successfully market our products to achieve broad market acceptance.

We may have difficulty managing our growth.

We have been experiencing significant growth in the scope of our operations and the number of our employees. This growth has placed significant demands on our management as well as our financial and operational resources. In order to achieve our business objectives, we anticipate that we will need to continue to grow. If this growth occurs, it will continue to place additional significant demands on our management and our financial and operational resources, and will require that we continue to develop and improve our operational, financial and other internal controls both in the United States and internationally. In particular, our growth has and, if it continues, will increase the challenges involved in implementing appropriate operational and financial systems, expanding manufacturing capacity and scaling up production, expanding our sales and marketing infrastructure and capabilities, providing adequate training and supervision to maintain high quality standards, and preserving our culture and values. The main challenge associated with our growth has been, and we believe will continue to be, our ability to recruit skilled sales, manufacturing and management personnel. Our inability to scale our business appropriately or otherwise adapt to growth would cause our business, financial condition and results of operations to suffer.

If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur expenses to enforce our rights.

Our future success will depend, in part, on our ability to obtain and maintain patent protection for our products and technology, to preserve our trade secrets and to operate without infringing the intellectual property of others. In part, we rely on patents to establish and maintain proprietary rights in our technology and products. While we hold a number of issued patents and have other patent applications pending on our products and technology, we cannot assure you that any additional patents will be issued, that the scope of any patent protection will exclude competition or that any of our patents will be held valid if subsequently challenged. Other companies also may independently develop similar products, duplicate our products or design products that circumvent our patents. Additionally, the laws of foreign countries may not protect our products or intellectual property rights to the same extent as do the laws of the United States.

We face substantial uncertainty regarding the impact that other parties’ intellectual property positions will have on the markets for dental and other medical lasers. Competitors may claim that we have infringed their current or future intellectual property rights. The medical technology industry has in the past been characterized by a substantial amount of litigation and related administrative proceedings regarding patents and intellectual property rights. We may not prevail in any future intellectual property infringement litigation given the complex technical issues and inherent uncertainties in litigation. Any claims, with or without merit, could be time-consuming and distracting to management, result in costly litigation, cause product shipment delays, or require us to enter into royalty or licensing agreements. Additionally, if an intellectual property claim against us is successful, we might not be able to obtain a license on acceptable terms or license a substitute technology or redesign our products to avoid

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infringement. Any of the foregoing adverse events could seriously harm our business, financial condition and results of operations.

We are a party to two related patent infringement lawsuits involving patents relating to our core technology, which if determined adversely to us, could have a significant negative effect on our earnings.

We are currently involved in two patent related lawsuits with Diodem, LLC, a California limited liability company, which was founded by Collete Cozean, the former chief executive officer of Premier Laser Systems, Inc. On May 2, 2003, we initiated a civil action in the U.S. District Court for the Central District of California against Diodem, in which we are seeking a judicial declaration against Diodem that technology used in our laser systems does not infringe four patents owned by Diodem. Diodem claims to have acquired the patents from Premier Laser Systems, Inc., which filed for bankruptcy protection in March 2000. On May 5, 2003, Diodem added us as a party to an infringement lawsuit it had previously filed in the U.S. District Court for the Central District of California. Diodem alleges that our technology, including the technology used in our Waterlase system, infringes four patents it acquired from Premier. Diodem’s infringement suit seeks treble damages, a preliminary and permanent injunction from further alleged infringement, attorneys’ fees and other unspecified damages. Both of these lawsuits are in their preliminary stages, and may proceed for an extended period of time. There can be no assurance that our technology will not be found to infringe any of Diodem’s patents at issue in these proceedings or that we will not be liable for some or all of the damages alleged by Diodem or subject to some or all of the relief requested by Diodem.

In addition, these lawsuits could result in significant expenses and diversion of management’s time and other resources. If Diodem successfully asserts an infringement claim against us in its infringement lawsuit, our operations may be severely impacted, especially to the extent that it affects our right to use the technology incorporated in our Waterlase system, which accounted for approximately 77% of our revenue in 2002. Diodem’s infringement proceeding could also result in significant limitations on our ability to manufacture, market and sell our products, including our Waterlase system, as well as delays and costs associated with redesigning our products and payments of license fees, monetary damages and other payments. Additionally, we may be enjoined from incorporating certain technology into our products, all of which could significantly impede our operations, increase operating expenses, reduce our revenue and cause us to incur losses.

We depend on a limited number of suppliers and if we cannot secure alternate suppliers, the amount of sales in any period could be adversely affected.

We purchase certain materials and components included in our Waterlase system and other products from a limited group of suppliers using purchase orders, and we have no written supply contracts with our key suppliers. Our business depends in part on our ability to obtain timely deliveries of materials and components in acceptable quality and quantities from our suppliers. The introduction of our LaserSmile system in 2001 was delayed due to an interruption in the supply of components for the system, however, we have not otherwise experienced material delays in the supply of components. Certain components of our products, particularly specialized components used in our lasers, are currently available only from a single source or limited sources. For example, the crystal, fiber and handpieces used in our Waterlase system, which accounted for approximately 77% of our revenue in 2002, are each supplied by a separate single supplier. We have not experienced material delays from these suppliers, and we have identified and tested alternative suppliers for each of these three components. However, an unexpected interruption in a single source supplier could create manufacturing delays, and disrupt sales and cash flow as we sought to replace the supplier, which we estimate could take up to three months. Such an interruption could cause our business, financial condition and results of operations to suffer.

We have significant international sales and are subject to risks associated with operating in international markets.

International sales comprise a significant portion of our net sales and we intend to continue to pursue and expand our international business activities. International sales accounted for approximately 23% of our revenue in 2002. Political and economic conditions outside the United States could make it difficult for us to increase our international sales or to operate abroad. International operations, including our facility in Germany, are subject to many inherent risks, including:

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• adverse changes in tariffs;

• political, social and economic instability and increased security concerns;

• fluctuations in currency exchange rates;

• longer collection periods and difficulties in collecting receivables from foreign entities;

• exposure to different legal standards;

• ineffectiveness of international distributors;

• reduced protection for our intellectual property in some countries;

• burdens of complying with a variety of foreign laws;

• import and export license requirements and restrictions of the United States and each other country in which we operate;

• trade restrictions;

• the imposition of governmental controls;

• unexpected changes in regulatory or certification requirements;

• difficulties in staffing and managing international manufacturing and sales operations; and

• potentially adverse tax consequences and the complexities of foreign value added tax systems.

We believe that international sales will continue to represent a significant portion of our net sales, and we intend to further expand our international operations. Our sales in Europe are denominated principally in Euros, while our sales in other international markets are in dollars. As a result, an increase in the relative value of the dollar against the Euro would lead to less income from sales denominated in Euros, unless we increase prices, which may not be possible due to competitive conditions in Europe. We could experience losses from European transactions if the relative value of the dollar were to increase in the future. We do not currently engage in any transactions as a hedge against risks of loss due to foreign currency fluctuations, although we may consider doing so in the future. We also expect that sales of products manufactured at our facility in Germany will account for an increasing percentage of our revenue, which will further increase our exposure to the above-described risks associated with our international operations. Sales of products manufactured at our German facility accounted for 9% of our revenue in 2002. Since expenses relating to our manufacturing operations in Germany are paid in Euros, an increase in the value of the Euro relative to the dollar would increase the expenses associated with our German manufacturing operations and reduce our earnings. In addition, we may experience difficulties associated with managing our operations remotely and complying with German regulatory and legal requirements for maintaining our manufacturing operations in that country. Any of these factors may adversely affect our future international sales and manufacturing operations and, consequently, negatively impact our business, financial condition and operating results. Despite these risks, we believe the market for our products outside the United States justifies our effort to expand our international operations.

If we are unable to meet customer demand or comply with quality regulations, our sales will suffer.

We manufacture our products at our California and German production facilities. In order to achieve our business objectives, we will at some point need to significantly expand our manufacturing capabilities to produce the systems and accessories necessary to meet demand. We intend to finance the cost of expansion through operating income, funds available under our bank credit line and potentially through the sale of equity securities. We may encounter difficulties in scaling-up production of our products, including problems involving production capacity and yields, quality control and assurance, component supply and shortages of qualified personnel. In addition, our manufacturing facilities are subject to periodic inspections by the U.S. Food and Drug Administration, state agencies and foreign regulatory agencies. Our success will depend in part upon our ability to manufacture our products in compliance with the U.S. Food and Drug Administration’s Quality System regulations and other regulatory requirements. Our business will suffer if we do not succeed in manufacturing our products on a timely basis and with acceptable manufacturing costs while at the same time maintaining good quality control and complying with applicable regulatory requirements.

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Any failure to significantly expand sales of our products will negatively impact our business.

We currently handle a majority of the marketing, distribution and sales of our laser systems. In order to achieve our business objectives, we will need to significantly expand our marketing and sales efforts on a nationwide and global basis. We will face significant challenges and risks in expanding, training, managing and retaining our sales and marketing teams, including managing geographically dispersed efforts. In addition, we use third party distributors to sell our products in a number of countries outside the United States, and are dependent on the sales and marketing efforts of these third party distributors. These distributors may not commit the necessary resources to effectively market and sell our products. If we are unable to expand our sales and marketing capabilities, we may not be able to effectively commercialize our products.

Acquisitions could have unintended negative consequences, which could harm our business.

As part of our business strategy, we may acquire one or more businesses, products or technologies. Most recently, in May 2003, we acquired the American Dental Laser product line and related dental laser assets of American Medical Technologies, Inc., including the Diolase and Pulsemaster systems, and related inventory, patents and other intellectual property rights. We are currently in the process of integrating the assets relating to the American Dental Laser product line into our operations. We must effectively integrate the American Dental Laser product line into our operations in order to achieve profitability from it. We believe we can integrate the acquired assets into our sales and manufacturing infrastructure with minimal increase to our operating expenses because we acquired principally patents, brand names, customer lists and other intangibles and we did not assume the seller’s personnel, facilities or other overhead.

Acquisitions could require significant capital infusions and could involve many risks, including, but not limited to, the following:

• we may encounter difficulties in assimilating and integrating the operations, products and workforce of the acquired companies;

• acquisitions may negatively impact our results of operations because they may require large one-time charges or could result in increased debt or contingent liabilities, adverse tax consequences, substantial depreciation or deferred compensation charges, or the amortization or write down of amounts related to deferred compensation, goodwill and other intangible assets;

• acquisitions may be dilutive to our existing stockholders;

• acquisitions may disrupt our ongoing business and distract our management; and

• key personnel of the acquired company may decide not to work for us.

We cannot assure you that we will be able to identify or consummate any future acquisitions on acceptable terms, or at all. If we do pursue any acquisitions, it is possible that we may not realize the anticipated benefits from such acquisitions or that the market will not positively view such acquisitions.

We may be unable to comply with covenants contained in our credit agreement, which could result in the impairment of our working capital and alter our ability to operate our business.

In May 2003, we secured a new credit facility through Bank of the West. At August 31, 2003, the outstanding principal balance on this credit facility was $1.8 million. To maintain the right to borrow under this credit facility and avoid a default under our credit agreement with Bank of the West, we are required to satisfy certain financial tests and comply with certain operating covenants contained in that agreement. Our ability to satisfy required financial ratios and tests can be affected by events beyond our control, including prevailing economic, financial and industry conditions, and we cannot assure you that we will continue to meet those ratios and tests in the future. A breach of any of these covenants, ratios or tests could result in a default under our credit agreement. If we default, our lender will no longer be obligated to extend credit to us and could elect to declare all amounts

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outstanding under the credit agreement, together with accrued interest, to be immediately due and payable. If we were unable to repay those amounts, our lender could proceed against the collateral granted to it to secure that indebtedness, which includes our intellectual property. The results of such action would have a significant negative impact on our results of operations and financial condition. Due to the restatement of our financial statements, we are not in compliance with three covenants at June 30, 2003. The bank has provided waivers as of June 30, 2003. We expect to be in compliance at September 30, 2003; however, we cannot assure you that we will be in compliance.

Material increases in interest rates may harm our sales.

We currently sell our products primarily to dentists in general practice. These dentists often purchase our products with funds they secure through various financing arrangements with third party financial institutions, including credit facilities and short term loans. If interest rates increase, these financing arrangements will be more expensive to our dental customers, which would effectively increase the price of our products to our customers and, thereby, may decrease overall demand for our products. Any reduction in the sales of our products would cause our business to suffer.

We may not be able to compete successfully against our current and future competitors.

We compete with a number of foreign and domestic companies that market traditional dental products, such as dental drills, as well as other companies that market laser technologies in the dental and medical markets that we address, including companies such as Hoya ConBio, a subsidiary of Hoya Photonics, a large Japanese manufacturer primarily of optics and crystals, OpusDent Ltd., a subsidiary of Lumenis, Deka Dental Corporation and Fotona d.d. Some of our competitors have greater financial, technical, marketing or other resources than us, which may allow them to respond more quickly to new or emerging technologies and to devote greater resources to the acquisition or development and introduction of enhanced products than we can. In addition, the rapid technological changes occurring in the healthcare industry are expected to lead to the entry of new competitors, especially as dental and medical lasers gain increasing market acceptance. Our ability to anticipate technological changes and to introduce enhanced products on a timely basis will be a significant factor in our ability to grow and remain competitive. New competitors or technological changes in laser products and methods could cause commoditization of such products, require price discounting or otherwise adversely affect our gross margins.

Rapid changes in technology could harm the demand for our products or result in significant additional costs.

The markets in which our laser systems compete are subject to rapid technological change, evolving industry standards, changes in the regulatory environment, frequent new device introductions and evolving dental and surgical techniques. These changes could render our products uncompetitive or obsolete. The success of our existing and future products is dependent on the differentiation of our products from those of our competitors, the timely introduction of new products and the perceived benefit to the customer in terms of improved patient satisfaction and return on investment. The process of developing new medical devices is inherently complex and requires regulatory approvals or clearances that can be expensive, time consuming and uncertain. We cannot assure you that we will successfully identify new product opportunities, be financially or otherwise capable of completing the research and development required to bring new products to market in a timely manner or that products and technologies developed by others will not render our products obsolete.

The failure to attract and retain key personnel could adversely affect our business.

Our future success depends in part on the continued service of certain key personnel, including our Chief Executive Officer, our Executive Vice President responsible for sales, our Vice President of Research and Development and our Chief Financial Officer. We do not have employment agreements with any of our key employees, other than an employment agreement with our Chief Executive Officer, which expires in January 2004, and an employment agreement with our Executive Vice President responsible for sales, which can be terminated at will by the executive or by us.

Our success will also depend in large part on our ability to continue to attract, retain and motivate qualified engineering and other highly skilled technical personnel. Competition for certain employees, particularly

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development engineers, is intense despite the effects of the economic slowdown. We may be unable to continue to attract and retain sufficient numbers of such highly skilled employees. Our inability to attract and retain additional key employees or the loss of one or more of our current key employees could adversely affect our business, financial condition and results of operations.

Product liability claims against us could be costly and could harm our reputation.

The sale of dental and medical devices involves the inherent risk of product liability claims against us. We currently maintain product liability insurance on a per occurrence basis with a limit of $11 million per occurrence and $12 million in the aggregate for all occurrences. The insurance is subject to various standard coverage exclusions, including damage to the product itself, losses from recall of our product and losses covered by other forms of insurance such as workers compensation. There is no assurance that we will be able to obtain such insurance in the future on terms acceptable to us, or at all. We do not know whether claims against us with respect to our products, if any, would be successfully defended or whether our insurance would be sufficient to cover liabilities resulting from such claims. Any claims successfully brought against us would cause our business to suffer.

We are exposed to risks associated with the recent worldwide economic slowdown and related uncertainties.

Concerns about decreased consumer and investor confidence, reduced corporate profits and capital spending, and recent international conflicts and terrorist and military activity have resulted in a downturn in the equity markets and a slowdown in economic conditions, both domestically and internationally, and have caused concern about the strength or longevity of an economic recovery. These unfavorable conditions could ultimately cause a slowdown in customer orders or cause customer order cancellations. In addition, recent political and social turmoil related to international conflicts and terrorist acts may put further pressure on economic conditions in the United States and abroad. Unstable political, social and economic conditions make it difficult for our customers, our suppliers and us to accurately forecast and plan future business activities. If such conditions continue or worsen, our business, financial condition and results of operations could suffer.

We may not be able to secure additional financing to meet our future capital needs.

We expect to expend significant capital to further develop our products, increase awareness of our laser systems and our brand names and to expand our operating and management infrastructure as we increase sales in the United States and abroad. We may use capital more rapidly than currently anticipated. Additionally, we may incur higher operating expenses and generate lower revenue than currently expected, and we may be required to depend on external financing to satisfy our operating and capital needs, including the repayment of our debt obligations. We may be unable to secure additional debt or equity financing on terms acceptable to us, or at all, at the time when we need such funding. If we do raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing stockholders. If we raise additional funds by issuing debt, we may be subject to debt covenants, such as the debt covenants under our secured credit facility, which could place limitations on our operations including our ability to declare and pay dividends. Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial condition and results of operations.

We have adopted anti-takeover defenses that could delay or prevent an acquisition of our company and may affect the price of our common stock.

Certain provisions of our certificate of incorporation and stockholder rights plan could make it difficult for any party to acquire us, even though an acquisition might be beneficial to our stockholders. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock.

In December 1998, we adopted a stockholder rights plan pursuant to which one preferred stock purchase right is distributed to our stockholders for each share of our common stock held by them. In connection with the stockholder rights plan, the Board of Directors may issue up to 500,000 shares of Series B Junior Participating Cumulative Preferred Stock. If any party acquires 15% or more of our outstanding common stock, the holders of

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these rights will be able to purchase the underlying junior participating preferred stock as a way to discourage, delay or prevent a change in control of our company.

In addition, under our certificate of incorporation, the Board of Directors has the power to authorize the issuance of up to 500,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without further vote or action by the stockholders. Accordingly, our Board of Directors may issue preferred stock with terms that could have preference over and adversely affect the rights of holders of our common stock.

The issuance of any preferred stock may:

• delay, defer or prevent a change in control of BioLase;

• discourage bids for the common stock at a premium over the market price of our common stock;

• adversely affect the voting and other rights of the holders of our common stock; and

• discourage acquisition proposals or tender offers for our shares.

Our shares may be delisted if our stock price drops below $5.00 per share or if we otherwise fail to comply with applicable listing requirements.

We are required to maintain a stock price of approximately $5.00 per share in order to maintain our listing on the Nasdaq National Market. If our stock price drops below approximately $5.00 per share for an extended period of time or we are otherwise unable to satisfy the continued listing requirements of the Nasdaq National Market, our shares could be delisted from the Nasdaq National Market and the marketability, liquidity and price of our common stock would be adversely affected.

Risks Relating to Our Industry

Changes in government regulation or the inability to obtain or maintain necessary government approvals could harm our business.

Our products are subject to extensive government regulation, both in the United States and in other countries. To clinically test, manufacture and market products for human use, we must comply with regulations and safety standards set by the U.S. Food and Drug Administration and comparable state and foreign agencies. Regulations adopted by the U.S. Food and Drug Administration are wide ranging and govern, among other things, product design, development, manufacture and testing, labeling, storage, advertising and sales. Generally, products must meet regulatory standards as safe and effective for their intended use before being marketed for human applications. The clearance process is expensive, time-consuming and uncertain. Failure to comply with applicable regulatory requirements of the U.S. Food and Drug Administration can result in an enforcement action which may include a variety of sanctions, including fines, injunctions, civil penalties, recall or seizure of our products, operating restrictions, partial suspension or total shutdown of production and criminal prosecution. The failure to receive or maintain requisite approvals for the use of our products or processes, or significant delays in obtaining such approvals, could prevent us from developing, manufacturing and marketing products and services necessary for us to remain competitive. In addition, unanticipated changes in existing regulatory requirements or the adoption of new requirements could impose significant costs and burdens on us, which could increase our operating expenses, reduce our revenue and profits, and result in operating losses.

If our customers cannot obtain third party reimbursement for their use of our products, they may be less inclined to purchase our products.

Our products are generally purchased by dental or medical professionals who have various billing practices and patient mixes. Such practices range from primarily private pay to those who rely heavily on third party payors, such as private insurance or government programs. In the United States, third party payors review and frequently challenge the prices charged for medical services. In many foreign countries, the prices for dental services are predetermined through government regulation. Payors may deny coverage and reimbursement if they

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determine that the procedure was not medically necessary, such as a cosmetic procedure, or that the device used in the procedure was investigational. We believe that most of the procedures being performed with our current products generally are reimbursable, with the exception of cosmetic applications such as tooth whitening. For the portion of dentists who rely heavily on third party reimbursement, the inability to obtain reimbursement for services using our products could deter them from purchasing or using our products. We cannot predict the effect of future healthcare reforms or changes in financing for health and dental plans. Any such changes could have an adverse effect on the ability of a dental or medical professional to generate a return on investment using our current or future products. Such changes could act as disincentives for capital investments by dental and medical professionals and could have a negative impact on our business, financial condition and results of operations.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As discussed in Note 4 to the Consolidated Financial Statements, we acquired a production facility in Germany in February 2002. The debt related to those assets is payable in Euros at the exchange rate in effect as of the date of acquisition. That exchange rate was 0.8591. In conjunction with portion of the debt due in 2003, we entered into forward contracts to purchase approximately $700,000 of Euros at an exchange rate of 0.8575. As of December 31, 2002, the exchange rate was 1.0482, resulting in an unrealized gain on those contracts of $152,000, which has been reflected in the Consolidated Statements of Operations. On February 3, 2003, the contracts expired and were not renewed, resulting in a cumulative realized gain on the contracts of $174,000.

Since February 3, 2003, we have not engaged in transactions to offset currency fluctuations, and we are at risk for changes in the value of the dollar relative to the Euro with respect to our obligation to repay the debt on our German facility. The value of the German facility itself as stated in dollars on our balance sheet will vary as the exchange rate of the dollar and the Euro varies. Our sales in Europe are denominated principally in Euros, and our sales in other international markets are denominated in dollars. As a result, an increase in the relative value of the dollar to the Euro would lead to less income from sales denominated in Euros, unless we increase prices, which may not be possible due to competitive conditions in Europe. Additionally, since expenses relating to our manufacturing operations in Germany are paid in Euros, an increase in the value of the Euro relative to the dollar would increase the expenses associated with our German manufacturing operations and reduce our earnings. Our bank line of credit bears interest at a variable rate tied to LIBOR plus 2.25%, which makes the current effective interest rate 3.4% at August 31, 2003. A 10% increase in LIBOR would increase the effective interest rate from 3.4% to 3.5%, which would not result in a material difference to our interest expense on our outstanding bank debt of $1.8 million.

Item 8. Financial Statements and Supplementary Data

All financial statements and supplementary data required by this Item are listed in Part IV, Item 15 of this Form 10-K/A, are presented beginning on Page F-1 and are incorporated herein by this reference.

Item 9A. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of a date within 90 days of the initial filing date of the Annual Report on Form 10-K for the year ended December 31, 2002, our Chief Executive Officer and Chief Financial Officer have concluded that, subject to the limitations noted above and except as indicated below in paragraph (b) of this item, our disclosure controls and procedures were effective to ensure that material information relating to us, including our consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this Annual Report on Form 10-K/A was being prepared.

(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation described in Item 9(a) above that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, we have been notified by our independent accountants that there exists a material weakness with respect to our internal controls

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surrounding our evaluation of the terms and conditions of our arrangements with our customers to determine the appropriate timing of revenue recognition. The registrant has modified and standardized its purchase order forms to conform to the revenue recognition criteria in SAB 101 and is implementing controls over future modifications to its purchase order forms.

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PART III

Item 11. Executive Compensation

The following table contains summary information concerning the annual compensation for the years ended December 31, 2000, 2001 and 2002 for our President and Chief Executive Officer, and our other executive officers who earned over $100,000 for the year ended December 31, 2002.

		Annual Compensation								Long-Term Compensation Awards
Name and Principal Position	Year	Salary ($)		Bonus ($)			Other Annual Compensation ($)			Securities Underlying Options (#)
Jeffrey W. Jones     President and Chief     Executive Officer	2002 2001 2000	$	240,000 240,000 240,000	$	96,000 —   —	(1)	$	20,540 54,634 4,500	(2) (3) (4)	—   300,000 100,000
Keith G. Bateman     Executive Vice President	2002 2001 2000		110,000 110,000 110,000		137,362 69,019 27,442	(5) (5) (5)		—   —   —		—   100,000 —
Edson J. Rood     Vice President and Chief     Financial Officer	2002 2001		150,000 64,435		—   —			—   —		—   200,000

(1) Represents annual bonus equal to 0.5% of all sales revenue in excess of $10,000,000.

(2) Represents car allowance of $17,640 and $2,900 of reimbursement for travel expenses.

(3) Includes housing allowance of $42,000 in lieu of bonuses, car allowance of $8,134 and $4,500 of reimbursement for travel expenses.

(4) Includes reimbursement for travel expenses.

(5) Represents commissions earned.

Stock Options and Stock Appreciation Rights

No stock options or stock appreciation rights were granted to the named executive officers during 2002.

Fiscal Year-End Option Values

The following table provides information, with respect to the named executive officers, concerning unexercised options held by them at the end of 2002. None of the named executive officers exercised any stock options during 2002 and no stock appreciation rights were held by the named executive officers at the end of such year.

	Number of Securities Underlying Unexercised Options at Fiscal Year-End (#)		Value of Unexercised in-the- Money Options at Fiscal Year-End ($)(1)
Name	Exercisable	Unexercisable	Exercisable		Unexercisable
Jeffrey W. Jones	657,000	150,000	$	1,754,055	$	48,000
Keith G. Bateman	162,500	62,500		428,719		20,000
Edson J. Rood	100,000	100,000		110,000		110,000

(1) Based on the market price of $5.49 per share, determined on the basis of the closing sale price per share of our common stock on the Nasdaq National Market on the last day of the fiscal year ended December 31, 2002, less the option exercise price payable per share, multiplied by the number of shares underlying the options.

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Employment Contracts, Termination of Employment and Change in Control Arrangements

In January 2002, we entered into an employment agreement with Jeffrey W. Jones, our President and Chief Executive Officer. Under the terms of the employment agreement, Mr. Jones receives a base annual salary of $240,000. In addition, Mr. Jones earned a bonus equal to 0.50% of all 2002 sales in excess of $10,000,000 and will earn a bonus equal to 0.63% of all 2003 sales in excess of $20,000,000. Mr. Jones received a monthly housing allowance of $3,500 for the fiscal year 2002 for expenses incurred in maintaining a residence in California in connection with his employment with us. The housing allowance was in lieu of any bonus in 2001. Mr. Jones also is entitled to receive an automobile allowance, four weeks’ paid vacation per year, reimbursement of reasonable periodic travel expenses for traveling to and from his permanent residence in Wyoming, and other executive benefits. The term of Mr. Jones’ agreement ends on December 31, 2003, but his employment will continue on a calendar quarter to calendar quarter basis on the terms existing at that time until terminated on at least 90 days prior notice by either party, or until the employment agreement is amended, renewed or extended. We may immediately terminate the employment agreement at any time for cause as defined in the employment agreement. If we terminate Mr. Jones’ employment other than for cause, Mr. Jones will be entitled to receive severance pay in an amount equal to six to 12 months’ base salary.

In connection with the execution of his employment agreement, Mr. Jones received a stock option on December 20, 2001 to purchase 300,000 shares of our common stock at an exercise price of $5.17 per share, which was the fair market value of our common stock on December 20, 2001. The stock option vests at a rate of 12,500 shares per month and expires ten years from the date of grant, subject to earlier termination should Mr. Jones cease to provide service to us. If Mr. Jones’ employment is terminated by us other than for cause, the stock option will continue to vest for the longer of the balance of the calendar year in which the termination occurs or six months following the termination.

In Mr. Jones’ employment agreement, we agreed to indemnify Mr. Jones to the maximum extent permitted under Delaware law against any expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (with our written consent which shall not be unreasonably withheld) actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, threatened or initiated against Mr. Jones by reason of the fact that he was serving as an officer, director, employee or agent of us or was serving at our request as an officer, director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.

In January 1999, we entered into an employment agreement with Keith G. Bateman, our Executive Vice President responsible for sales. The agreement is terminable at any time by us or Mr. Bateman. Under the agreement, we granted to Mr. Bateman options to purchase up to 100,000 shares of our common stock at a per share exercise price of $2.125, which are fully vested and exercisable. The agreement provided for an initial salary of $110,000. Mr. Bateman’s base salary was $110,000 for 1999 through 2002, and was increased to $150,000 for 2003. Mr. Bateman is currently entitled to receive a target bonus of up to $100,000 if he satisfies certain performance benchmarks. Under the terms of this agreement, in the event we are acquired or merged, the surviving entity either must offer Mr. Bateman a one-year employment agreement with at least equivalent compensation terms as he receives from us or must pay Mr. Bateman severance in an amount equal to his total compensation during the previous nine months, including base salary, commissions and bonus.

The Compensation Committee of our Board of Directors has the authority to provide for accelerated vesting of the shares of our common stock subject to any outstanding options held by the chief executive officer or any other executive officer or any unvested share issuances actually held by such individual, in connection with certain changes in control of us or the subsequent termination of the officer’s employment following the change of control event.

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PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) The following documents are filed as part of this Amendment No. 1 to Annual Report on Form 10-K/A beginning on the pages referenced below:

(1) Financial Statements:

	Page
Report of Independent Accountants	F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001 (Restated)	F-3
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 (Restated)	F-4
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2002, 2001 and 2000 (Restated)	F-5
Consolidated Statements of Cash Flow for the years ended December 31, 2002, 2001 and 2000 (Restated)	F-6
Notes to the Consolidated Financial Statements	F-7

(2) Financial Statement Schedule:

Schedule II – Consolidated Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2002, 2001 and 2000 (Restated) S-1

All other schedules have been omitted as they are not applicable, not required or the information is included in the consolidated financial statements or the notes thereto.

(3) Exhibits:

The following exhibits are filed with this Amendment No. 1 to Annual Report on Form 10-K/A or are incorporated by reference herein in accordance with the designated footnote references.

Exhibit Number	Description
3.1	Restated Certificate of Incorporation, as Amended. (2)
3.2	Amended and Restated Bylaws. (3)
4.1	Certificate of Designations, Preferences and Rights of Series A 6% Redeemable Cumulative Convertible Preferred Stock of BIOLASE Technology, Inc. (4)
4.2	Rights Agreement dated as of December 31, 1998 between the Registrant and U.S. Stock Transfer Corporation. (5)
4.4	Rights Agreement dated as of December 31, 1999, between the Registrant and U.S. Stock Transfer Corporation. (5)
4.5	1990 Stock Option Plan. (1)
4.6	1992 Stock Option Plan. (1)
4.7	1993 Stock Option Plan. (2)
4.8	2002 Stock Option Plan. (10)
10.1†	Employment Offer Letter dated January 8, 1999 from Jeffrey W. Jones, the Registrant’s Chief Executive Officer, to Keith G. Bateman, the Registrant’s Executive Vice President (8)
10.2	Employment Agreement dated January 1, 2002 between the Registrant and Jeffrey W. Jones (6)
10.3†	Asset Purchase Agreement, dated January 29, 2002 between Asclepion-Meditec AG and the Registrant’s subsidiary, BIOLASE Europe GmbH (9)
10.4	Agreement for the Purchase of a Built-Up Property, dated January 29, 2002 between Asclepion-Meditec AG and the Registrant’s subsidiary, BIOLASE Europe GmbH (6)

43

Exhibit Number	Description
10.5†	Agreement, dated January 29, 2002 between Asclepion-Meditec AG and the Registrant’s Subsidiary, BIOLASE Europe GmbH (8)
10.6†	Letter modification to the January 29, 2002 Asset Purchase Agreement between Asclepion-Meditec AG and Registrant’s subsidiary BIOLASE Europe GmbH (7)
10.7†	Distribution Agreement, executed June 13, 2002 between Registrant and IBC GmbH (7)
10.8	Form of Stock Option Agreement under the 1993 Stock Option Plan. (2)
10.09	Form of Purchase Order Terms and Conditions relating to domestic sales (effective for sales on or before August 4, 2003). (12)
10.10	Form of Purchase Order Term and Conditions relating to domestic sales (effective for sales after August 4, 2003) (12)
10.11	Right of First Refusal Agreement dated November 15, 2001, between National Technology Leasing Corporation and BioLase Technology, Inc. (12)
10.12	BioLase and NTL Agreement dated August 5, 2003, between National Technology Leasing Corporation and BioLase Technology, Inc. (12)
10.13	Form of Purchase Order Terms and Conditions from National Technology Leasing Corporation (12)
10.14	Credit Agreement dated May 14, 2003, between Bank of the West and BioLase Technology, Inc.(12)
21.1	Subsidiaries of the Registrant (11)
23.1	Consent of Independent Accountants (12)
24.1	Power of Attorney (included in Signature page)
31.1	Certification of Jeffrey W. Jones pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended. (12)
31.2	Certification of Edson J. Rood pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended. (12)
32.1	Certification of Jeffrey W. Jones Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (12)
32.2	Certification of Edson J. Rood Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (12)

† Confidential treatment was requested for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. In accordance with Rule 24b-2, these confidential portions were omitted from this exhibit and filed separately with the Securities and Exchange Commission.

(1) Filed with the Registrant’s Registration Statement on Form S-1 filed October 9, 1992 and incorporated herein by reference.

(2) Filed with the Registrant’s Annual Report on Form 10-K filed April 14, 1994 and incorporated herein by reference.

(3) Filed with the Registrant’s Quarterly Report on Form 10-QSB filed September 15, 1995 and incorporated herein by reference.

(4) Filed with the Registrant’s Quarterly Report on Form 10-QSB filed November 19, 1996 and incorporated herein by reference.

(5) Filed with the Registrant’s Registration Statement on Form 8-A filed December 29, 1998 and incorporated herein by reference.

(6) Filed with the Registrant’s Quarterly Report on Form 10-Q filed May 15, 2002 and incorporated herein by reference.

(7) Filed with the Registrant’s Quarterly Report on Form 10-Q filed August 14, 2002 and incorporated herein by reference.

(8) Filed with the Registrant’s Quarterly Report on Form 10-Q/A filed July 24, 2002 and incorporated herein by reference.

44

(9) Filed with the Registrant’s Quarterly Report on Form 10-Q/A filed September 13, 2002 and incorporated herein by reference.

(10) Filed with the Registrant’s Definitive Proxy Statement filed April 22, 2002 and incorporated herein by reference.

(11) Filed with Registrant’s Report on Form 10-K filed March 24, 2003 and incorporated herein by reference.

(12) Filed herewith.

(b) Reports on Form 8-K.

None.

45

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: September 16, 2003	BIOLASE TECHNOLOGY, INC., A Delaware Corporation (registrant)
	By:	/s/    JEFFREY W. JONES
		Jeffrey W. Jones
		President and Chief Executive Officer

46

POWER OF ATTORNEY

We, the undersigned officers and directors of BioLase Technology, Inc., do hereby constitute and appoint Jeffrey W. Jones and Edson J. Rood, and each of them, our true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby, ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/    JEFFREY W. JONES	President, Chief Executive Officer and
Jeffrey W. Jones	Director (Principal Executive Officer)	September 16, 2003
/s/    FEDERICO PIGNATELLI	Director and Chairman of the Board	September 16, 2003
Federico Pignatelli
/s/    WILLIAM A. OWENS	Director	September 16, 2003
William A. Owens
/s/    GEORGE V. D’ARBELOFF	Director	September 16, 2003
George V. d’Arbeloff
/s/    EDSON J. ROOD	Vice President and Chief Financial Officer	September 16, 2003
Edson J. Rood	(Principal Financial and Accounting Officer)

47

BIOLASE TECHNOLOGY, INC.

Index to Consolidated Financial Statements and Schedule

	Page
Report of Independent Accountants	F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001 (Restated)	F-3
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 (Restated)	F-4
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2002, 2001 and 2000 (Restated)	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 (Restated)	F-6
Notes to Consolidated Financial Statements	F-7
SCHEDULE
Schedule numbered in accordance with Rule 5.04 of Regulation S-X:
II. Consolidated Valuation and Qualifying Accounts and Reserves (Restated)	S-1

All Schedules, except Schedule II, have been omitted as the required information is shown in the consolidated financial statements, or notes thereto, or the amounts involved are not significant or the schedules are not applicable.

F-1

Report of Independent Accountants

To the Board of Directors and Stockholders of

BioLase Technology, Inc.

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of BioLase Technology, Inc. and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2, the Company has restated its consolidated financial statements at December 31, 2002 and 2001 and for each of the three years ended December 31, 2002 to correct the timing of revenue recognition.

/s/    PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Orange County, California

February 10, 2003, except for Note 2,

        as to which the date is September 3, 2003

F-2

BIOLASE TECHNOLOGY, INC.

	December 31,
	2002			2001
	(Restated – Note 2)
ASSETS
Current assets:
Cash and cash equivalents	$	3,940,000		$	2,670,000
Accounts receivable, less allowance of $202,000 and $108,000 in 2002 and 2001, respectively		4,983,000			2,182,000
Inventories, net of reserves of $239,000 and $232,000 in 2002 and 2001, respectively		2,792,000			1,887,000
Deferred charges on product shipped		1,415,000			605,000
Prepaid expenses and other current assets		1,028,000			260,000
Total current assets		14,158,000			7,604,000
Property, plant and equipment, net		1,733,000			392,000
Patents and trademarks, net		67,000			91,000
Other assets		45,000			166,000
Total assets	$	16,003,000		$	8,253,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	1,792,000		$	1,792,000
Accounts payable		2,082,000			1,656,000
Accrued liabilities		3,580,000			1,976,000
Customer deposits		329,000			290,000
Deferred revenue on product shipped		3,674,000			1,626,000
Deferred gain on sale of building, current portion		63,000			63,000
Debt		1,220,000			—
Total current liabilities		12,740,000			7,403,000
Deferred gain on sale of building		142,000			205,000
Total liabilities		12,882,000			7,608,000
Stockholders’ equity:
Preferred stock, par value $0.001, 1,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, par value $0.001, 50,000,000 shares authorized; issued and outstanding—20,131,000 shares in 2002 and 19,734,000 shares in 2001		20,000			20,000
Additional paid-in capital		49,497,000			48,462,000
Accumulated other comprehensive loss		(57,000	)		—
Accumulated deficit		(46,339,000	)		(47,837,000	)
Total stockholders’ equity		3,121,000			645,000
Total liabilities and stockholders’ equity	$	16,003,000		$	8,253,000

See accompanying notes to consolidated financial statements.

F-3

BIOLASE TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31, (Restated – Note 2)
	2002			2001			2000
Net sales	$	27,257,000		$	16,546,000		$	9,495,000
Cost of sales		10,485,000			6,938,000			4,816,000
Gross profit		16,772,000			9,608,000			4,679,000
Other income		63,000			79,000			—
Operating expenses:
Sales and marketing		10,729,000			7,314,000			4,211,000
General and administrative		3,010,000			2,011,000			1,841,000
Engineering and development		1,684,000			1,520,000			2,288,000
Total operating expenses		15,423,000			10,845,000			8,340,000
Income (loss) from operations		1,412,000			(1,158,000	)		(3,661,000	)
Gain on foreign currency transactions		51,000			—			—
Gain on forward exchange contract		152,000			—			—
Interest income		18,000			44,000			69,000
Interest expense		(135,000	)		(167,000	)		(163,000	)
Income (loss) before cumulative effect of change in accounting principle		1,498,000			(1,281,000	)		(3,755,000	)
Cumulative effect of change in accounting principle		—			—			(34,000	)
Net income (loss)	$	1,498,000		$	(1,281,000	)	$	(3,789,000	)
Income (loss) per share before cumulative effect of change in accounting principle:
Basic	$	0.08		$	(0.07	)	$	(0.20	)
Diluted	$	0.07		$	(0.07	)	$	(0.20	)
Cumulative effect of change in accounting principle per share:
Basic	$	—		$	—		$	0.00
Diluted	$	—		$	—		$	0.00
Net income (loss) per share:
Basic	$	0.08		$	(0.07	)	$	(0.20	)
Diluted	$	0.07		$	(0.07	)	$	(0.20	)
Shared used in computing net income (loss) per share:
Basic		19,929,000			19,510,000			19,171,000
Diluted		21,303,000			19,510,000			19,171,000

See accompanying notes to consolidated financial statements.

F-4

BIOLASE TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

	Preferred Stock			Common Stock and Additional Paid-in Capital				Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares		Amount
Balances at December 31, 1999	—	$	—	17,583,000		$	41,827,000	$	—		$	(42,767,000	)	$	(940,000	)
Private placement of common stock, net	—		—	1,250,000			2,450,000		—			—			2,450,000
Issuance of stock and warrants for earned services	—		—	37,000			73,000		—			—			73,000
Cancellation of stock	—		—	(525,000	)		—		—			—			—
Exercise of stock options	—		—	203,000			322,000		—			—			322,000
Exercise of warrants	—		—	819,000			2,879,000		—			—			2,879,000
Net loss (restated)	—		—	—			—		—			(3,789,000	)		(3,789,000	)
Balances at December 31, 2000 (Restated – Note 2)	—		—	19,367,000			47,551,000		—			(46,556,000	)		995,000
Issuance of stock and warrants for earned services	—		—	20,000			128,000		—			—			128,000
Exercise of stock options	—		—	172,000			367,000		—			—			367,000
Exercise of warrants	—		—	175,000			436,000		—			—			436,000
Net loss (restated)	—		—	—			—		—			(1,281,000	)		(1,281,000	)
Balances at December 31, 2001 (Restated – Note 2)	—		—	19,734,000			48,482,000		—			(47,837,000	)		645,000
Exercise of stock options	—		—	182,000			472,000		—			—			472,000
Exercise of warrants	—		—	215,000			563,000		—			—			563,000
Comprehensive income (loss):
Net income (restated)	—		—	—			—		—			1,498,000			1,498,000
Foreign currency translation adjustment	—		—	—			—		(57,000	)		—			(57,000	)
Total comprehensive income (restated)	—		—	—			—		(57,000	)		1,498,000			1,441,000
Balances at December 31, 2002 (Restated – Note 2)	—	$	—	20,131,000		$	49,517,000	$	(57,000	)	$	(46,339,000	)	$	3,121,000

See accompanying notes to consolidated financial statements.

F-5

BIOLASE TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31, (Restated – Note 2)
	2002			2001			2000
Cash flows from operating activities:
Net income (loss)	$	1,498,000		$	(1,281,000	)	$	(3,789,000	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Cumulative effect of change in accounting principle		—			—			(34,000	)
Issuance of common stock and warrants for earned services		—			127,000			73,000
Depreciation and amortization		246,000			165,000			166,000
Gain on disposal of assets		(63,000	)		(43,000	)		—
Unrealized gain on forward exchange contract		(152,000	)		—			—
Provision (benefit) for bad debts		283,000			133,000			20,000
Provision for inventory excess and obsolescence		7,000			108,000			326,000
Changes in assets and liabilities:
Accounts receivable		(3,084,000	)		(1,441,000	)		(530,000	)
Inventory		(912,000	)		(773,000	)		(889,000	)
Deferred charges on product shipped		(810,000	)		(497,000	)		(108,000	)
Prepaid expenses and other assets		(495,000	)		(242,000	)		(12,000	)
Accounts payable and accrued expenses		2,030,000			1,276,000			514,000
Deferred revenue on product shipped		2,048,000			1,341,000			285,000
Customer deposits		39,000			90,000			200,000
Net cash provided by (used in) operating activities		635,000			(1,037,000	)		(3,778,000	)
Cash flows from investing activities:
Additions to property, plant and equipment		(478,000	)		(154,000	)		(1,069,000	)
Additions to patents and licenses		—			(10,000	)		—
Proceeds from the sale of property, plant and equipment		—			2,261,000			—
Net cash (used in) provided by investing activities		(478,000	)		2,097,000			(1,069,000	)
Cash flows from financing activities:
Borrowings under a line of credit, net		—			—			450,000
Payments on mortgage note payable		—			(1,195,000	)		(5,000	)
Payments on note payable		—			—			(428,000	)
Proceeds from issuance of common stock, net		—			—			2,450,000
Proceeds from exercise of stock options and warrants		1,035,000			803,000			3,201,000
Net cash provided by (used in) financing activities		1,035,000			(392,000	)		5,668,000
Effect of exchange rate changes on cash		78,000			—			—
Increase in cash and cash equivalents		1,270,000			668,000			821,000
Cash and cash equivalents at beginning of period		2,670,000			2,002,000			1,181,000
Cash and cash equivalents at end of period	$	3,940,000		$	2,670,000		$	2,002,000
Supplemental cash flow disclosure:
Cash paid during the period for interest	$	51,000		$	130,000		$	148,000
Cash paid during the period for taxes	$	2,000		$	2,000		$	2,000
Non-cash financing activities:
Conversion of accrued expenses to a note payable	$	—		$	—		$	428,000
Issuance of debt to purchase manufacturing facility		—			—			1,200,000
Debt incurred in connection with acquisition of production facility		1,000,000			—			—
	$	1,000,000		$	—		$	1,628,000

See accompanying notes to consolidated financial statements.

F-6

BIOLASE TECHNOLOGY, INC.

NOTE 1—BASIS OF PRESENTATION

The Company

BioLase Technology Inc., incorporated in Delaware in 1987, is a medical technology company operating in one business segment that designs, manufactures and markets advanced dental, cosmetic and surgical laser and related products.

Basis of Presentation

The consolidated financial statements include the accounts of BioLase Technology, Inc. and its two wholly-owned subsidiaries: Societe Endo Technic, which is inactive and which we intend to dissolve, and BIOLASE Europe GmbH (“BIOLASE Europe”), a foreign subsidiary incorporated in Germany in December of 2001. We have eliminated all material intercompany transactions and balances in the accompanying financial statements. As of December 31, 2002, $1.7 million of net assets were located outside of the United States, in BIOLASE Europe.

Use of Estimates

In order to prepare the financial statements in accordance with GAAP, we use estimates and assumptions that may affect reported amounts and disclosures. Significant estimates in these financial statements include valuation allowances on accounts receivable and inventories, accrued warranty expenses, pro-forma effects of stock-based compensation and the provision for deferred taxes and related valuation allowances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based on amounts that differ from those estimates.

Reclassifications

Certain amounts in the prior period consolidated financial statements have been reclassified to be consistent with the current year presentation.

NOTE 2—RESTATEMENT OF FINANCIAL STATEMENTS

Staff Accounting Bulletin No. 101 (“SAB 101”), Revenue Recognition in Financial Statements, requires the transfer of title and the risks and rewards of ownership to the customer prior to the recognition of revenue. We originally prepared our financial statements on the basis that this transfer of title occurred upon shipment. Subsequent to the issuance of our consolidated financial statements as of and for the year ended December 31, 2002, it was determined, with respect to sales to domestic customers, that title transferred upon receipt of full payment, due to a clause in our purchase orders. As a result, we have restated our consolidated financial statements as of December 31, 2002 and December 31, 2001 and for each of the three years in the period ended December 31, 2002 to defer revenue upon shipment and to recognize it upon receipt of full payment for our domestic customers. We have reflected the impact of this change, as measured at January 1, 2000, as the cumulative effect of a change in accounting principle for the adoption of SAB 101. The $34,000 cumulative effect of change in accounting principle was recognized as income during the year ended December 31, 2000. It was also determined that revenue recognition for products shipped directly to customers in Europe, which we commenced in 2002, is appropriate at the time of installation, which is when the customer is obligated to pay, and not at the time of shipment as recognized in the previously filed financial statements. In conjunction with these revisions, we have deferred the revenue, the related cost of inventory and related sales commissions. Our revenue recognition policy in Note 3 has been revised to reflect these changes.

As a result of the restatement, our net revenue for 2002 decreased by $1.9 million, our gross profit decreased by $1.3 million and our net income was reduced by $1.1 million ($0.05 per fully diluted share). For 2001, our net revenue decreased by $1.3 million our gross profit decreased by $980,000 and our net loss increased by $873,000 ($0.05 per fully diluted share). In 2000 our net loss increased by $61,000 ($0.01 per fully diluted share).

F-7

BIOLASE TECHNOLOGY, INC.

The statements of operations have been restated as follows:

Year Ended December 31, 2002	As Reported			Restated
Net sales	$	29,199,000		$	27,257,000
Cost of sales		11,102,000			10,485,000
Operating expenses		15,616,000			15,423,000
Income from operations		2,481,000			1,412,000
Net income	$	2,630,000		$	1,498,000
Net income per share:
Basic	$	0.13		$	0.08
Diluted	$	0.12		$	0.07
Year Ended December 31, 2001	As Reported			Restated
Net sales	$	17,887,000		$	16,546,000
Cost of sales		7,299,000			6,938,000
Operating expenses		10,952,000			10,845,000
Loss from operations		(364,000	)		(1,158,000	)
Net loss	$	(408,000	)	$	(1,281,000	)
Net loss per share:
Basic	$	(0.02	)	$	(0.07	)
Diluted	$	(0.02	)	$	(0.07	)
Year Ended December 31, 2000	As Reported			Restated
Net sales	$	9,657,000		$	9,495,000
Cost of sales		4,829,000			4,816,000
Operating expenses		8,462,000			8,340,000
Loss from operations		(3,634,000	)		(3,661,000	)
Loss before cumulative effect of change in accounting principle		(3,728,000	)		(3,755,000	)
Cumulative effect of change in accounting principle		—			(34,000	)
Net loss	$	(3,728,000	)	$	(3,789,000	)
Cumulative effect of change in accounting principle per share:
Basic	$	0.00		$	0.00
Diluted	$	0.00		$	0.00
Net loss per share:
Basic	$	(0.19	)	$	(0.20	)
Diluted	$	(0.19	)	$	(0.20	)
The balance sheets have been restated as follows:
December 31, 2002	As Reported			Restated
Working capital	$	3,484,000		$	1,418,000
Total assets		14,395,000			16,003,000
Stockholders’ equity		5,187,000			3,121,000
December 31, 2001	As Reported			Restated
Working capital	$	1,135,000		$	201,000
Total assets		7,561,000			8,253,000
Stockholders’ equity		1,579,000			645,000

F-8

BIOLASE TECHNOLOGY, INC.

NOTE 3 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less as cash equivalents. We invest excess cash primarily in a money market account consisting of U.S. Treasury securities. Cash equivalents are carried at cost, which approximates market.

Accounts Receivable

We regularly evaluate the collectibility of accounts receivable based upon our knowledge of customers and compliance with credit terms. The allowance for doubtful accounts is adjusted based on such evaluation, with a corresponding provision included in general and administrative expenses.

Inventory

We value inventories at the lower of cost or market (determined by the first-in, first-out method). We periodically evaluate the carrying value of inventories. The allowance for obsolescence is adjusted based on such evaluation, with a corresponding provision included in cost of sales.

Property, Plant and Equipment

We state property, plant and equipment at acquisition cost less accumulated depreciation and amortization. Maintenance and repairs are expensed as incurred. Upon sale or disposition of assets, any gain or loss is included in the consolidated statements of operations.

The cost of property, plant and equipment is depreciated using the straight-line method over the estimated useful lives of the respective assets, which are generally not greater than five years, except for leasehold improvements, which are amortized over the lesser of the estimated useful lives of the respective assets or the related lease terms and our German production facility which is depreciated over thirty years.

We continually monitor events and changes in circumstances, which could indicate that the carrying balances of property, plant and equipment may exceed the undiscounted expected future cash flows from those assets. If such a condition were to exist, we will recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Patents, Trademarks and Licenses

Costs incurred to establish and defend patents, trademarks and licenses and to acquire products and process technologies are capitalized. Costs incurred for internally developed technologies that we ultimately patent are expensed as incurred. All amounts assigned to these patents, trademarks and licenses are amortized on a straight-line basis over an estimated eight-year useful life.

The continuing carrying value of patents is assessed based upon our operating experience, expected cash flows from related products and other factors we deem appropriate.

Fair Value of Financial Instruments

Our financial instruments consist of cash, accounts receivable, accounts payable and other accrued expenses that approximate fair value because of the short maturity of these items. The fair value of the foreign currency forward contracts is estimated by obtaining quotes from banks.

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BIOLASE TECHNOLOGY, INC.

Foreign Currency Translation

For operations outside the United States (“U.S.”) that prepare financial statements in currencies other than the U.S. dollar, results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at end-of-period exchange rates. Translation gains or losses related to net assets located outside the U.S. are shown as a component of accumulated other comprehensive loss in stockholders’ equity (deficit). Gains and losses resulting from foreign currency transactions, which are denominated in a currency other than the entity’s functional currency, are included in the consolidated statement of operations.

Derivative Financial Instruments

Our derivative financial instruments, consisting of forward exchange contracts in European Euros, are recorded at their fair value on the balance sheet, included in other assets. Our foreign exchange forward contracts are not designated as hedges pursuant to Statement of Financial Accounting Standards (“SFAS”) 133. Changes in the fair value of derivatives that do not qualify for hedge treatment must be recognized currently in earnings.

At December 31, 2002, we had outstanding derivative financial instruments comprised of foreign exchange forward contracts with notional amounts of $697,000 and a fair value of $849,000 with the fair value gain of $152,000 recognized into net income for the year ended December 31, 2002. On February 3, 2003, the contracts expired and were not renewed, resulting in a cumulative realized gain on the contracts of $174,000.

Revenue Recognition

We sell products domestically to customers through our direct sales force, and internationally through a direct sales force and through distributors. We recognize revenue for products sold domestically when we have received a purchase order, the price is fixed or determinable, and payment has been received due to a clause in our purchase order that states title transfers upon payment in full. We recognize revenue for products sold internationally through our direct sales force when we have received a purchase order, the price is fixed or determinable, collectibility of the resulting receivable is probable and installation has been completed, which is when the customer is obligated to pay. We recognize revenue for products sold through our distributors internationally when we have received a purchase order, the price is fixed or determinable, collectibility of the resulting receivable is probable and the product has been delivered. Extended warranty contracts, which are sold to our non-distributor customers, are recorded as revenue on a straight-line basis over the period of the contracts, which is one year.

Deferred charges on product shipped represent the cost of inventory shipped to customers for which revenue and the related cost of sales have not been recognized since payment has not been received or the installation has not been completed. Deferred revenue on product shipped represents products shipped to customers for which revenue has not yet been recognized.

Provision for Warranty Expense

Products sold directly to end-users are under warranty against defects in material and workmanship for a period of one year. Products sold internationally to distributors are covered by a warranty on parts for up to fourteen months with additional coverage on certain components for up to two years. We estimate warranty costs at the time of product shipment based on historical experience. Estimated warranty expenses are recorded as an accrued liability, with a corresponding provision to cost of sales.

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BIOLASE TECHNOLOGY, INC.

Changes in the product warranty accrual for the year ended December 31, 2002 was as follows:

Warranty accrual, December 31, 2001	$	561,000
Change in liability for warranties issued during the period		1,213,000
Warranty expenditures		(1,149,000	)
Warranty accrual, December 31, 2002	$	625,000

Shipping and Handling Costs and Revenues

All shipping and handling costs are expensed as incurred and are recorded as a component of cost of sales. Charges for shipping and handling are included as part of sales.

Advertising Costs

All advertising costs are expensed as incurred. Advertising costs incurred for the years ended December 31, 2002, 2001 and 2000, were approximately $939,000, $609,000 and $420,000, respectively.

Engineering and Development

Engineering and development costs related to both present and future products are expensed as incurred.

Income Taxes

Differences between accounting for financial statement purposes and accounting for tax return purposes are stated as deferred tax assets or deferred tax liabilities in the accompanying consolidated financial statements. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. We have established valuation allowances to reduce deferred tax assets until it is more likely than not those assets will be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Stock-Based Compensation

On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock Based Compensation Transition and Disclosure, which amends SFAS No. 123. SFAS No. 148 requires more prominent and frequent disclosures about the effects of stock-based compensation, which we have adopted for the year ended December 31, 2002. We will continue to account for our stock based compensation according to the provisions of APB Opinion No. 25.

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BIOLASE TECHNOLOGY, INC.

If we had recognized compensation cost at the date of grant, our pro-forma net income (loss) and pro-forma income (loss) per share would have been as follows:

	(Restated – Note 2)
	2002			2001			2000
Net income (loss), as reported	$	1,498,000		$	(1,281,000	)	$	(3,789,000	)
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		(1,258,000	)		(935,000	)		(462,000	)
Pro forma net income (loss)	$	240,000		$	(2,216,000	)	$	(4,251,000	)
Net income (loss) per share:
Basic – as reported	$	0.08		$	(0.07	)	$	(0.20	)
Basic – pro forma	$	0.01		$	(0.11	)	$	(0.22	)
Diluted – as reported	$	0.07		$	(0.07	)	$	(0.20	)
Diluted – pro forma	$	0.01		$	(0.11	)	$	(0.22	)
Shares used in computing net income (loss) per share:
Basic		19,929,000			19,510,000			19,171,000
Diluted		21,303,000			19,510,000			19,171,000

The pro forma amounts were estimated using the Black-Scholes option-pricing model with the following assumptions:

	2002			2001			2000
Expected term (years)		3.50			3.50			3.50
Volatility		84	%		64	%		83	%
Annual dividend per share	$	0.00		$	0.00		$	0.00
Risk free interest rate		3.05	%		4.68	%		6.21	%
Weighted-average fair value of options granted	$	2.97		$	2.19		$	1.34

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Our options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.

Income (Loss) Per Share—Basic and Diluted

Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. In computing diluted earnings per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities.

Potential common shares totaling 365,000, 1,453,000 and 2,000 were not included in the diluted earnings per share amounts for the years ended December 31, 2002, 2001 and 2000, respectively, as their effect would have been anti-dilutive. For the year ended December 31, 2002, potentially dilutive securities consisted of stock options and warrants and resulted in potential common shares of 1,693,000.

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BIOLASE TECHNOLOGY, INC.

Comprehensive Income (Loss)

Comprehensive income (loss) encompasses the change in equity from transactions and other events and circumstances from non-owner sources and is included in the statement of stockholders’ equity. Accumulated other comprehensive loss consist of the effect of foreign currency translation adjustments.

New Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections. The significant items from SFAS 145 that are relevant to the Company are the provisions regarding extinguishment of debt and the accounting for sale-leaseback transactions. The provisions of this statement are applicable for financial statements issued on or subsequent to May 15, 2002. The adoption of this statement did not have a significant impact on our consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The provisions of this statement are effective for exit or disposal activities initiated after December 31, 2002. We expect that adoption of this statement will not have a significant impact on our consolidated financial statements.

In November 2002, the EITF reached a consensus on Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. This Issue provides guidance on when and how to separate elements of an arrangement that may involve the delivery or performance of multiple products, services and rights to use assets into separate units of accounting. The guidance in the consensus is effective for revenue arrangements entered into in fiscal periods, interim or annual, beginning after June 15, 2003. We will adopt Issue No. 00-21 in the quarter beginning July 1, 2003. We do not believe that the adoption of Issue No. 00-21 will have a material impact to our consolidated financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“Interpretation”). This Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also requires that at the time a company issues a guarantee, the company must recognize an initial liability for the fair market value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions of the Interpretation apply on a prospective basis to guarantees issued or modified after December 31, 2002. We expect that the adoption of this statement will not have a significant impact on our consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123. This amendment provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirement of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for fiscal years ending after December 15, 2002. Since we are continuing to account for stock-based compensation according to APB 25, our adoption of SFAS No. 148 requires us to provide prominent disclosures about the effects of FAS 123 on reported income and will require us to disclose these affects in the interim financial statements as well.

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BIOLASE TECHNOLOGY, INC.

NOTE 4—SUPPLEMENTARY BALANCE SHEET INFORMATION

	2002			2001
INVENTORIES:
Materials	$	1,124,000		$	1,020,000
Work-in-process		695,000			656,000
Finished goods		973,000			211,000
Inventories	$	2,792,000		$	1,887,000
PROPERTY, PLANT AND EQUIPMENT, NET:
Land	$	288,000		$	—
Building		792,000			—
Leasehold improvements		89,000			54,000
Equipment and computers		763,000			448,000
Furniture and fixtures		184,000			202,000
Total		2,116,000			704,000
Less accumulated depreciation		(383,000	)		(312,000	)
Property, plant and equipment, net	$	1,733,000		$	392,000
PATENTS AND TRADEMARKS, NET:
Patents	$	112,000		$	112,000
Trademarks		69,000			69,000
Total		181,000			181,000
Less accumulated amortization		(114,000	)		(90,000	)
Patents and trademarks, net	$	67,000		$	91,000
ACCRUED LIABILITIES:
Payroll and benefits	$	1,320,000		$	652,000
Warranty expense		625,000			561,000
Insurance		318,000			—
Sales taxes		853,000			411,000
Other deferred revenue		180,000			37,000
Other		284,000			315,000
Accrued liabilities	$	3,580,000		$	1,976,000

NOTE 5—DEBT

At December 31, 2002, we had $1,792,000 outstanding under a revolving credit agreement with a bank. The revolving credit agreement provides for borrowings of up to $1.8 million for financing inventories and is collateralized by substantially all accounts receivable and inventories. The interest rate is based upon LIBOR plus 0.5%. At December 31, 2002, the interest rate on the outstanding balance was 1.92%. The effective interest rate for the year ended December 31, 2002, including the amortization of the fair value of warrants in connection with issuing our line of credit was 7.5%. The revolving credit agreement expires on July 31, 2003.

In February 2002, our wholly owned subsidiary, BIOLASE Europe, purchased a production facility in Germany for $1,000,000 payable in Euros at the conversion rate of 0.8591. We are required to make a payment of

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BIOLASE TECHNOLOGY, INC.

Euros 582,000 by April 1, 2003. We are currently negotiating with the seller and a third party for that third party to pay between $300,000 and $500,000 of the purchase price in exchange for certain rights that would be granted to the third party. If we are not able to reach an agreement in this regard, we will be required to make another installment of $150,000 on September 30, 2003. The balance of amounts owed, if any, will be due by December 1, 2003. At December 31, 2002, the balance outstanding was Euros 1,164,000 or $1,220,000.

NOTE 6—COMMITMENTS AND CONTINGENCIES

Leases

In March 2001, we entered into a $2.2 million sale-leaseback transaction whereby we sold and leased back our manufacturing facility located in San Clemente, California. The result of the sale was a $316,000 gain, which was deferred and is being amortized over the five-year lease term. The related lease is being accounted for as an operating lease. In connection with the sale and leaseback of our manufacturing facility, the mortgage note was retired in March 2001.

We also lease certain office equipment under operating lease arrangements. Future minimum rental commitments under operating leases for each of the years ending December 31 are as follows:

2003	$	270,000
2004		261,000
2005		249,000
2006		61,000
Total	$	841,000

Rent expense was $250,000, $198,000 and $97,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

Litigation

On October 31, 2002, we filed a lawsuit in the U. S. District Court for the Central District of California, Southern Division, against American Medical Technologies, Inc. (“AMT”). In the lawsuit, we allege that AMT is infringing certain patents owned by us, which relate to the use of laser and water technology in the medical and dental fields. The Company’s claims arise out of AMT’s offer to sell and the sale in the United States of a dental device that uses laser and water technology. In the lawsuit, we are seeking an award of monetary damages and injunctive relief against AMT. While we believe that the case is meritorious, there is no assurance that we will achieve a favorable outcome. No amounts have been recorded in the consolidated financial statements relating to the outcome of this matter.

From time to time, we are involved in other legal proceedings incidental to our business. We believe that our pending actions, individually and in the aggregate, will not have a material adverse effect on our financial condition, results of operations or cash flows.

401(k) Plan

We have a Section 401(k) defined contribution retirement plan covering substantially all of our full-time employees. We are not obligated to match employee contributions or make other annual contributions to this plan. We made no contributions to the 401(k) plan other than administrative expenses paid on behalf of this plan, which were nominal for the years ended December 31, 2002, 2001 and 2000.

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BIOLASE TECHNOLOGY, INC.

Concentration of Credit Risk and Key Suppliers

Significant customers consisted primarily of international distributors. We have distributorship agreements for dental lasers in Europe, Australia, the Middle East, the Far East, Canada and Mexico. For the years ended December 31, 2002, 2001 and 2000, export sales were $6.8 million, $3.3 million and $4.2 million, respectively. Sales in Asia, Pacific Rim countries and Australia accounted for approximately 12% of our revenue in 2002, while sales in Europe and Canada accounted for 11% and 1% of our 2002 revenue, respectively. In 2001, sales in Europe accounted for approximately 9% of revenue for the year, whereas sales in Asia and Pacific Rim countries accounted for approximately 8% of the revenue. In 2000, sales in Europe accounted for approximately 24% of our revenue for the year, and sales in Asia and Pacific Rim countries accounted for approximately 11% of the revenue for the year. Many of the dentists finance their purchases through third-party leasing companies. In these transactions, the leasing company is considered the purchaser. Approximately 36%, 43% and 38% of our revenue in 2002, 2001 and 2000 were generated from dentists who financed their purchase through one leasing company. Other than these transactions, no distributor or customer accounted for more than 10% of consolidated sales in 2002. Sales to one distributor accounted for 11% and 13% of consolidated sales in 2001 and 2000, respectively.

We currently buy certain key components of our products from single suppliers. Although there are a limited number of manufacturers of these key components, management believes that other suppliers could provide similar key components on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would adversely affect operating results.

Financial instruments that subject us to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. We maintain our cash accounts with established commercial banks. Such cash deposits periodically exceed the Federal Deposit Insurance Corporation insured limit of $100,000 for each account.

Accounts receivable concentrations have resulted from sales activity to three distributors in addition to the one leasing company mentioned above. Accounts receivable for such distributors totaled approximately $838,000, $517,000 and $529,000, respectively, at December 31, 2002, 2001 and 2000. Accounts receivable for the one leasing company totaled $936,000, $628,000 and $333,000 respectively at December 31, 2002, 2001 and 2000. No other single customer accounted for more than 10% of our accounts receivable at December 31, 2002, 2001 or 2000.

NOTE 7 – STOCKHOLDERS’ EQUITY

Equity Financing

In March 2000, we raised equity capital through private offerings as follows:

Year Ended December 31,	Number of Shares of Common Stock	Net Cash Consideration
2000	1,250,000	$2,450,000

In March 2000, we issued 1,250,000 shares of common stock and 625,000 stock purchase warrants in a private placement. An additional 63,000 warrants were issued in connection with the placement. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $2.50 per share and was originally scheduled to expire on March 31, 2002, but has subsequently been extended to June 30, 2003. During 2002, 165,000 of these warrants were exercised, leaving a balance outstanding as of December 31, 2002 of 523,000.

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BIOLASE TECHNOLOGY, INC.

We have also issued common stock and warrants as compensation in connection with the annual extensions of our bank line of credit as follows:

Year	Shares of Stock	Warrants	Valuation
2000	37,000	100,000	$115,000
2001	20,000	—	$95,000

The value of the stock and warrants issued for services is charged to expense as compensation for services. The value of shares issued in December 2001 was charged to interest expense during 2002.

The following table summarizes warrant activity:

	Shares		Weighted- Average Exercise Price Per share
Warrants outstanding, December 31, 1999	1,548,000		$	3.66
Issuance of warrants	787,500			2.87
Exercise of warrants	(819,150	)		3.51
Expired warrants	(75,000	)		4.67
Warrants outstanding, December 31, 2000	1,441,350			3.32
Issuance of warrants	50,000			3.00
Exercise of warrants	(175,000	)		2.50
Expired warrants	(428,850	)		3.00
Warrants outstanding, December 31, 2001	887,500			2.50
Exercise of warrants	(215,000	)		2.62
Warrants outstanding, December 31, 2002	672,500		$	2.46

The following table summarizes additional information about the warrants, which are outstanding as of December 31, 2002:

Shares	Expiration Date	Exercise Price
522,500	June 30, 2003	$2.50
50,000	June 30, 2003	$3.00
100,000	December 1, 2003	$2.00
672,500

In June 2002, we extended the expiration date of warrants to purchase 522,500 shares of common stock from September 30, 2002 to June 30, 2003. These warrants have an exercise price of $2.50 and were issued in connection with a private placement in 2000. In June 2002, we also extended the expiration date of warrants to purchase 50,000 shares of common stock from December 1, 2002 to June 30, 2003. These warrants have an exercise price of $3.00 per share and were issued in connection with previous annual extensions of our credit facility.

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BIOLASE TECHNOLOGY, INC.

Preferred Stock

The Board of Directors, without further stockholder authorization, may issue from time to time up to 1,000,000 shares of our preferred stock. Of the 1,000,000 shares of preferred stock, 500,000 shares are designated as Series B Junior Participating Cumulative Preferred Stock. None of the preferred stock is outstanding.

On December 18, 1998, our Board of Directors adopted a stockholder rights plan under which one preferred stock purchase right was distributed on January 11, 1999 with respect to each share of our common stock outstanding at the close of business on December 31, 1998. The rights provide, among other things, that in the event any person becomes the beneficial owner of 15% or more of our common stock while the rights are outstanding, each right will be exercisable to purchase shares of common stock having a market value equal to two times the then current exercise price of a right (initially $30.00). The rights also provide that, if on or after the occurrence of such event, we are merged into any other corporation or 50% or more of our assets or earning power are sold, each right will be exercisable to purchase common stock of the acquiring corporation having a market value equal to two times the then current exercise price of such stock. The rights will expire on December 31, 2008, unless previously triggered, and are subject to redemption at $0.001 per right at any time prior to the first date upon which they become exercisable to purchase common shares.

Cancellation of Common Stock

In 1998, we acquired substantially all of the assets of Laser Skin Toner, Inc. (“LSTI”), a development stage company, for 1,600,000 shares of our common stock. We assigned the full amount of the consideration we paid to in-process research and development and charged the entire amount to expense in 1998. In 1999, we exchanged the LSTI technology for a royalty based upon future sale of product covered by patents on the LSTI technology. In 2000, we entered into an agreement with the former shareholders of LSTI whereby the former shareholders agreed to return (for cancellation) 525,000 of the shares of common stock issued to them in 1998. Each party also exchanged general releases, including the release of all claims, if any, relating to our acquisition of the assets of LSTI.

Common Stock Options

We have stock option plans that enable us to offer equity participation to employees, officers and directors as well as certain non-employees. At December 31, 2002, a total of 5,025,000 shares have been authorized for issuance, of which 941,933 shares have been issued for options which have been exercised, 2,887,684 shares have been reserved for options that are outstanding and 1,195,383 shares are available for the granting of additional options.

Stock options may be granted as incentive or nonqualified options; however, no incentive stock options have been granted to date. The exercise price of options generally equals or is greater than the market price of the stock as of the date of grant. Options may vest over various periods but typically vest over three years. Options expire after ten years or within a specified time from termination of employment, if earlier.

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BIOLASE TECHNOLOGY, INC.

The following table summarizes option activity:

	Shares		Weighted-Average Exercise Price Per Share
Options outstanding, December 31, 1999	2,136,000		$	2.35
Granted at fair market value	271,000			2.26
Granted above fair market value	281,000			2.23
Exercised	(203,000	)		1.59
Cancelled	(175,000	)		2.14
Forfeited	(174,000	)		2.96
Options outstanding, December 31, 2000	2,136,000			2.19
Granted at fair market value	971,000			4.37
Granted above fair market value	25,000			2.50
Exercised	(172,000	)		2.13
Forfeited	(206,000	)		2.59
Options outstanding, December 31, 2001	2,754,000			3.08
Granted at fair market value	338,000			5.05
Exercised	(182,000	)		2.59
Forfeited	(22,000	)		4.15
Options outstanding, December 31, 2002	2,888,000		$	3.34
Options exercisable, December 31, 2000	1,675,000		$	2.40
Options exercisable, December 31, 2001	1,885,000		$	2.44
Options exercisable, December 31, 2002	2,185,000		$	2.87

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BIOLASE TECHNOLOGY, INC.

The following table summarizes additional information for those options that are outstanding and exercisable as of December 31, 2002:

Options outstanding					Exercisable
Range of Exercise Prices	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Life (Years)	Number of Shares	Weighted Average Exercise Price
$0.75 to 3.95	1,781,000	$	2.35	5.84	1,727,000	$	2.33
$4.00 to 6.59	1,107,000	$	4.92	4.82	458,000	$	4.89
	2,888,000				2,185,000

In addition to the options granted under our stock option plans, we have issued options to certain other individuals through various agreements. Options to purchase 90,000 shares of common stock were outstanding at December 31, 1999; 2,500 options with a weighted average exercise price of $12.00 expired in 2002, leaving 87,500 options with a weighted average exercise price of $9.71 outstanding and exercisable at December 31, 2002 and scheduled to expire in 2003.

During 2001, options to purchase 35,000 shares of common stock were granted to non-employees for services valued at $17,000. The fair value of these options was charged to operating expense in 2001.

NOTE 8 – INCOME TAXES

The following table presents the current and deferred provision for federal and state income taxes for the years ended December 31:

	2002		2001		2000
Current:
Federal	$	—	$	—	$	—
State		2,000		2,000		2,000
		2,000		2,000		2,000
Deferred:
Federal		—		—		—
State		—		—		—
	$	2,000	$	2,000	$	2,000

The foregoing tax provisions are included in general and administrative expense in the accompanying consolidated statements of operations.

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BIOLASE TECHNOLOGY, INC.

The tax effects of temporary differences that give rise to the deferred tax provision for the years ended December 31 are as follows:

	2002			2001			2000
Property and equipment	$	38,000		$	7,000		$	(5,000	)
Capitalized intangible assets		194,000			(39,000	)		227,000
Reserves not currently deductible		148,000			28,000			131,000
Inventories		61,000			40,000			79,000
Deferred revenue on product shipped		456,000			395,000			22,000
Capital loss carryforward		—			—			(275,000	)
Research and development credits		(114,000	)		616,000			—
Net operating losses		(898,000	)		(603,000	)		1,286,000
		(115,000	)		444,000			1,465,000
Change in valuation allowance		115,000			(444,000	)		(1,465,000	)
	$	—		$	—		$	—

The provision for income taxes differs from the amount that would result from applying the federal statutory rate as follows for the years ended December 31:

	2002		2001		2000
Statutory regular federal income tax rate	(34.0	%)	(34.0	%)	(34.0	%)
Stock options	24.7	%	(13.1	%)	(4.5	%)
Change in valuation allowance	21.5	%	51.1	%	38.1	%
Other	(12.2	%)	(4.0	%)	0.4	%
Total	0.0	%	0.0	%	0.0	%

The components of the deferred income tax assets are as follows at December 31:

	2002			2001
Property and equipment	$	208,000		$	170,000
Capitalized intangible assets		1,247,000			1,053,000
Reserves not currently deductible		637,000			489,000
Inventories		203,000			142,000
Deferred revenue on product shipped		873,000			417,000
State taxes		1,000			1,000
Research and development credits		502,000			616,000
Net operating losses		12,529,000			13,427,000
		16,200,000			16,315,000
Valuation allowance		(16,200,000	)		(16,315,000	)
Total	$	—		$	—

F-21

BIOLASE TECHNOLOGY, INC.

We have established a valuation allowance against deferred tax assets due to the uncertainty surrounding the realization of such assets. We periodically evaluate the recoverability of the deferred tax assets and at such time as it is determined that such assets are realizable, the valuation allowance will be reduced.

F-22

BIOLASE TECHNOLOGY, INC.

As of December 31, 2002, we had net operating loss carryforwards for federal and state purposes of approximately $34.9 million and $7.5 million, respectively, which began expiring in 2001. As of December 31, 2002, we had research and development credit carryforwards for federal and state purposes of approximately $332,000 and $170,000, respectively. The utilization of net operating loss and credit carryforwards may be limited under the provisions of Internal Revenue Code Section 382 and similar state provisions.

NOTE 9 – SUBSEQUENT EVENTS (UNAUDITED)

We are involved in two related patent lawsuits with Diodem, LLC, a California limited liability company. On May 2, 2003, we initiated a civil action in the U.S. District Court for the Central District of California against Diodem. In this lawsuit we are seeking a judicial declaration against Diodem that technology we use in our laser systems does not infringe four patents owned by Diodem. Diodem was founded by the former chief executive officer of Premier Laser Systems, Inc., a medical laser company which filed for bankruptcy protection in March 2000. Diodem claims to have acquired the four patents at issue in the case from Premier Laser. On May 5, 2003, Diodem added us as a party to an infringement lawsuit it had previously filed in the U.S. District Court for the Central District of California. Diodem alleges that our technology, including the technology used in our Waterlase system, infringes the four patents it acquired from Premier Laser. Diodem’s infringement suit seeks treble damages, a preliminary and permanent injunction from further alleged infringement, attorneys’ fees and other unspecified damages.

Although the outcome of these actions cannot be determined with certainty, we believe our technology and products do not infringe any valid patent rights owned by Diodem, and we intend to continue to vigorously defend against Diodem’s infringement action and pursue our declaratory relief action against Diodem.

On May 14, 2003 we entered into a $5,000,000 credit facility with a bank. The new facility is for a term of one year, bears interest at LIBOR plus 2.25% and is secured by all of our assets. Approximately $1,800,000 was drawn immediately to pay off our previous bank line of credit. We are not in compliance with three covenants required under our new facility: timely reporting of our financial statements for the period ended June 30, 2003, minimum tangible net equity, and the ratio of total liabilities to tangible net equity. We have obtained waivers from the bank for each item of non-compliance as of June 30, 2003.

On May 21, 2003 we acquired the American Dental Laser product line and related dental laser assets of American Medical Technologies, Inc. (AMT) for approximately $5,765,000. Consideration was $1,825,000 cash, $134,000 in costs directly attributable to the acquisition and 307,500 shares of stock valued at $12.38 per share based on the average closing price between May 19 and May 23, 2003. The assets included dental laser patents, customer lists, brand names and other intellectual property as well as laser products. No liabilities of AMT were assumed in the transaction. The purchase price will be allocated to the tangible and identifiable intangible assets acquired based on their fair value with any residual amount recorded as goodwill. As a part of the purchase transaction, we and AMT agreed to dismiss with prejudice the lawsuit we had filed in October 2002 against AMT which alleged infringement of certain of our patents.

F-23

BIOLASE TECHNOLOGY, INC.

	Allowance for Doubtful Accounts (A)			Reserve for Excess and Obsolete Inventory			Valuation Allowance for Deferred Tax Asset (A)
Balances at December 31, 1999	$	118,000		$	309,000		$	14,406,000
Charged (benefit) to operations		(14,000	)		326,000			1,465,000
Write-offs		(99,000	)		(185,000	)		—
Balances at December 31, 2000, (Restated – Note 2)		5,000			450,000			15,871,000
Charged to operations		133,000			108,000			444,000
Write-offs		(30,000	)		(326,000	)		—
Balances at December 31, 2001, (Restated – Note 2)		108,000			232,000			16,315,000
Charged to operations		283,000			7,000			(115,000	)
Write-offs		(189,000	)		—			—
Balances at December 31, 2002, (Restated – Note 2)	$	202,000		$	239,000		$	16,200,000

(A) The allowance for doubtful accounts as originally filed was $121,000, $195,000 and $395,000 as of December 31, 2000, 2001 and 2002, respectively. The valuation allowance for deferred tax assets as originally filed was $15,849,000, $15,898,000 and $15,327,000 as of December 31, 2000, 2001 and 2002, respectively.

EX-10.09

EXHIBIT 10.09

CUSTOMER ORDER

BIOLASE Technology, Inc.	Entered By:	A/R Account #:
981 Calle Amanecer, San Clemente CA 92673	Verified Credit:	Sales A/C #
Toll Free (888) 424-6527  Tel (949) 361-1200	W/O #	Product Type:
Fax (949) 361-4394	Tax Code:	Track Code:

Sales Rep	Order Date	Delivery Date	Target Install Date	Clinical Training	Customer #	Source
				Order #
Customer Information:
Bill To:				Ship To:
Contact:				E-mail:
Phone:	(                )			Fax:	(                )

Payment Method:     CASH     CHECK     CREDIT CARD     MC     VISA     American Express     Circle One LEASE (Leasing Company):                                               Card #                                               Exp. Date:
Qty	Item #	Description		Unit Price	Total Price
				Subtotal:
				Tax:
Customer Signature			Date	Total
Sales Representative			Date	Freight:
Vice President, Sales			Date	Course Tuition
			Initial:  ¨	Less Deposit:
				BALANCE DUE:
Comments / Shipping Instructions:

Terms and Conditions of Sale

Domestic quotation and sales made by BioLase Technology, Inc. are made on the following terms and conditions:

1.  Limits of Agreement

The terms and conditions as set forth herein as well as any additional terms and conditions that may appear on an invoice at the time of sale shall constitute the entire agreement between BIOLASE (‘Seller’) and Buyer. The agreement shall not be modified except in writing, signed by the parties thereof. No waiver by Seller of any default or provision hereof shall be deemed a waiver of any subsequent default or provision.

2.  Price

(a)  The price of all goods is F.O.B. carrier, at the place of manufacture or warehouse location, exclusive of insurance cost. The cost of packaging for normal domestic shipment is included in the invoice price. Where special domestic or export packaging is specified, involving greater expense, a charge will be made to cover such extra expense.

(b)  Prices and orders do not include Federal, State or local excise, sales, use or other tax not or hereinafter enacted, which are applicable to the goods sold (excluding only taxes based on Seller’s Income), which tax or taxes will be added by Seller to the sales price when Seller has the legal obligation to collect the same and will be invoiced to and paid by Buyer, unless Buyer provides Seller with a proper tax exemption certificate.

(c)  Unless otherwise stated by the Seller in writing, all quotations are firm for, and expire sixty (60) days after date thereof and constitute offers.

(d)  Prices quoted are for the goods and services described only and do not include technical data, proprietary rights of any kind, patent rights, qualification, environmental or other than Seller’s standard tests unless expressly agreed to in writing by Seller.

(e)  All shipments will be billed at prices in effect on the date of acceptance of the Buyer’s order unless shipment is delayed at the Buyer’s request, in which case current prices as of the date of the shipment shall apply.

3.  Payment Terms

(a)  In the event Seller chooses to sell to the Buyer on open account, the terms of the sale are net 30 from date of invoice, subject to credit approval unless otherwise stated on the sale invoice. All payments shall be made to Seller as stated on the sales invoice. Interest accrues on overdue invoices at the rate of one and one-half percent (1    %) per month, but not more than the amount allowed by law, on the unpaid balance from the original due date of the invoice. Payment shall not be withheld for delay in installation, if at Buyer’s request, not for delay in delivery of required documentation, unless a separate price is stated therefor, and then only to the extent of the prices stated.

(b)  All orders and the obligation of Seller to make deliveries are subject to the rights of the Seller as provided in paragraph 11. Seller has the right to require of the Buyer payment of all or any part of the purchase price in advance of delivery or to make shipment C.O.D. If the Buyer fails to make advance payment when requested by Seller or if the Buyer fails to make advance payment when requested by Seller or if the Buyer is or becomes delinquent in the payment of any sum due Seller or refuses to accept C.O.D. shipment, Seller shall have the right in addition to any other remedy to which it may be entitled in law or equity, to cancel the sales order, refuse to make further deliveries, and declare immediately due and payable all unpaid amounts for goods previously delivered to the Buyer. Partial shipments made under any order shall be treated as a separate transaction and payment thereof shall be made accordingly. However, in the event of any default by Buyer, Seller may decline to make further shipments without in any way affected its rights under such order.

4.  Transportation

Unless otherwise agreed to in writing by the Seller, all transportation shall be at the expense of Buyer. Seller reserves the right to ship Products freight collect and to select the means of transportation and routing. Unless otherwise advised, Seller may insure to full value of the Products or declared full value thereof to the transportation company at the time of delivery and all such freight and insurance costs shall be for Buyer’s account. Risk of loss or damage shall pass to Buyer upon delivery of the products to the transportation company at the FOB point, whether or not installation is provided by or under supervision of Seller. Confiscation or destruction of, or damage to Products shall not release, reduce or in any way affect the liability of the Buyer therefor. The foregoing includes Products returned at Buyer’s expense to such place as Seller may designate in writing. Buyer, at its expense, shall fully insure Products have been returned, for whatever reason to Seller.

5.  Inspection and Acceptance

The buyer shall have the right to inspect the goods upon tender of delivery. Failure of the Buyer to inspect the goods and give written notice to the Seller of any alleged defect or non-conformity within five (5) days after tender of delivery shall constitute an irrevocable acceptance by Buyer of the goods delivered to him, provided that goods for which Seller agrees in writing to provide installation by its personnel, shall be deemed accepted by Buyer upon completion by Seller of installation. Notwithstanding the foregoing, use of any such goods by Buyer, as agents employees of licensees, for any purpose after delivery thereof, shall constitute acceptance of the goods by Buyer.

6.  Returns

The goods or parts thereof sold herein may in no case be returned to Seller without first obtaining Seller’s written consent. The request for return and credit must be filed with Seller and shall include purchase order number, approximate date shipped and any and all other identifying numbers (such purchase order number, approximate date shipped and any and all other identifying numbers (such as invoice number, date of invoice, P.O. numbers, etc.). Each request for return of goods for credit should state the type and quality of goods, the part numbers and the reasons for the return. If return authorization is granted then, (1) an RMA number will be issued by BIOLASE, and, (2) the RMA number must be written on all packages. Goods shall be returned in a clean, well-packaged condition. No credit allowance on defective goods will be made and no replacement for defective goods will be shipped in any event unless the alleged defects are, among other things, established to Seller’s satisfaction after suitable testing and inspection by Seller. Seller reserves the right to charge a restocking fee on all returned goods.

7.  Terminations

Any order for a standard Product with a published price accepted by Seller and terminated by Buyer prior to shipment, shall be subject to a termination charge of not less than ten percent (10%) of the order value to cover costs of processing and order handling; termination thereof with thirty (30) days after shipment shall be subject to a written acceptance by Seller and termination charge of not less than twenty-five percent (25%) of the order value; thereafter no such order may be terminated by Buyer except by mutual agreement in writing. No order for non-standard products or products without a published price may be terminated by Buyer except by mutual agreement in writing. Terminations by mutual agreement are subject to the following conditions:

(a)  Buyer will pay, at applicable contract prices, for all Products which are completely manufactured and allocable to Buyer at the time of Seller’s receipt of notice of termination.

(b)  Buyer will pay all costs, direct and indirect, which have been incurred by Seller with regard to Products which have not been completely manufactured at the time of Seller’s receipt of notice of termination, plus a pro rata portion of the normal profit on the contract.

(c)  Buyer will pay a termination charge on all products affected by the termination. Seller’s normal accounting practices shall be used to determine costs and other charges.

8.  Limited Warranty-Limitation of Liability and Remedies

(a)  Except as otherwise specified herein, Seller warrants the goods and parts which are of its manufacture and shipped hereunder to be free from defects in material and workmanship and to perform in the manner and under the conditions as specified in Seller’s warranty for the individual Product or for twelve (12) months from shipment if a warranty for an individual product is not specified.

(b)  This warranty is the only warranty made by Seller with respect to the goods delivered hereunder and no representative or person is authorized to assume on Seller’s behalf, any obligations or liabilities beyond this warranty in connection with the sale of Seller’s goods. This warranty is made to the original purchaser only at the original location and is non-transferable, and may only be modified or amended by a written instrument signed by a duly authorized officer of the Seller. Major sub-systems manufactured by other firms, but integrated into Seller’s system are covered by the original manufacturer’s warranty. Goods or parts which are replaced or repaired under this Warranty are warranted only for the remaining unexpired portion of the original warranty period applicable to the goods.

(c)  All accessories used with BIOLASE lasers must be manufactured by or certified in writing by BIOLASE. Use of non-authorized accessories will void the warranty, all service contracts and all liability to BIOLASE.

(d)  Seller’s sole and exclusive liability and the Buyer’s sole and EXCLUSIVE REMEDY under this warranty shall be, at Seller’s election, the repair or replacement of goods, only if Seller is promptly notified in writing by Buyer upon discovery of the defects and Seller’s examination of such goods discloses to Seller’s satisfaction that such defects actually exist and the goods have not been (i) repaired, worked on, or altered to affect the stability, reliability, or proper operation of such goods; (ii) subject to misuse, negligence or accident; or (iii) connected, installed, used or adjusted otherwise than in accordance with the instructions furnished by Seller.

(e)  All goods which Buyer considers defective shall be returned to Seller’s office, transportation costs prepaid and borne by Buyer (unless otherwise agreed to in writing). The risk of loss of goods shipped or delivered to Seller’s plant to repair or replacement will be borne by Buyer.

(f)  If it is found that Seller’s Product has been returned without cause and is still serviceable, Buyer will be notified and the product returned at Buyer’s expense; in addition, a charge for testing and examination may, in Seller’s sole discretion, be made on Products so returned.

(g)  SELLER MAKES NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE EXCEPT AS EXPRESSLY SET FORTH IN THE ABOVE WARRANTY. IN NO EVENT SHALL SELLER BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL INDIRECT OR SPECIAL DAMAGES OF ANY KIND, INCLUDING BUT NOT LIMITED TO, DAMAGES FOR LOSS OF REVENUE, LOSS OF BUSINESS OR BUSINESS OPPORTUNITY, OR OTHER SIMILAR FINANCIAL LOSS ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE, USE OF OR INTERRUPTED USE OF SELLER’S PRODUCTS, SYSTEM(S) OR MATERIALS.

9.  Seller’s Rights to Subcontract

Seller may subcontract any portion of the work at any time subject to this Agreement, but Seller’s obligations and rights hereunder shall not thereby be limited or affected.

10.  Bankruptcy or Insolvency of Buyer

If the financial condition of the Buyer at any time is such as to give Seller, in its judgment reasonable grounds for insecurity concerning Buyer’s ability to perform its obligations under this agreement, Seller may (a) require full or partial payment in advance and suspend any further deliveries (or continuance of the work to be performed by Seller) until such payment has been received or (b) make shipment C.O.D.

11.  Proprietary Rights

The sale of the goods hereunder to Buyer shall in no way be deemed to confer upon Buyer any right, interest or license in any patents or patent applications, indicia, or design copyrights the Seller may have covering the goods. Seller claims for itself all proprietary rights in and to all designs, engineering details, and other data and materials pertaining to any goods supplied Seller and to all discoveries, inventions, patents and other proprietary rights arising out of the work done in and connection with the goods or with any and all products developed as a result thereof, including the sole right to manufacture any and all such products. Buyer warrants that it will not divulge, disclose, or in any way distribute or make use of such information and that it will not manufacture or engage to have manufactured such products. materials pertaining to any goods supplied by Seller and to all discoveries, inventions, patents and other proprietary rights arising out of the work done in

12.  General

The agreement is made and entered in the state of California or such other state as designated on the face hereof. Buyer agrees to pay any reasonable attorney’s fees and all other costs of collection incurred by Seller in connection therewith. All orders are subject to final approval by Head Office, San Clemente, California or other location as applicable.

13.  Errors

Typographic and numerical errors are subject to correction when identified.

9/8/03 – Rev. G

EX-10.10

EXHIBIT 10.10

CUSTOMER ORDER

BIOLASE Technology, Inc.

981 Calle Amanecer, San Clemente CA 92673

Toll Free (888) 424-6527• Tel (949)361-1200

Fax(949)361-4394

Sales Rep	Order Date	Customer #	Source
Customer Information:
Bill To:			Ship To:
Address:			Address:
Contact:			Contact:
Phone:	(                )		Phone:	(                )
Fax:	(                )		Fax:	(                )

Payment Method:

¨    Check		Credit Card #:                 /                /                 /                 ¨  MC    ¨  Visa     ¨  AmEx        Exp. Date:         /		Payment Terms
Qty	Item #	Description		Unit Price ($USD)	Total Price ($USD)
				Subtotal:
				Tax:
Customer Signature			Date	Freight
Sales Representative			Date	Other:
			Date	Total Due:
Notes:				Deposit
				Initial:	$

FOB Shipping Point (carrier). Title and all benefits and risks of ownership transfer to Customer (Buyer) upon shipment. This supercedes any and all other agreements. By signing above, Customer (Buyer) acknowledges additional terms and conditions on reverse side.

White – BIOLASE, Yellow – Customer, Pink – Representative, Gold – Other

Terms and Conditions of Sale

Domestic quotation and sales made by BioLase Technology, Inc. are made on the following terms and conditions:

1. Limits of Agreement

The terms and conditions as set forth herein as well as any additional terms and conditions that may appear on an invoice at the time of sale shall constitute the entire agreement between BioLase (‘Seller’) and Buyer. The agreement shall not be modified except in writing, signed by the parties thereof. No waiver by Seller or any default provision hereof shall be deemed a waiver of any subsequent default or provision.

2. Price

(a) The price of all goods is F.O.B. carrier, at the place of manufacture or warehouse location, exclusive of insurance cost. Title and all benefits and risks of ownership transfer to customer (Buyer) upon shipment. The cost of packaging for normal domestic shipment is included in the invoice price. Where special domestic or export packaging is specified, involving greater expense, a charge will be made to cover such extra expense.

(b) Prices and orders do not include Federal, State or local excise, sales, use or other taxes which are applicable to the goods sold, which tax or taxes (excluding only taxes based on the Seller’s income) will be added by Seller to the sales price when Seller has the legal obligation to collect the same and will be invoiced to and paid by Buyer, unless Buyer provides Seller with a proper tax exemption certificate.

(c) Unless otherwise stated by the Seller in writing, all quotations are firm for, and expire sixty (60) days after, date thereof and constitute offers.

(d) Prices quoted are for the goods and services described only and do not include technical data, proprietary rights of any kind or tests other than Seller’s standard pre-shipment tests.

(e) All shipments will be billed at prices in effect on the date of acceptance of the Buyer’s order unless shipment is delayed at the Buyer’s request, in which case current prices as of the date of the shipment shall apply.

3. Payment Terms

(a) All payments shall be made to Seller as stated on the sales invoice prior to Seller’s shipment of an order. In the event Seller chooses to sell to the Buyer on open account, shipment is subject to credit approval and payment is due net 30 days from date of invoice. Obligation of the Buyer to make payment is not contingent upon installation or other post-shipment services that Seller may provide with or without charge. Interest accrues on overdue invoices at the rate of one and one-half percent (1¹/₂ %) per month, but not more than the amount allowed by law, on the unpaid balance from the original due date of the invoice.

(b) If the financial condition of the Buyer at any time is such as to give Seller, in its judgment, reasonable grounds for insecurity concerning Buyer’s ability to perform its obligations under this agreement, Seller may (a) require full or partial payment in advance and may suspend any further deliveries (or continuance of the work to be performed by Seller) until such payment has been received or (b) make shipment C.O.D.

If the Buyer fails to make advance payment when requested by Seller of it, or if the Buyer is or becomes delinquent in the payment of any sum due Seller or refuses to accept C.O.D. shipment, Seller shall have the right in addition to any other remedy to which it may be entitled in lay or equity, to cancel the sales order, refuse to make further deliveries, and declare immediately due and payable all unpaid amounts for goods previous delivered to the Buyer. Partial shipments made under any order shall be treated as a separate transaction and payment thereof shall be made accordingly. However, in the event of any default by Buyer, Seller may decline to make further shipments without in any way affected its rights under such order.

4. Transportation

Unless otherwise agreed to in writing by the Seller, all transportation shall be at the expense of Buyer. Seller reserves the right to ship Products freight collect and to select the means of transportation and routing. Risk of loss or damage shall pass to Buyer upon delivery of the products to the transportation company at the FOB point, whether or not installation is provided by or under supervision of Seller. Confiscation or destruction of, or damage to Products shall not release, reduce or in any way affect the liability of the Buyer therefore. The foregoing includes Products returned at Buyer’s expense to such place as Seller may designate in writing. Buyer, at its expense, shall fully insure Products returned, for whatever reason, to Seller.

5. Returns

The goods or parts thereof sold herein may in no case be returned to Seller without first obtaining Seller’s written consent. Sales are final upon shipment. The request for return and credit must be filed with Seller and shall include purchase order number, approximate date shipped and any and all other identifying numbers (such as invoice number, date of invoice, P.O. numbers, etc.). Each request for return of goods for credit should state the type and quantity of goods, the part numbers and the reasons for the return. If return authorization is granted, then (1) an RMA number will be issued by BioLase, and, (2) the RMA number must be written on all packages. Goods shall be returned in a clean, well-packaged condition. No credit allowance on defective goods will be made and no replacement for defective goods will be shipped in any event unless the alleged defects are, among other things, established to Seller’s satisfaction after suitable testing and inspection by Seller. Seller reserves the right to charge a restocking fee on all returned goods.

6. Left Blank Intentionally.

7. Limited Warranty-Limitation of Liability and Remedies

(a) Except as otherwise specified herein, Seller warrants the goods and parts which are of its manufacture and shipped hereunder to be free from defects in material and workmanship and to perform in the manner and under the conditions as specified in Seller’s warranty for the individual Product or for twelve (12) months from shipment if a warranty for an individual product is not specified.

(b) This warranty is the only warranty made by Seller with respect to the goods delivered hereunder and no representative or person is authorized to assume on Seller’s behalf, any obligations or liabilities beyond this warranty in connection with the sale of Seller’s goods. This warranty is made to the original purchaser only at the original location and is non-transferable, and my only be modified or amended by a written instrument signed by a duly authorized officer of the Seller. Major sub-systems manufactured by other firms, but integrated into Seller’s system are covered by the original manufacturer’s warranty. Goods or parts which are replaced or repaired under this Warranty are warranted only for the remaining unexpired portion of the original warranty period applicable to the goods.

(c) All accessories used with BioLase lasers must be manufactured by or certified in writing by BioLase. Use of non-authorized accessories will void the warranty, all service contracts and all liability to BioLase.

(d) Seller’s sole and exclusive liability and the Buyer’s sole and EXCLUSIVE REMEDY under this warranty shall be, at Seller’s election, the repair or replacement of goods, only if Seller is promptly notified in writing by Buyer upon discovery of the defects and Seller’s examination of such goods discloses to Seller’s satisfaction that such defects actually exist and the goods have not been (i) repaired, worked on, or altered to affect the stability, reliability, or proper operation of such goods; (ii) subject to misuse, negligence or accident; or (iii) connected, installed, used or adjusted otherwise than in accordance with the instructions furnished by Seller.

(e) All goods which Buyer considers defective shall be returned to Seller’s office, transportation costs prepaid and borne by Buyer (unless otherwise agreed to in writing). The risk of loss of goods shipped or delivered to Seller’s plant to repair or replacement will be borne by Buyer.

(f) If it is found that Seller’s Product has been returned without cause and is still serviceable, Buyer will be notified and the product returned at Buyer’s expense; in addition, a charge for testing and examination may, in Seller’s sole discretion, be made on Products so returned.

(g) SELLER MAKES NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE EXCEPT AS EXPRESSLY SET FORTH IN THE ABOVE WARRANTY. IN NO EVENT SHALL SELLER BE LIABLE FOR ANY INCIDENTAL OR CONSQUENTIAL INDIRECT OR SPECIAL DAMAGES OF ANY KIND, INLCUDING BUT NOT LIMITED TO, DAMAGES FOR LOSS OF REVENUE, LOSS OF BUSINESS OR BUSINESS OPPORTUNITY, OR OTHER SIMILAR FINANCIAL LOSS ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE, USE OF OR INTERRUPTED USE OF SELLER’S PRODUCTS, SYSTEM(S) OR MATERIALS.

8. Seller’s Rights to Subcontract

Seller may subcontract any portion of the work at any time subject to this Agreement, but Seller’s obligations and rights hereunder shall not thereby be limited or affected.

9. Proprietary Rights

The sale of the goods hereunder to Buyer shall in no way be deemed to confer upon Buyer any right, interest or license in any patents or patent applications, indicia, or design copyrights the Seller may have covering the goods. Seller claims for itself all proprietary rights in and to all designs, engineering details, and other data and connection with the goods or with any and all products developed as a result thereof, including the sole right to manufacture any and all such products. Buyer warrants that it will not divulge, disclose, or in any way distribute or make use of such information and that it will not manufacture or engage to have manufactured such products. materials pertaining to any goods supplied by Seller and to all discoveries, inventions, patents and other proprietary rights arising out of the work done in

10. General

The agreement is made and entered in the state of California or such other state as designated on the face hereof. Buyer agrees to pay any reasonable attorney’s fees and all other costs of collection incurred by Seller in connection therewith. All orders are subject to final approval by Head Office, San Clemente, California or other location as applicable.

11. Errors

Typographic and numerical errors are subject to correction when identified.

EX-10.11

EXHIBIT 10.11

RIGHT OF FIRST REFUSAL AGREEMENT

Agreement made this 15th day of November, 2001, by and between National Technology Leasing Corporation (“NTL”), with its principal place of business located at 126 East Street, Auburn, CA 95603, and Biolase Technology, Inc. (“vendor”), with its principal place of business located at 981 Calle Amanecer, San Clemente, CA 92673.

I.		Subject to the terms and conditions set forth in this Agreement, NTL agrees from time to time to purchase from vendor certain equipment to be placed on Lease to vendor’s customers. Such purchases will be ordered by, and payment for such purchases governed by, NTL’s standard Purchase Order from (addendum “A”) and, upon acceptance of any NTL purchase order, vendor agrees to invoice NTL for equipment described therein. All rights, title and interest in any equipment ordered via a NTL purchase order will automatically be conveyed to NTL upon NTL’s payment of the vendor’s corresponding invoice.
II.	A.	NTL agrees to publish specific leases rates to be utilized for lease contracts submitted by vendor. Vendor recognizes that NTL retains the right to change these rates from time to time as changes in market interest rates may occur, which change in rates shall take effect ten (10) days after written notice thereof is delivered by NTL to vendor. When a submitted credit application is approved by NTL, the contract will be priced utilizing the rate in effect at the time of approval. This transaction rate will remain valid for a period of sixty (60) days. After sixty (60) days, if a lease transaction has not funded (i.e. the contract has not been initiated), the approval will expire and, if the transaction is re-approved at a later date, will be priced at the rate in effect at the time of re-approval.
	B.	In consideration of NTL providing the aforementioned rate schedules vendor agrees to provide a right of first refusal to NTL on all lease transactions offered to outside leasing sources. The right of first refusal shall commence on the date NTL is provided the relevant credit application and shall expire twenty four hours (24 hrs.) thereafter unless NTL shall have approved the credit application during such twenty-four hour (24 hr.) period. Furthermore, it is anticipated that approximately $300,000.00 in original equipment cost will be originated by vendor and placed on lease every month this Agreement is in effect. It is agreed to and understood by vendor that the aforementioned rates are contingent upon the approximate monthly lease volume actually being obtained and maintained for the period of this Agreement. If the anticipated monthly lease volume is not achieved after sixty (60) days of this agreement or if the anticipated monthly lease volume falls below the specified level for a period of two (2) consecutive months then NTL reserves the right to adjust the rates offered under this Agreement, which change in rates shall take effect ten (10) days after written notice thereof is delivered by NTL to vendor.
	C.	NTL agrees to provide marketing assistance to vendor for the marketing of vendor’s equipment. This assistance will include, but not be limited to, joint mailings and advertisements for trade shows, sales and training seminars, trade show support, and any other marketing assistance programs deemed appropriate by both NTL and vendor.

III. Vendor shall utilize NTL’s standard forms for lease documentation which shall not be altered, modified, amended, or supplemented in any way. Lease documentation will be prepared by NTL personnel and NTL reserves the right to request supplemental documentation on any transaction as it deems necessary.

IV. This Agreement shall continue for twelve (12) months from the date hereof after which time this Agreement will automatically renew for successive one (1) year periods unless earlier terminated by either party upon thirty (30) days’ prior written notice.

V. The relationship between NTL and vendor shall in no event constitute the parties as partners, joint venturers, employees, agents, representatives or participants with or of each other. In addition, nothing herein shall be deemed to give either party the right to make representations on behalf of the other or use in any form the name or trademarks of the other without the prior written consent of the other.

VI. Any notices required to be given herein shall be given to the parties in writing and by regular mail at the addresses set forth herein. Said notices shall be effective when deposited in the United States mail with postage prepaid and return receipt request.

VII. The Agreement may be amended from time to time in writing executed by authorized representatives of both NTL and vendor.

VIII. This Right of First Refusal Agreement shall be deemed to have been consummated in the State of New Jersey.

IX. Any provision of this Agreement which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

X. NTL agrees and acknowledges that the decision to Lease equipment is at the sole discretion of the customer and nothing contained herein shall be construed to hold Vendor liable under this Agreement should a customer utilize a competitor of NTL chosen by the customer.

In Witness Whereof, the parties have caused their duly authorized officers to execute this Agreement on the date specified above.

National Technology Leasing Corporation	WITNESS:
126 East Street
Auburn, CA 95603
/s/    Michael A. Coffelt                          President	[signature not legible]
Signature - Michael A. Coffelt                    Title	Signature

Biolase Technology, Inc.	WITNESS:
/s/    Ed Rood                                                                     CFO	/s/    Cherie Rooks
Signature                                                                              Title	Signature

SHIP TO: (Lessee) [Customer Name] [Address] SUPPLIER OF EQUIPMENT: (Seller) Biolase Technology, Inc. 981 Calle Amanecer San Clemente, CA 92673

EQUIPMENT DESCRIPTION	PRICE
	Sales price	$        —
[Description of Equipment]	Shipping	—
	Other, if any	—
		$        —

PURCHASE ORDER TERMS AND CONDITIONS – READ CAREFULLY

THIS PURCHASE ORDER MAY BE ACCEPTED BY SELLER ONLY UPON THE TERMS AND CONDITIONS SPECIFIED HEREON. SHIPMENT OF THE EQUIPMENT SHALL BE AN ACKNOWLEDGEMENT OF SELLER’S ACCEPTANCE OF SUCH TERMS AND CONDITIONS. ALL OTHER TERMS OR CONDITIONS ARE HEREBY OBJECTED TO BY BUYER AND SHALL NOT BECOME A PART OF THIS PURCHASE ORDER.

LESSEE DESIRES TO LEASE THE EQUIPMENT DESCRIBED ABOVE (THE “EQUIPMENT”) FROM BUYER PURSUANT TO THE TERMS OF A LEASE AGREEMENT ENTERED INTO BETWEEN BUYER AND LESSEE (THE “LEASE”). THIS PURCHASE ORDER IS ISSUED BY BUYER FOR THE SOLE PURPOSE OF ACQUIRING THE EQUIPMENT FOR LEASE TO LESSEE. NEITHER LESSEE NOR ANY REPRESENTATIVE OF SELLER IS AUTHORIZED TO WAVE OR ALTER ANY TERM OR CONDITION OF THIS PURCHASE ORDER.

1. Seller warrants that Lessee selected the Equipment and requested that Buyer purchase and lease the Equipment to Lessee on the terms and conditions of the Lease. Seller further warrants that Seller has good and marketable title to the Equipment and that the Equipment will be (a) free of any claim by any third party and any security interest retained by Seller, (b) new unless otherwise stated in the Equipment described above, (c) in conformity with Lessee’s specifications therefore (d) merchantable and fit for the purpose which it was designed and marketed to Lessee, and (e) free from defect of material or workmanship.

2. Lessee is authorized to receive delivery of, to inspect, and to accept or reject the Equipment as Buyer’s agent. Either Buyer or Lessee shall have the right to reject and return to Seller, at Seller’s sole risk and expense, any Equipment which is defective or does not conform to specification at any time. Defects shall not be waived by failure of Lessee to notify Seller of such defects upon receipt of the Equipment or by Buyer’s payment of Seller’s invoice. Seller shall defend, indemnify and save harmless Buyer, Lessee and all users of the Equipment from all damages, claims and liabilities including reasonable costs, expenses and attorney’s fees, which result from Seller furnishing infringing (whether patent, trademark, or any other intellectual property right), defective, or non-conforming Equipment. All warranties and service normally accompanying the Equipment shall be extended by Seller directly to Buyer, Lessee or any user of the Equipment.

3. Buyer shall have no obligation or liability to Seller under the terms of this Purchase Order unless (a) Seller shall have delivered all of the Equipment to Lessee at the address indicated hereon within sixty (60) days of the Date of Purchase Order, and (b) Buyer shall have received Lessee’s written statement (and/or verbal confirmation) acknowledging receipt of the Equipment in good condition and repair, accepting the Equipment as satisfactory in all respects for all purposes of the Lease. In the event the Equipment is rejected by Lessee, the Lessee informs Buyer that the Lessee intends to reject the Equipment or revoke its acceptance of the Equipment, the Lessee does not commence, or a Lessee default occurs under the Lease prior to the acceptance of the Equipment, Buyer shall have no obligation or liability to Seller whatsoever.

4. On the date all the Equipment is shipped to Lessee, Seller must mail its invoice for the Equipment to Buyer at the Bill To address set forth above. The Purchase Order Number must be clearly referenced on all invoices submitted to Buyer. Invoices shall be paid by Buyer within twenty (20) days after Buyer’s receipt of Lessee’s confirmation of acceptance of the Equipment in accordance with Paragraph 3 above.

5. This Purchase Order (and any obligations of Seller hereunder) shall not be assigned by Seller. Seller may not delegate any of Seller’s duties or obligations under this Purchase Order without the prior written consent of Buyer. Any such attempted assignments or delegation shall be void.

6. Seller agrees to comply with the applicable provisions of any federal, state, or local law or ordinance and all lawful orders, rules, and regulations issued thereunder.

7. Buyer shall be entitled at all times to set off any amount owing at any time from Seller to Buyer or any of its affiliated companies against any amount payable at any time by Buyer in connection with this Purchase Order.

8. Risk of loss and title to the Equipment shall not pass to Buyer unless and until the Equipment has been received, inspected, and accepted by Lessee under the terms of the Lease. Time is of the essence of this Purchase Order.

9. THIS PURCHASE ORDER SHALL BE GOVERNED AND CONSTRUED UNDER THE LAWS OF THE STATE OF CALIFORNIA, SELLER AND BUYER WAIVE ALL RIGHTS TO A JURY TRIAL.

10. THIS PURCHASE ORDER SHALL EXPIRE SIXTY (60) DAYS FROM THE DATE OF THE PURCHASE ORDER AND MAY BE CANCELED PRIOR THERETO BY BUYER UPON WRITTEN NOTICE FROM BUYER TO SELLER, SELLER’S LIABILITIES AND INDEMNITIES SHALL SURVIVE THE EXPIRATION OF THIS PURCHASE ORDER.

In order to expedite payment, reference Purchase Order #[ PO Number ]

BILL TO: (Buyer) National Technology Leasing Corp. 126 East Street Auburn, CA 95603 Phone: (530) 887-5486 Facsimile: (530) 887-8296 NATIONAL TECHNOLOGY LEASING By:                                                                           (Authorized Representative) Date of Purchase Order:

EX-10.12

EXHIBIT 10.12

BIOLASE AND NTL AGREEMENT

August 5, 2003

These are the terms and conditions by which National Technology Leasing Corporation, hereinafter NTL, and BIOLASE Technology, Inc., hereinafter BIOLASE, conduct any and all transactions between the Parties. This Agreement covers all transactions between NTL and BIOLASE.

1. BIOLASE will offer NTL first right of refusal as feasible when BIOLASE customers desire to use a finance or lease company. NTL understands BIOLASE customers are free to choose the finance/lease company of their choice.

2. NTL will give BIOLASE first priority on scheduling personnel to be at BIOLASE sales and marketing functions, and to process financing or leases for BIOLASE customers. NTL will train its staff for, and ensure their ongoing prompt availability to BIOLASE.

3. From time to time NTL will sponsor marketing programs for the benefit of BIOLASE and BIOLASE customers.

4. All sales are FOB shipping point, shipping point being BIOLASE facility. All risks and rewards of ownership, and title, are transferred to NTL upon shipment.

5. NTL agrees that BIOLASE has satisfied all of its obligations to NTL upon shipment from BIOLASE facility or warehouse.

6. NTL does not have the right to return products after they are shipped by BIOLASE. Furthermore, NTL does not have recourse against BIOLASE once product ships. Sales are final when shipment occurs.

7. BIOLASE terms and conditions supercede all other documents for all sales to BIOLASE customers including NTL. For any issue not addressed in this Agreement or in the case of a conflict between the NTL Purchase Order and the BIOLASE Customer Order, the terms of the BIOLASE Customer Order will apply.

8. The relationship between NTL and BIOLASE is that of independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership, joint venture, representative or employer and employee relationship.

9. The term of this agreement is one year, 8/5/03 to 8/5/04, and can be renewed for one-year periods. If the parties continue doing business after the expiration date, then the terms and conditions of this agreement apply. Either party may terminate this agreement with 45 days written notice.

BIOLASE TECHNOLOGY, INC.	NATIONAL TECHNOLOGY LEASING CORP.
/s/    JEFFREY W. JONES	/s/    MICHAEL COFFELT
Jeffrey W. Jones	Michael Coffelt
President & CEO	President & CEO

EX-10.13

EXHIBIT 10.13

SHIP TO:    (Lessee) SUPPLIER OF EQUIPMENT:    (Seller) Biolase Technology, Inc. 981 Calle Amanecer San Clemente, California 92673

EQUIPMENT DESCRIPTION PRICE

PURCHASE ORDER TERMS AND CONDITIONS – READ CAREFULLY

THIS PURCHASE ORDER IS ONLY ACCEPTED BY SELLER SUBJECT TO THE TERMS AND CONDITIONS OF SELLERS’ SALES ORDERS. TITLE, AND ALL RISKS AND REWARDS OF OWNERSHIP SHALL TRANSFER TO BUYER UPON SHIPMENT OF THE EQUIPMENT

1. Seller warrants that Seller has good and marketable title to the Equipment and that the Equipment will be (a) free of any claim by any third party and any security interest retained by Seller, (b) new unless otherwise stated.

2. Lessee is authorized to receive delivery of the Equipment as Buyer’s agent. All warranties and service normally accompanying the Equipment shall be extended by Seller directly to Lessee.

3. Seller will ship the Equipment to Lessee at the address indicated hereon within sixty (60) days of the Date of Purchase Order. Seller must promptly mail its invoice for the Equipment to Buyer at the Bill To address set forth above. The Purchase Order Number should be clearly referenced on all invoices submitted to Buyer.

4. Invoices shall be paid by Buyer, to Seller, within thirty (30) days or less, of the invoice date, unless otherwise stated and approved by Seller.

5. Seller agrees to comply with the applicable provisions of any federal, state, or local law or ordinance and all lawful orders, rules, and regulations issued thereunder, as reasonably requested by Buyer.

6. All benefits and rewards, risks of loss of ownership and title to the Equipment shall pass to Buyer upon shipment. Seller has satisfied all of it’s obligations to Buyer upon shipment of described equipment.

7. This purchase order shall be governed and construed under the laws of the state of California, seller and buyer waive all rights to a jury trial.

8. This purchase order shall expire sixty (60) days from the date of the purchase order and may be canceled prior thereto by buyer upon written notice from buyer to seller.

Buyer acknowledges, that in the event there are any conflicting terms between the standard terms and conditions of sale by Seller and those stated above by Buyer, then Sellers terms and conditions prevail.

In order to expedite payment, reference Purchase Order #        

BILL TO: (Buyer) National Technology Leasing Corp. 126 East Street Auburn, CA 95603 Phone:        (530) 887-5486 Facsimile:   (530) 887-8296 NATIONAL TECHNOLOGY LEASING By:                                                                                                         (Authorized Representative) Date of Purchase Order:

EX-10.14

EXHIBIT 10.14

CREDIT AGREEMENT

(LINE OF CREDIT)

This Agreement (the “Agreement”) is made and entered into as of 5/14/ , 2003 by and between BANK OF THE WEST (the “Bank”) and BIOLASE TECHNOLOGY, INC. (the “Borrower”), on the terms and conditions that follow:

SECTION

1

DEFINITIONS

1.1 Certain Defined Terms: Unless elsewhere defined in this Agreement, the following terms shall have the following meanings (such meanings to be generally applicable to the singular and plural forms of the terms defined):

1.1.1 “Advance”: shall mean an advance to the Borrower under the credit facility (ies) described in Section 2.

1.1.2 “Business Day”: shall mean a day, other than a Saturday or Sunday, on which commercial banks are open for business in California.

1.1.3 “Close-Out Date”: shall mean the Business Day on which the Bank closes out and liquidates an FX Transaction.

1.1.4 “Closing Value”: has the meaning given to it in Section 8.4(i) hereof.

1.1.5 “Closing Gain” and “Closing Loss”: shall mean the amount determined in accordance with Section 8.4(ii) hereof.

1.1.6 “Collateral”: shall mean the property described in Section 3, together with any other personal or real property in which the Bank may be granted a lien or security interest to secure payment of the Obligations.

1.1.7 “Credit Percentage”: shall mean 15%.

1.1.8 “Current Liabilities”: shall mean current liabilities as determined in accordance with generally accepted accounting principles, including any negative cash balance on the Borrower’s financial statement.

1.1.9 “Debt”: shall mean all liabilities of the Borrower less Subordinated Debt, if any.

1.1.10 “EBITDA”: shall mean earnings exclusive of extraordinary gains or losses and before deductions for interest expense, taxes, depreciation and amortization expense.

1.1.11 “Effective Tangible Net Worth”: shall mean the Borrower’s stated net worth plus Subordinated Debt but less all intangible assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights, organization expense, and similar intangible items including, but not limited to, investments in and all amounts due from affiliates, officers or employees).

1.1.12 “Environmental Claims”: shall mean all claims, however asserted, by any governmental authority or other person alleging potential liability or responsibility for violation of any

1

Environmental Law or for Discharge or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, Discharges, emissions or releases) of any Hazardous Material at, in, or from property, whether or not owned by the Borrower, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.

1.1.13 “Environmental Laws”: shall mean all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA’), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act,^, the California Water Code and the California Health and Safety Code.

1.1.14 “Environmental Permits”: shall have the meaning provided in Section 5.11 hereof.

1.1.15 “ERISA”: shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder.

1.1.16 “Event of Default”: shall have the meaning set forth in Section 7.

1.1.17 “Expiration Date”: shall mean June 1, 2004, or the date of termination of the Bank’s commitment to lend under this Agreement pursuant to Section 8, whichever shall occur first.

1.1.18 “Foreign Currency”: shall mean any legally traded currency other than US dollars and which may be transferred by paperless wire transfer or cash and in which the Bank regularly trades.

1.1.19 “Funded Debt”: shall mean all Indebtedness of the Borrower owed to any financial institution.

1.1.20 “Foreign Exchange Facility”: shall mean the credit facility described as such in Section 2.

1.1.21 “FX Risk Liability”: shall mean the product of (a) the Credit Percentage, times (b) the aggregate of the Notional Values of all FX Transactions outstanding, net of any Offsetting Transactions.

1.1.22 “FX Limit”: shall mean $500,000.00.

1.1.23 “FX Transaction”: shall mean any transaction between the Bank and the Borrower pursuant to which the Bank has agreed to sell to or to purchase from the Borrower a Foreign Currency of an agreed amount at an agreed price in US dollars or such other agreed upon Foreign Currency, deliverable and payable on an agreed date.

2

1.1.24 “Hazardous Materials”: shall mean all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste.

1.1.25 “Indebtedness”: shall mean, with respect to the Borrower, (1) all indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which the Borrower is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss and (ii) obligations under leases which shall have been or should be, in accordance with generally accepted accounting principles, reported as capital leases in respect of which the Borrower is liable, contingently or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss.

1.1.26 “LIBOR Advance”: shall have the respective meaning as it is defined for each facility under Section 2 hereof.

1.1.27 “LIBOR Interest Period”: shall have the respective meaning as it is defined for each facility under Section 2 hereof.

1.1.28 “LIBOR Rate”: shall have the respective meaning as it is defined for each facility under Section 2 hereof.

1.1.29 “Line Account”: shall have the meaning provided in Section 2.3 hereof.

1.1.30 “Line of Credit”: shall mean the credit facility described as such in Section 2.

1.1.31 “Notional Value”: shall mean the US Dollar equivalent of the price at which the Bank agreed to purchase or sell to the Borrower a Foreign Currency.

1.1.32 “Obligations”: shall mean all amounts owing by the Borrower to the Bank pursuant to this Agreement including, but not limited to, the unpaid principal amount of any loans or advances.

1.1.33 “Offsetting Transaction”: shall mean an FX Transaction to purchase a Foreign Currency and an FX Transaction to sell the same Foreign Currency, each with the same Settlement Date and designated as an Offsetting Transaction at the time of entering into the FX Transaction.

1.1.34 “Ordinary Course of Business”: shall mean, with respect to any transaction involving the Borrower or any of its subsidiaries or affiliates, the ordinary course of the Borrowers business, as conducted by the Borrower in accordance with past practice and undertaken by the Borrower in good faith and not for the purpose of evading any covenant or restriction in this Agreement or in any other document, instrument or agreement executed in connection herewith.

1.1.35 “Permitted Liens”: shall mean: (i) liens and security interests securing indebtedness owed by the Borrower to the Bank; (ii) liens for taxes, assessments or similar charges not yet due; (iii) liens of materialmen, mechanics, warehousemen, or carriers or other like liens arising in the Ordinary Course of Business and securing obligations which are not yet delinquent; (iv) purchase money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the Ordinary Course of Business to secure Indebtedness outstanding on the date hereof or permitted to be incurred herein; (v) liens and security interests which, as of the date hereof, have been disclosed to and approved

3

by the Bank in writing; and (vi) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of the Borrower’s assets.

1.1.36 “Prime Rate”: shall mean an index for a variable interest rate which is quoted, published or announced by Bank as its prime rate and as to which loans may be made by Bank at, above or below such rate.

1.1.37 “Settlement Date”: shall mean the Business Day on which the Borrower has agreed to (a) deliver the required amount of Foreign Currency or (b) pay in US dollars the agreed upon purchase price of the Foreign Currency.

1.1.38 “Subordinated Debt”: shall mean such liabilities of the Borrower which have been subordinated to those owed to the Bank in a manner acceptable to the Bank.

1.1.39 “Variable Rate Advance”: shall have the respective meaning as it is defined for each facility under Section 2 hereof.

1.1.40 “Variable Rate”: shall have the respective meaning as it is defined for each facility under Section 2 hereof.

1.2 Accounting Terms: All references to financial statements, assets, liabilities, and similar accounting items not specifically defined herein shall mean such financial statements or such items prepared or determined in accordance with generally accepted accounting principles consistently applied and, except where otherwise specified, all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles.

1.3 Other Terms: Other terms not otherwise defined shall have the meanings attributed to such terms in the California Uniform Commercial Code as in effect on July 1, 2001 and from time to time thereafter.

SECTION

2

CREDIT FACILITIES

2.1 THE LINE OF CREDIT

2.1.1 The Line of Credit: On terms and conditions as set forth herein, the Bank agrees to make Advances to the Borrower from time to time from the date hereof to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed $4,500,000.00 (the “Line of Credit”). Within the foregoing limits, the Borrower may borrow, partially or wholly prepay, and reborrow under this Section 2.1. Proceeds of the Line of Credit shall be used for general working capital purposes.

2.1.2 Making Line Advances: Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of the Borrower (i) when credited to any deposit account of the Borrower maintained with the Bank or (ii) when paid in accordance with the Borrower’s written instructions. Subject to the requirements of Section 4 and provided such request is made in a timely manner as provided in Section 2.1.5 below, Advances shall be made by the Bank under the Line of Credit.

4

2.1.3 Repayment: On the Expiration Date, the Borrower hereby promises and agrees to pay to the Bank in full the aggregate unpaid principal amount of all Advances then outstanding, together with all accrued and unpaid interest thereon.

2.1.4 Interest on Advances: Interest shall accrue from the date of each Advance under the Line of Credit at one of the following rates, as quoted by the Bank and as elected by the Borrower below:

(i) Variable Rate Advances: A variable rate per annum equivalent to the Prime Rate (the “Variable Rate”). Interest shall be adjusted concurrently with any change in the Prime Rate. An Advance based upon the Variable Rate is hereinafter referred to as a “Variable Rate Advance.”

(ii) LIBOR Advances: A fixed rate quoted by the Bank for 1, 2, 3, or 6 months or for such other period of time that the Bank may quote and offer (provided that any such period of time does not extend beyond the Expiration Date) (the “LIBOR Interest Period”) for Advances in the minimum amount of $500,000.00. Such interest rate shall be a percentage approximately equivalent to 2.25% in excess of the Banks LIBOR Rate which is that rate determined by the Bank’s Treasury Desk as being the arithmetic mean (rounded upwards, if necessary, to the nearest whole multiple of one-sixteenth of one percent (1/16%)) of the U.S. dollar London Interbank Offered Rates for such period appearing on page 3750 (or such other page as may replace page 3750) of the^, Telerate screen at or about 11:00 a.m. (London time) on the second Business Day prior to the first days of such period (adjusted for any and all assessments, surcharges and reserve requirements) (the “LIBOR Rate”). An Advance based upon the LIBOR Rate is hereinafter referred to as a “LIBOR Advance.”

Interest on any Advance shall be computed on the basis of 360 days per year, but charged on the actual number of days elapsed.

The Borrower hereby promises and agrees to pay interest in arrears on Variable Rate Advances and LIBOR Advances on the first calendar day of each month.

If interest is not paid as and when it is due, it shall be added to the principal, become and be treated as a part thereof, and shall thereafter bear like interest.

2.1.5 Notice of Borrowing: Upon written or telephonic notice which shall be received by the Bank at or before 2:00 p.m. (California time) on a Business Day, the Borrower may borrow under the Line of Credit by requesting:

(i) A Variable Rate Advance. A Variable Rate Advance may be made on the day notice is received by the Bank; provided, however, that if the Bank shall not have received notice at or before 2:00 p.m. on the day such Advance is requested to be made, such Variable Rate Advance may, at the Bank’s option, be made on the next Business Day.

(ii) A LIBOR Advance. Notice of any LIBOR Advance shall be received by the Bank no later than two Business Days prior to the day (which shall be a Business Day) on which the Borrower requests such LIBOR Advance to be made.

2.1.6 Notice of Election to Adjust Interest Rate: The Borrower may elect:

(i) That interest on a Variable Rate Advance shall be adjusted to accrue at the LIBOR Rate; provided, however, that such notice shall be received by the Bank no later

5

than two Business Days prior to the day (which shall be a Business Day) on which the Borrower requests that interest be adjusted to accrue at the LIBOR Rate.

(ii) That interest on a LIBOR Advance shall continue to accrue at a newly quoted LIBOR Rate or shall be adjusted to commence to accrue at the Variable Rate; provided, however, that such notice shall be received by the Bank no later than two Business Days prior to the last day of the LIBOR Interest Period pertaining to such LIBOR Advance. If the Bank shall not have received notice (as prescribed herein) of the Borrowers election that interest on any LIBOR Advance shall continue to accrue at the newly quoted LIBOR Rate, the Borrower shall be deemed to have elected that interest thereon shall be adjusted to accrue at the Variable Rate upon the expiration of the LIBOR Interest Period pertaining to such Advance.

2.1.7 Prepayment: The Borrower may prepay any Advance in whole or in part, at any time and without penalty; provided, however, that (i) any partial prepayment shall first be applied, at the Bank’s option, to accrued and unpaid Interest and next to the outstanding principal balance; and (ii) during any period of time in which interest is accruing on any Advance on the basis of the LIBOR Rate, no prepayment shall be made except on a day which is the last day of the LIBOR Interest Period pertaining thereto. If the whole or any part of any LIBOR Advance is prepaid by reason of acceleration or otherwise, the Borrower shall, upon the Bank’s request, promptly pay to and indemnify the Bank for all costs, expenses and any loss (including loss of future interest income) actually incurred by the Bank and any loss (including loss of profit resulting from the re-employment of funds) deemed sustained by the Bank as a consequence of such prepayment.

The Bank shall be entitled to fund all or any portion of its Advances in any manner it may determine in its sole discretion, but all calculations and transactions hereunder shall be conducted as though the Bank actually funded all Advances through the purchase of dollar deposits bearing interest at the same rate as U.S. Treasury securities in the amount of the relevant Advance and in maturities corresponding to the date of such purchase to the Expiration Date hereunder.

2.1.8 Indemnification for LIBOR Rate Costs: During any period of time in which interest on any Advance is accruing on the basis of the LIBOR Rate, the Borrower shall, upon the Bank’s request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank’s compliance with any directive or requirement of any regulatory authority pertaining or relating to funds used by the Bank in quoting and determining the LIBOR Rate.

2.1.9 Conversion from LIBOR Rate to Variable Rate: In the event that the Bank shall at any time determine that the accrual of interest on the basis of the LIBOR Rate (i) is infeasible because the Bank is unable to determine the LIBOR Rate due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to relevant LIBOR Interest Period or (ii) is or has become unlawful or infeasible by reason of the Bank’s compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, then the Bank shall give telephonic notice thereof (confirmed in writing) to the Borrower, in which event any Advance bearing interest at the LIBOR Rate shall be deemed to be a Variable Rate Advance and interest shall thereupon immediately accrue at the Variable Rate.

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2.2 FOREIGN EXCHANGE SUB-FACILITY

2.2.1 Foreign Exchange Sub-Facility: The Bank agrees to enter into FX Transactions with the Borrower, at the Borrower’s request therefor made prior to the Expiration Date; provided, however, that at no time shall the aggregate FX Risk Liability of the Borrower exceed the FX Limit, and together with the total principal amount of all outstanding Advances, exceed the Line of Credit Each FX Transaction shall be used to hedge the Borrower’s foreign exchange exposure.

(i) Requests. Each request for an FX Transaction shall be made by telephone to the Bank’s Treasury Department (‘Request”), shall specify the Foreign Currency to be purchased or sold, the amount of such Foreign Currency and the Settlement Date. Each Request shall be communicated to the Bank no later than 3:00 p.m. California time on the Business Day on which the FX Transaction is requested.

(ii) Tenor. No FX Transaction shall have a Settlement Date which is more than 365 days after the date of entry into such FX Transaction, and provided further, no FX Transaction shall_. expire on a date which is more than 90 days after the Expiration Date.

(iii) Availability. Bank may refuse to enter into an FX Transaction with the Borrower where the Bank, at its sole discretion, determines that (1) the requested Foreign Currency is unavailable, or (2) the Bank is not then dealing in the requested Foreign Currency, or (3) the Bank would be prohibited by any applicable law, rule, regulation or order from purchasing such Foreign Currency.

(iv) Payment. Payment is due on the Settlement Date of the relevant FX Transaction. The Bank is hereby authorized by the Borrower to charge the full settlement price of any FX Transaction against the depository account or accounts maintained by the Borrower with the Bank on the Settlement Date. In the event that the Borrower fails to pay the settlement price of any FX Transaction on the Settlement Date or the balances in the depository account or accounts maintained with Bank are insufficient to pay the settlement price, without limiting the rights of Bank hereunder or waiving any Event of Default caused thereby, Bank may, and Borrower hereby authorizes Bank to, create an Advance bearing interest at the Variable Rate to pay the settlement price on the Settlement Date.

(v) Increased Costs. Borrower shall promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any assessment, reserve, deposit, capital maintenance or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank’s compliance with any directive or requirement of any regulatory authority pertaining or relating to any FX Transaction.

(vi) Impossibility of Performance. In the event that the Borrower or the Bank cannot perform under an FX Transaction due to force majeure or an act of State or it becomes unlawful or impossible to perform, all in the good faith judgment of the Borrower or the Bank, then upon notice to the other party, the Borrower or the Bank may require the close-out and liquidation of the affected FX Transaction in accordance with the provisions of this Agreement.

2.3 Line Account: The Bank shall maintain on its books a record of account in which the Bank shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facilities granted hereunder (the “Line Account”). The Bank shall provide the Borrower with a statement of the Borrower’s Line Account, which statement shall be considered

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to be correct and conclusively binding on the Borrower unless the Borrower notifies the Bank to the contrary within 30 days after the Borrowers receipt of any such statement which it deems to be incorrect.

2.4 Authorization to Charge Account(s): The Borrower hereby authorizes the Bank, if and to the extent payment owed to the Bank under this Agreement is not made when due, to charge, from time to time, against any or all of the Borrowers deposit accounts with the Bank any amount so due.

2.5 Payments: If any payment required to be made by the Borrower hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension. All payments required to be made hereunder shall be made to the office of the Bank designated for the receipt of notices herein or such other office as Bank shall from time to time designate.

2.6 Late Payment: In addition to any other rights the Bank may have hereunder, if any payment of principal or interest or any portion thereof, under this Agreement is not paid within 5 days of when due, a late payment charge equal to five percent (5%) of such past due payment may be assessed and shall be immediately payable.

SECTION

3

COLLATERAL

3.1 The Collateral: To secure payment and performance of all the Borrowers Obligations under this Agreement and all other liabilities, loans, guarantees, covenants and duties owed by the Borrower to the Bank, whether or not evidenced by this or by any other agreement, absolute or contingent, due or to become due, now existing or hereafter and howsoever created, the Borrower hereby grants the Bank a security interest in and to all of the following property (“Collateral”):

(i) Equipment. All goods now owned or hereafter acquired by the Borrower or in which the Borrower now has or may hereafter acquire any interest, including, but not limited to, all machinery, equipment, furniture, furnishings, fixtures, tools, supplies and motor vehicles of every kind and description, and all additions, accessions, improvements, replacements and substitutions thereto and thereof (the “Equipment”).

(ii) Inventory. All inventory now owned or hereafter acquired by the Borrower, including, but not limited to, all raw materials, work in process, finished goods, inventory leased to others or held for lease, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the Borrowers custody or possession, together with all returns on accounts (the “Inventory”).

(iii) Accounts. All accounts, letter of credit rights, commercial tort claims, contract rights and general intangibles, including software and payment intangibles, now owned or hereafter created or acquired by the Borrower, including, but not limited to, all receivables, including as-extracted receivables, credit card receivables, health care receivables, insurance receivables, software receivables and license

8

fees, goodwill, trademarks, trademark applications, trade styles, trade names, patents, patent applications, copyrights and copyright applications, customer lists, business records and computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the Collateral.

(iv) Documents. All documents, instruments and chattel paper, whether electronic or tangible, now owned or hereafter acquired by the Borrower, including, but not limited to, warehouse and other receipts, bills of sale, promissory notes and bills of lading.

(v) Monies. All monies, deposit accounts, certificates of deposit, investment property and securities of the Borrower now or hereafter in the Bank’s or its agents’ possession.

(vi) Assets. All assets of the Borrower, whether now existing or hereafter acquired, and the products and proceeds thereof.

The Bank’s security interest in the Collateral shall be a continuing lien and shall include the proceeds and products of the Collateral including, but not limited to, the proceeds of any insurance thereon.

Borrower hereby consents to and instructs Bank to file financing statements in all locations deemed appropriate by the Bank from time to time.

The security interest granted to Bank in the Collateral shall not secure or be deemed to secure any Indebtedness of the Borrower to the Bank which is, at the time of its creation, subject to the provisions of any state or federal consumer credit or truth-in-lending disclosure statutes.

SECTION

4

CONDITIONS PRECEDENT

4.1 Conditions Precedent to the Initial Extension of Credit: The obligation of the Bank to make the initial Advance or the first extension of credit to or on account of the Borrower hereunder is subject to the conditions precedent that the Bank shall have received before the date of such initial Advance or such first extension of credit all of the following, in form and substance satisfactory to the Bank:

(i) Authority to Borrow. Evidence that the execution, delivery and performance by the Borrower of this Agreement and any document, instrument or agreement required hereunder have been duly authorized.

(ii) Fees. A fee of $12,500.00, and payment of all of the Bank’s out-of-pocket expenses in connection with the preparation and negotiation of this Agreement.

(iii) Financing Statements. UCC-1 financing statement(s) describing the Collateral, which have been filed with the Secretary of State or the county recorder as a lien of first priority.

(iv) Miscellaneous. Such other evidence as the Bank may request to establish the consummation of the transaction contemplated hereunder and compliance with the conditions of this Agreement.

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4.2 Conditions Precedent to All Extensions of Credit: The obligation of the Bank to make each Advance or each other extension of credit, as the case may be, to or on account of the Borrower (including the initial Advance or the first extension of credit) shall be subject to the further conditions precedent that, on the date of each Advance or each extension of credit and after the making of such Advance or extension of credit:

(i) Reporting Requirements. The Bank shall have received the documents set forth in Section 6.1.

(ii) Subsequent Approvals. The Bank shall have received such supplemental approvals, opinions or documents as the Bank may reasonably request.

(iii) Representations and Warranties. The representations contained in Section 5 and in any other document, instrument or certificate delivered to the Bank hereunder are true, correct and complete.

(iv) Event of Default. No event has occurred and is continuing which constitutes, or with the lapse of time or giving of notice or both, would constitute an Event of Default.

(v) Collateral. The security interest in the Collateral has been duly authorized, created and perfected with first priority and is in full force and effect.

The Borrower’s acceptance of the proceeds of any loan, Advance or extension of credit or the Borrowers execution of any document or instrument evidencing or creating any Obligation hereunder shall be deemed to constitute the Borrowers representation and warranty that all of the above statements are true and correct.

SECTION

5

REPRESENTATIONS AND WARRANTIES

The Borrower hereby makes the following representations and warranties to the Bank, which representations and warranties are continuing:

5.1 Status: The Borrower’s correct legal name is as stated in this Agreement and the Borrower is a corporation duly organized and validly existing under the laws of the state of Delaware and with its chief executive office in the state of California and is properly licensed and is qualified to do business and in good standing in, and, where necessary to maintain the Borrower’s rights and privileges, has complied with the fictitious name statute of every jurisdiction in which the Borrower is doing business.

5.2 Authority: The execution, delivery and performance by the Borrower of this Agreement and any instrument, document or agreement required hereunder have been duly authorized and do not and will not: (i) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having application to the Borrower; (ii) result in a breach of or constitute a default under any material indenture or loan or credit agreement or other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; or (iii) require any consent or approval of its stockholders or violate any provision of its articles of incorporation or by-laws.

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5.3 Legal Effect: This Agreement constitutes, and any instrument, document or agreement required hereunder when delivered hereunder will constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms.

5.4 Fictitious Trade Styles: There are no fictitious trade styles used by the Borrower in connection with its business operations. The Borrower shall notify the Bank not less than 30 days prior to effecting any change in the matters described herein or prior to using any other fictitious trade style at any future date, indicating the trade style and state(s) of its use.

5.5 Financial Statements: All financial statements, information and other data which may have been or which may hereafter be submitted by the Borrower to the Bank are true, accurate and correct and have been or will be prepared in accordance with generally accepted accounting principles consistently applied and accurately represent the financial condition or, as applicable, the other information disclosed therein. Since the most recent submission of such financial information or data to the Bank, the Borrower represents and warrants that no material adverse change in the Borrower’s financial condition or operations has occurred which has not been fully disclosed to the Bank in writing.

5.6 Litigation: Except as have been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the Borrowers properties before any court or administrative agency which, if determined adversely to the Borrower, would have a material adverse effect on the Borrowers financial condition or operations or on the Collateral.

5.7 Title to Assets: The Borrower has good and marketable title to all of its assets (including, but not limited to, the Collateral) and the same are not subject to any security interest encumbrance, lien or claim of any third person except for Permitted Liens.

5.8 ERISA: If the Borrower has a pension, profit sharing or retirement plan subject to ERISA, such plan has been and will continue to be funded in accordance with its terms and otherwise complies with and continues to comply with the requirements of ERISA.

5.9 Taxes: The Borrower has filed all tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties, other than such taxes which are currently payable without penalty or interest or those which are being duly contested in good faith.

5.10 Margin Stock: The proceeds of any loan or advance hereunder will not be used to purchase or carry margin stock as such term is defined under Regulation U of the Board of Governors of the Federal Reserve System.

5.11 Environmental Compliance: The operations of the Borrower comply, and during the term of this Agreement will at all times comply, in all respects with all Environmental Laws; the Borrower has obtained all licenses, permits, authorizations and registrations required under any Environmental Law (“Environmental Permits”) and necessary for its ordinary course operations, all such Environmental Permits are in good standing, and the Borrower is in compliance with all material terms and conditions of such Environmental Permits; neither the Borrower nor any of its present property or operations is subject to any outstanding written order from or agreement with any governmental authority nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material; there are no Hazardous Materials or other conditions or circumstances existing, or arising from operations prior to the date of this Agreement, with respect to any property of the Borrower that would reasonably be expected to give rise to Environmental Claims; provided, however, that with respect to property leased from an unrelated third party, the foregoing representation is made to the best knowledge of the Borrower, in addition, (i) the Borrower does not have any underground storage tanks that are not properly registered or permitted under applicable Environmental Laws, or that are leaking or

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disposing of Hazardous Materials off-site, and (ii) the Borrower has notified all of their employees of the existence, if any, of any health hazard arising from the conditions of their employment and have met all notification requirements under Title III of CERCLA and all other Environmental Laws.

5.12 Inventory:

(i) The Borrower keeps correct and accurate records (itemizing and describing the kind, type, quality and quantity of inventory, the Borrowers cost therefor and selling price thereof, and the daily withdrawals therefrom and additions thereto).

(ii) All inventory is of good and merchantable quality, free from defects.

(iii) The inventory is not stored with a bailee, warehouseman or similar party.

SECTION

6

COVENANTS

The Borrower covenants and agrees that, during the term of this Agreement, and so long thereafter as the Borrower is indebted to the Bank under this Agreement, the Borrower will, unless the Bank shall otherwise consent in writing:

6.1 Reporting and Certification Requirements: Deliver or cause to be delivered to the Bank in form and detail satisfactory to the Bank:

(i) Not later than 105 days after the end of each of the Borrower’s fiscal years, a copy of the annual audited financial report of the Borrower for such year, prepared by a firm of certified public accountants acceptable to Bank and accompanied by an unqualified opinion of such firm.

(ii) Not later than 45 days after the end of each fiscal quarter, a copy of the Borrower’s financial statement as of the end of such period.

(iii) Not later than 45 days after the end of each fiscal quarter, an aging of accounts payable and accounts receivable.

(iv) Promptly upon the Bank’s request, such other information pertaining to the Borrower, the Collateral or any guarantor hereunder as the Bank may reasonably request.

6.2 Financial Condition: The Borrower promises and agrees, during the term of this Agreement and until payment in full of all of the Borrower’s Obligations, the Borrower will maintain at all times:

(i) A minimum Effective Tangible Net Worth of at least $7,000,000.00 through September 30, 2003 and $8,000,000.00 thereafter.

(ii) A ratio of Debt to Effective Tangible Net Worth of not more than 1.75 to 1.

(iii) A ratio of the sum of cash, cash equivalents and accounts receivable to Current Liabilities of not less than .80 to 1,

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(iv) Cash, cash equivalents and marketable securities of not less than $3,500,000.00.

(v) Profitability by not allowing any quarterly losses.

(vi) A ratio of Funded Debt to EBITDA of not more than 1.25 to 1 at the end of each fiscal quarter, with EBITDA based upon the immediately preceding three fiscal quarters and the current quarter just ended.

6.3 Preservation of Existence; Compliance with Applicable Laws: Maintain and preserve its existence and all rights and privileges now enjoyed; and conduct its business and operations in accordance with all applicable laws, rules and regulations.

6.4 Merge or Consolidate: Not liquidate or dissolve, merge or consolidate with or into, or acquire any other business organization; provided, however, that this Section 6.4 shall not apply to transactions in which Borrower is the surviving entity.

6.5 Maintenance of Insurance: Keep and maintain the Collateral insured for not less than its full replacement value against all risks of loss and damage and maintain insurance in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower operates and maintain such other insurance and coverages as may be required by the Bank. All such insurance shall be in form and amount and with companies satisfactory to the Bank.

With respect to insurance covering properties in which the Bank maintains a security interest or lien, such insurance shall name the Bank as loss payee pursuant to a loss payable endorsement satisfactory to the Bank and shall not be altered or canceled except upon 10 days’ prior written notice to the Bank. Upon the Bank’s request the Borrower shall furnish the Bank with the original policy or binder of all such insurance.

6.6 Maintenance of Collateral and Other Properties: Except for Permitted Liens, keep and maintain the Collateral free and clear of all levies, liens, encumbrances and security interests (including, but not limited to, any lien of attachment, judgment or execution) and defend the Collateral against any such levy, lien, encumbrance or security interest; comply with all laws, statutes and regulations pertaining to the Collateral and its use and operation; execute, file and record such statements, notices and agreements, take such actions and obtain such certificates and other documents as necessary to perfect, evidence and continue the Bank’s security interest in the Collateral and the priority thereof; maintain accurate and complete records of the Collateral which show all sales, claims and allowances; and properly care for, house, store and maintain the Collateral in good condition, free of misuse, abuse and deterioration, other than normal wear and tear. The Borrower shall also maintain and preserve all its properties in good working order and condition in accordance with the general practice of other businesses of similar character and size, ordinary wear and tear excepted.

6.7 Payment of Obligations and Taxes: Make timely payment of all assessments and taxes and all of its liabilities and obligations including, but not limited to, trade payables, unless the same are being contested in good faith by appropriate proceedings with the appropriate court or regulatory agency. For purposes hereof, the Borrower’s issuance of a check, draft or similar instrument without delivery to the intended payee shall not constitute payment.

6.8 Inspection Rights and Accounting Records: The Borrower will maintain adequate books and records in accordance with generally accepted accounting principles consistently applied and in a manner otherwise acceptable to Bank, and, at any reasonable time and from time to time, permit the Bank or any representative thereof to examine and make copies of the records and visit the properties of the Borrower and discuss the business and operations of the Borrower with any employee or representative thereof. If the Borrower shall maintain; any records (including, but not

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limited to, computer generated records or computer programs for the generation of such records) in the possession of a third party, the Borrower hereby agrees to notify such third party to permit the Bank free access to such records at all reasonable times and to provide the Bank with copies of any records which it may request, all at the Borrowers expense, the amount of which shall be payable immediately upon demand.

6.9 Payment of Dividends: Not declare or pay any dividends on any class of stock now or hereafter outstanding except dividends payable solely in the Borrowers capital stock.

6.10 Redemption or Repurchase of Stock: Not redeem or repurchase any class of the Borrowers stock now or hereafter outstanding.

6.11 Additional Indebtedness: Not, after the date hereof, create, incur or assume, directly or indirectly, any additional Indebtedness other than (i) Indebtedness owed or to be owed to the Bank or (ii) Indebtedness to trade creditors Incurred in the Ordinary Course of Business or (iii) Indebtedness of up to $100,000.00 in any one fiscal year.

6.12 Loans: Not make any loans or advances or extend credit to any third person, including, but not limited to, directors, officers, shareholders, partners, employees, affiliated entities and subsidiaries of the Borrower, except for credit extended in the Ordinary Course of Business as presently conducted.

6.13 Liens and Encumbrances: Not create, assume or permit to exist any security interest, encumbrance, mortgage, deed of trust, or other lien (including, but not limited to, a lien of attachment, judgment or execution) affecting any of the Borrower’s properties, or execute or allow to be filed any financing statement or continuation thereof affecting any of such properties, except for Permitted Liens or as otherwise provided in this Agreement, and except liens and security interests associated with Indebtedness of up to $100,000.00 in any one fiscal year.

6.14 Transfer Assets: Not, after the date hereof, sell, contract for sale, convey, transfer, assign, lease or sublet, any of its assets (including, but not limited to, the Collateral) except in the Ordinary Course of Business and, then, only for full, fair and reasonable consideration.

6.15 Change In Nature of Business: Not make any material change in its financial structure or the nature of its business as existing or conducted as of the date hereof.

6.16 Maintenance of Jurisdiction: Borrower shall maintain the jurisdiction of its organization and chief executive office, or if applicable, principal residence, as set forth herein and not change such jurisdiction name or form of organization without 30 days prior written notice to Bank.’

6.17 Compensation of Employees: Compensate its employees for services rendered at an hourly rate at least equal to the minimum hourly rate prescribed by any applicable federal or state law or regulation.

6.18 Capital Expense: Not make any fixed capital expenditure or any commitment therefor, including, but not limited to, incurring liability for leases which would be, in accordance with generally accepted accounting principles, reported as capital leases, or purchase any real or personal property in an aggregate amount exceeding $1,000,000.00 in any one fiscal year,

6.19 Out-of-Debt: Not permit to be outstanding any Advances under the Line of Credit for a period of time equal to at least 30 consecutive calendar days in any one fiscal year.

6.20 Notice: Give the Bank prompt written notice of any and all (i) Events of Default; (ii) litigation, arbitration or administrative proceedings to which the Borrower is a party and in which the claim or liability exceeds $100,000.00 or which affects the Collateral; (iii) other matters which have resulted

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in, or might result in, a material adverse change in the Collateral or the financial condition or business operations of the Borrower; and (iv) any enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Borrower or any of its properties.

6.21 Environmental Compliance: The Borrower shall conduct its operations and keep and maintain all of its property in compliance with all Environmental Laws and, upon the written request of the Bank, the Borrower shall submit to the Bank, at the Borrower’s sole cost and expense, at reasonable intervals, a report providing the status of any environmental, health or safety compliance, hazard or liability.

6.22 Inventory:

(i) Except as provided herein below, the Borrower’s inventory shall, at all times, be in the Borrowers physical possession, shall not be held by others on consignment, sale on approval, or sale or return and shall be kept only at 981 Calle Amanecer, San Clemente, CA 92673.

(ii) The Borrower shall keep correct and accurate records.

(iii) All inventory shall be of good and merchantable quality, free from defects.

(iv) The inventory shall not at any time or times hereafter be stored with a bailee, warehouseman or similar party without the Bank’s prior written consent and, in such event, the Borrower will concurrently therewith cause any such bailee, warehouseman or similar party to issue and deliver to the Bank, in form acceptable to the Bank, warehouse receipts in the Bank’s name evidencing the storage of inventory.

(v) At any reasonable time and from time to time, allow Bank to have the right, upon demand, to inspect and examine inventory and to check and test the same as to quality, quantity, value and condition and the Borrower agrees to reimburse the Bank for the Bank’s reasonable costs and expenses in so doing.

6.23 Location and Maintenance of Equipment:

(i) The Equipment shall at all times be in the Borrower’s physical possession, shall not be held for sale or lease, and shall be kept only at the following location: 981 Calle Amanecer, San Clemente, CA 92673.

The Borrower shall not secrete, abandon or remove, or permit the removal of, the Equipment, or any part thereof, from the location(s) shown above or remove or permit to be removed any accessories now or hereafter placed upon the Equipment.

(ii) Upon the Bank’s demand, the Borrower shall immediately provide the Bank with a complete and accurate description of the Equipment including, as applicable, the make, model, identification number and serial number of each item of Equipment. In addition, the Borrower shall immediately notify the Bank of the acquisition of any new or additional Equipment or the replacement of any existing Equipment and shall supply the Bank with a complete description of any such additional or replacement Equipment.

(iii) The Borrower shall, at the Borrower’s sole cost and expense, keep and maintain the Equipment in a good state of repair and shell not destroy, misuse, abuse,

15

illegally use or be negligent in the care of the Equipment or any part thereof. The Borrower shall not remove, destroy, obliterate, change, cover, paint, deface or alter the name plates, serial numbers, labels or other distinguishing numbers or identification marks placed upon the Equipment or any part thereof by or on behalf of the manufacturer, any dealer or rebuilder thereof, or the Bank. The Borrower shall not be released from any liability to the Bank hereunder because of any injury to or loss or destruction of the Equipment. The Borrower shall allow the Bank and its representatives free access to and the right to inspect the Equipment at all times and shall comply with the terms and conditions of any leases covering the real property on which the Equipment is located and any orders, ordinances, laws, regulations or rules of any federal, state or municipal agency or authority having jurisdiction of such real property or the conduct of the business of the persons having control or possession of the Equipment.

(iv) The Equipment is not now and shall not at any time hereafter be so affixed to the real property on which it is located as to become a fixture or a part thereof. The Equipment is now and shall at all times hereafter be and remain personal property of the Borrower.

SECTION

7

EVENTS OF DEFAULT

Any one or more of the following described events shall constitute an event of default (an “Event of Default”‘) under this Agreement:

7.1 Non-Payment: Any Borrower shall fall to pay the principal amount of any Obligations when due or interest on the Obligations within 5 days of when due.

7.2 Performance Under This Agreement: The Borrowers shall fail in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any document, instrument or agreement relating to this Agreement or any other document or agreement executed by the Borrowers with or in favor of Bank and any such failure shall continue unremedied for more than 30 days after the occurrence thereof.

7.3 Representations and Warranties; Financial Statements: Any representation or warranty made by the Borrower under or in connection with this Agreement or any financial statement given by the Borrower or any guarantor shall prove to have been incorrect in any material respect when made or given or when deemed to have been made or given.

7.4 Other Agreements: If there is a default under any agreement to which Borrower is a party with Bank or with a third party or parties resulting in a right by the Bank or by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness.

7.5 Insolvency: The Borrower or any guarantor shall: (i) become insolvent or be unable to pay its debts as they mature; (ii) make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties and assets; (iii) file a voluntary petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors; (iv) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (v) become or be adjudicated a bankrupt (vi) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee, for itself or any of its properties, assets or businesses; or (vii) in an involuntary proceeding, any receiver, custodian or trustee shall have been appointed for all or substantial part

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of the Borrower’s or guarantors properties, assets or businesses and shall not be discharged within 30 days after the date of such appointment.

7.6 Execution: Any writ of execution or attachment or any judgment lien shall be issued against any property of the Borrower and shall not be discharged or bonded against or released within 30 days after the issuance or attachment of such writ or lien.

7.7 Suspension: The Borrower shall voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body necessary to conduct the Borrowers business as now conducted.

7.8 Material Adverse Change: If there occurs a material adverse change in the Borrower’s business or financial condition, or if there is a material impairment of the prospect of repayment of any portion of the Obligations or there is a material impairment of the value or priority of the Bank’s security interest in the Collateral, or if a Borrower who is a natural person shall die.

7.9 Change in Ownership: There shall occur a sale, transfer, disposition or encumbrance (whether voluntary or involuntary to), or an agreement shall be entered into to do so with, any Person or group of Persons (as such terms are defined pursuant to Federal securities laws) with respect to more than 10% of the issued and outstanding capital stock of the Borrower and, as a result thereof, such Person or group of Persons has the ability to direct or cause the direction of the management and policies of the Borrower.

7.10 Impairment of Collateral: There shall occur any injury or damage to all or any part of the Collateral or all or any part of the Collateral shall be lost, stolen or destroyed.

SECTION

8

REMEDIES ON DEFAULT

Upon the occurrence of any Event of Default, the Bank may, at its sole and absolute election, without demand and only upon such notice as may be required by law:

8.1 Acceleration: Declare any or all of the Borrower’s indebtedness owing to the Bank, whether under this Agreement or any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable.

8.2 Cease Extending Credit: Cease making Advances or otherwise extending credit to or for the account of the Borrower under this Agreement or under any other agreement now existing or hereafter entered into between the Borrower and the Bank.

8.3 Termination: Terminate this Agreement as to any future obligation of the Bank without affecting the Borrower’s obligations to the Bank or the Bank’s rights and remedies under this Agreement or under any other document, instrument or agreement.

8.4 Close-Out and Liquidation: Close-out and liquidate each outstanding FX Transaction so that each FX Transaction is canceled in accordance with the following:

(i) Closing Value. The Bank shall calculate value of such canceled FX Transaction by converting (1) in the case of an FX Transaction whose Settlement Date is the same as or later than the Close-Out Date, the amount of Foreign Currency into US dollars at a rate of exchange at which the Bank can buy or sell US dollars with or against the Foreign Currency for delivery on the Settlement Date of the relevant FX

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Transaction; or (2) in the case of an FX Transaction whose Settlement Date precedes the Close-Out Date, the amount of the Foreign Currency adjusted by adding interest with respect thereto at the Variable Rate from the Settlement Date to the Close-Out Date, into US Dollars at a rate of exchange at which the Bank can buy or sell US dollars with or against the Foreign Currency for delivery on the Close-Out Date.

(ii) Closing Gain or Loss. (1) For an FX Transaction for which the Bank agreed to purchase a Foreign Currency, the amount by which the Closing Value exceeds the Notional Value shall be a Closing Loss and the amount by which the Closing Value is less than the Notional Value shall be a Closing Gain; and (2) for an FX Transaction for which the Bank agreed to sell a Foreign Currency, the amount by which the Closing Value exceeds the Notional Value shall be a Closing Gain and the amount by which the Closing Value is less than the Notional Value shall be a Closing Loss.

(iii) Net Present Value. The Closing Gain or Closing Loss for each Settlement Date falling after the Close-out Date will be discounted by the Bank to it net present value.

(iv) Payment. To the extent that the net amount of the aggregate Closing Gains exceeds the Closing Losses, such amount shall be payable by the Bank to the Borrower. To the extent that the aggregate net amount of the Closing Losses exceeds the Closing Gains, such amount shall be payable by the Borrower to the Bank.

8.5 Protection of Security Interest: Make such payments and do such acts as the Bank, in its sole judgment, considers necessary and reasonable to protect its security interest or lien in the Collateral. The Borrower hereby irrevocably authorizes the Bank to pay, purchase, contest or compromise any encumbrance, lien or claim which the Bank, in its sole judgment, deems to be prior or superior to its security interest. Further, the Borrower hereby agrees to pay to the Bank, upon demand therefor, all expenses and expenditures (including attorneys’ fees) incurred in connection with the foregoing.

8.6 Foreclosure: Enforce any security interest or lien given or provided for under this Agreement or under any security agreement, mortgage, deed of trust or other document, in such manner and such order, as to all or any part of the properties subject to such security interest or lien, as the Bank, in its sole judgment, deems to be necessary or appropriate and the Borrower hereby waives any and all rights, obligations or defenses now or hereafter established by law relating to the foregoing. In the enforcement of its security interest or lien, the Bank is authorized to enter upon the premises where any Collateral is located and take possession of the Collateral or any part thereof, together with the Borrower’s records pertaining thereto, or the Bank may require the Borrower to assemble the Collateral and records pertaining thereto and make such Collateral and records available to the Bank at a place designated by the Bank. The Bank may sell the Collateral or any portions thereof, together with all additions, accessions and accessories thereto, giving only such notices and following only such procedures as are required by law, at either a public or private sale, or both, with or without having the Collateral present at the time of the sale, which sale shall be on such terms and conditions and conducted in such manner as the Bank determines in its sole judgment to be commercially reasonable. The Collateral may be disposed of in its then condition without any preparation or processing. In connection with any disposition of the Collateral, the Bank may disclaim any warranty relating to title, possession or quiet enjoyment. Any deficiency which exists after the disposition or liquidation of the Collateral shall be a continuing liability of the Borrower to the Bank and shall be immediately paid by the Borrower to the Bank.

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8.7 Non-Exclusivity of Remedies: Exercise one or more of the Bank’s rights set forth herein or seek such other rights or pursue such other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and the Bank, or otherwise.

8.8 Application of Proceeds: All amounts received by the Bank as proceeds from the disposition or liquidation of the Collateral shall be applied to the Borrowers indebtedness to the Bank as follows: first, to the costs and expenses of collection, enforcement, protection and preservation of the Bank’s lien in the Collateral, including court costs and reasonable attorneys’ fees, whether or not suit is commenced by the Bank; next, to those costs and expenses incurred by the Bank in protecting, preserving, enforcing, collecting, liquidating, selling or disposing of the Collateral; next, to the payment of accrued and unpaid interest on all of the Obligations; next, to the payment of the outstanding principal balance of the Obligations; and last, to the payment of any other indebtedness owed by the Borrower to the Bank. Any excess Collateral or excess proceeds existing after the disposition or liquidation of the Collateral will be returned or paid by the Bank to the Borrower.

If any non-cash proceeds are received in connection with any sale of Collateral, the Bank shall not apply such non-cash proceeds to the Obligations unless and until such proceeds are converted to such; provided, however, that if such non-cash proceeds are not expected on the date of receipt thereof to be converted to cash within one year after such date, the Bank shall use commercially reasonable efforts to convert such non-cash proceeds to cash within such one-year period.

SECTION

9

MISCELLANEOUS

9.1 Amounts Payable on Demand: If the Borrower shall fail to pay on demand any amount so payable under this Agreement, the Bank may, at its option and without any obligation to do so and without waiving any default occasioned by the Borrower having so failed to pay such amount, create an Advance under this Agreement in an amount equal to the amount so payable, which Advance shall thereafter bear interest as provided hereunder.

9.2 Default Interest Rate: If an Event of Default, or an event which, with notice or passage of time could become an Event of Default, has occurred or is continuing, the Borrower shall pay to the Bank interest on any Indebtedness or amount payable under this Agreement at a rate which is 3% in excess of the rate or rates then in effect under this Agreement.

9.3 Reliance and Further Assurances: Each warranty, representation, covenant, obligation and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Bank regardless of any investigation made or information possessed by the Bank and shall be cumulative and in addition to any other warranties, representations, covenants and agreements which the Borrower now or hereafter shall give, or cause to be given, to the Bank. Borrower agrees to execute all documents and instruments and to perform such acts as the Bank may reasonably deem necessary to confirm and secure to the Bank all rights and remedies conferred upon the Bank by this agreement and all other documents related thereto.

9.4 Attorneys’ Fees: Borrower shall pay to the Bank all costs and expenses, including but not limited to reasonable attorneys’ fees, incurred by Bank in connection with the administration, enforcement, including any bankruptcy, appeal or the enforcement of any judgment or any refinancing or restructuring of this Agreement or any document, instrument or agreement executed with respect to, evidencing or securing the indebtedness hereunder.

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9.5 Notices: All notices, payments, requests, information and demands which either party hereto may desire, or may be required to give or make to the other party hereto, shall be given or made to such party by hand delivery or through deposit in the United States mail, postage prepaid, or by facsimile delivery, or to such other address as may be specified from time to time in writing by either party to the other.

To the Borrower:	To the Bank:
BIOLASE TECHNOLOGY, INC. 981 Calle Amanecer San Clemente, CA 92673 Attn: Jeffrey W. Jones FAX: (949) 361-1004	BANK OF THE WEST Newport Beach Office (BBC) 4400 MacArthur Boulevard Newport Beach, CA 92660 Attn: James E. Martin FAX: (949) 797-1902

9.6 Waiver: Neither the failure nor delay by the Bank in exercising any right hereunder or under any document, instrument or agreement mentioned herein shall operate as a waiver thereof, nor shall any single or partial exercise of any ^.right hereunder or under any other document, instrument or agreement mentioned herein preclude other or further exercise thereof or the exercise of any other right, nor shall any waiver of any right or default hereunder, or under any other document, instrument or agreement mentioned herein, constitute a waiver of any other right or default or constitute a waiver of any other default of the same or any other term or provision.

9.7 Conflicting Provisions: To the extent the provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be considered cumulative.

9.8 Binding Effect; Assignment: This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Bank. The Bank may sell, assign or grant participation in all or any portion of its rights and benefits hereunder. The Borrower agrees that, in connection with any such sale, grant or assignment, the Bank may deliver to the prospective buyer, participant or assignee financial statements and other relevant information relating to the Borrower and any guarantor.

9.9 Jurisdiction: This Agreement, any notes issued hereunder, the rights of the parties hereunder to and concerning the Collateral, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of California without regard to conflict of law principles, to the jurisdiction of whose courts the parties hereby submit.

9.10 Waiver of Jury Trial: THE BORROWER AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR

20

THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS,

9.11 Counterparts: This Agreement may be executed in any number of counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument.

9.12 Headings: The headings herein set forth are solely for the purpose of identification and have no legal significance.

9.13 Entire Agreement and Amendments: This Agreement and all documents, instruments and agreements mentioned herein constitute the entire and complete understanding of the parties with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties pertaining to the transactions contemplated hereunder not incorporated or referenced in this Agreement or in such documents, instruments and agreements are superseded hereby. This Agreement may be amended only by an instrument in writing signed by the Borrower and the Bank.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first hereinabove written.

BANK:		BORROWER:
BANK OF THE WEST		BIOLASE TECHNOLOGY, INC.
BY:	/s/ James E. Martin	BY:	/s/ Jeffrey W. Jones
NAME:	James E. Martin, Vice President	NAME:	Jeffrey W. Jones, President
		By:	/s/ Edson J. Rood
		NAME:	Edson J. Rood, Chief Financial Officer

CERTIFIED CORPORATE RESOLUTION TO BORROW

WHEREAS, BIOLASE TECHNOLOGY, INC. (the “Corporation”) has made application to BANK OF THE WEST (the “Bank”) for credit accommodations which may consist of but shall in no way be limited to the following: the renewal, continuation or extension of an existing obligation; the extension of a new loan, line of credit or commitment; the issuance of letters of credit or banker’s acceptances; or the purchase or sale through Bank of foreign currencies.

RESOLVED, that any two of the following officers, acting together: JEFFREY W. JONES, as the PRESIDENT of the Corporation or EDSON J. ROOD, as the CHIEF FINANCIAL OFFICER and SECRETARY of the Corporation, or KEITH BATEMAN, as an EXECUTIVE VICE PRESIDENT of the Corporation, are authorized, in the name of and on behalf of the Corporation to:

(a) Borrow money from the Bank in such amounts and upon such terms and conditions as are agreed upon by the officers of the Corporation and the Bank; and execute and deliver or endorse such evidences of indebtedness or renewals thereof or agreements therefor as may be required by the Bank; all in such form and content as the officers of the Corporation executing such documents shall approve (which approval shall be evidenced by the execution and delivery of such documents); provided, however, that the maximum amount of such indebtedness shall not exceed the principal sum of $5,000,000.00 exclusive of any interest, fees, attorneys’ fees and other costs and expenses related to the indebtedness.

(b) Execute such evidences of indebtedness, agreements, security instruments and other documents and to take such other actions as are herein authorized.

(c) Sell to or discount or re-discount with the Bank any and all negotiable instruments, contracts or instruments or evidences of indebtedness at any time held by the Corporation; and endorse, transfer and deliver the same, together with guaranties of payment or repurchase thereof, to the Bank (for which the Bank is hereby authorized and directed to pay the proceeds of such sale, discount or re-discount as directed by such endorsement without inquiring into the circumstances of its issue or endorsement or the disposition of such proceeds).

(d) Withdraw, receive and execute receipts for deposits and withdrawals on accounts of the Corporation maintained with the Bank.

(e) Grant security interests and liens in any real, personal or other property belonging to or under the control of the Corporation as security for any indebtedness of the Corporation to the Bank; and execute and deliver to the Bank any and all security agreements, pledges, mortgages, deeds of trust and other security instruments and any other documents to effectuate the grant of such security interests and liens, which security instruments and other documents shall be in such form and content as the officers of the Corporation executing such security instruments and other documents shall approve and which approval shall be evidenced by the execution and delivery of such security instruments and other documents.

(f) Apply for letters of credit or seek the issuance of banker’s acceptances under which the Corporation shall be liable to the Bank for repayment.

(g) Purchase and sell foreign currencies, on behalf of the Corporation, whether for immediate or future delivery, in such amounts and upon such terms and conditions as the officer(s) authorized herein may deem appropriate, and give any instructions for transfers or deposits of monies by check, drafts, cable, letter or otherwise for any purpose incidental to the foregoing, and authorize or direct charges to the depository account or accounts of the

1

Corporation for the cost of any foreign currencies so purchased through the Bank.

(h) To designate in writing to the Bank in accordance with the terms of any agreement or other document executed by the above-named individuals one or more individuals who shall have the authority to as provided herein, to:

(1) request advances under lines of credit extended by the Bank to the Corporation;

(2) apply for letters of credit or seek the issuance of banker’s acceptances under which the Corporation shall be liable to the Bank for repayment;

(3) make deposits and receive and execute receipts for deposits on accounts of the Corporation maintained with the Bank;

(4) make withdrawals and receive and execute receipts for withdrawals on account of the Corporation maintained with the Bank;

(5) purchase and sell foreign currencies.

(j) Enter into derivative transactions, including but not limited to, interest rate swaps, caps, floors, collars, swaptions, and forwards.

(k) Transact any other business with the Bank incidental to the powers hereinabove stated.

RESOLVED FURTHER, that all such evidences of indebtedness, agreements, security instruments and other documents executed in the name of and on behalf of the Corporation and all such actions taken on behalf of the Corporation in connection with the matters described herein are hereby ratified and approved.

RESOLVED FURTHER, that the Bank is authorized to act upon these resolutions until written notice of their revocation is delivered to the Bank.

RESOLVED FURTHER, that any resolution set forth herein is in addition to and does not supersede any resolutions previously given by the Corporation to the Bank.

RESOLVED FURTHER, that the Secretary of the Corporation be, and hereby is, authorized and directed to prepare, execute and deliver to the Bank a certified copy of the foregoing resolutions.

I do hereby certify that I am Edson J. Rood, the Secretary of BIOLASE TECHNOLOGY, INC., a Delaware corporation, and I do hereby further certify that the foregoing is a true copy of the resolutions of the Board of Directors of the Corporation adopted and approved at a meeting which was duly called and held in accordance with all applicable provisions of law and the Articles and By-Laws of the Corporation, on the 4^th day of May , 2003 , at which meeting a majority of the Board of Directors of the Corporation was present and voted in favor of the resolutions.

I hereby further certify that such resolutions are presently in full force and effect and have not been amended or revoked. I do further certify that the following persons have been duly elected and qualified as and this day are officers of the Corporation, holding their respective offices appearing below their names, and that the signatures appearing opposite their names are the genuine signatures of such persons.

NAME OF OFFICER: JEFFREY W, JONES	/s/ Jeffrey W. Jones
	(SIGNATURE)
TITLE: PRESIDENT

2

NAME OF OFFICER: EDSON J. ROOD	/s/ Edson J. Rood
	(SIGNATURE)
TITLE: CHIEF FINANCIAL OFFICER AND SECRETARY
NAME OF OFFICER: KEITH BATEMAN	/s/ Keith Batemen
	(SIGNATURE)
TITLE: EXECUTIVE VICE PRESIDENT

IN WITNESS WHEREOF, this document is executed as of May 14, 2003
NAME OF CORPORATION:	BIOLASE TECHNOLOGY, INC.
	BY:	/s/ Edson J. Rood
	NAME:	EDSON J. ROOD, SECRETARY

3

LOAN DISBURSEMENT INSTRUCTIONS

Line of Credit

Date:                                                  

The undersigned hereby instructs BANK OF THE WEST to disburse the proceeds of this loan as shown below:

DISBURSEMENT		AMOUNT
1.	Credited to the following account: All advances to be credited to Account Number	$
2.	Paid directly to the Borrower as follows:	$
3.	Pay off the following loan with BANK OF THE WEST:	$
4.	Pay off the following loan:             Banca della Srizzera Italiana             65 E 55th ST NY NY 10022             Acct # 101306908000	$        1,791,925.00
5.	Paid to the following third party as indicated:             Bank-Swiss Bank Corp. New York             New York NY Route/Swift 026007993	$
6.	Paid as follows:             Ref: Biolase LOC                     Acct 8A51789A	$
7.	Paid as follows:	$
8.	Paid as follows:	$
	TOTAL:	$        1,791,925.00

(Authorizing signatures appear on attached page entitled

“AUTHORIZING SIGNATURES FOR LOAN DISBURSEMENT INSTRUCTIONS”)

1

AUTHORIZING SIGNATURES FOR LOAN DISBURSEMENT INSTRUCTIONS

The following signature(s) authorize disbursement of loan proceeds as set forth in the preceding instructions consisting of 1 page(s).

BORROWER:
BIOLASE TECHNOLOGY, INC.
BY:	/s/ Jeffrey W. Jones
NAME:	Jeffrey W. Jones, President
BY:	/s/ Edson J. Rood
NAME: Edson J. Rood, Chief Financial Officer and Secretary

2

EX-23.1

Exhibit 23.1

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration Statements on Forms S-3 (No. 333-58329 and 333-89692) and Forms S-8 (No. 33-51234, 33-73300 and 333-09093) of BioLase Technology, Inc. of our report dated February 10, 2003, except for Note 2, as to which the date is September 3, 2003, relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K/A.

/s/    PRICEWATERHOUSECOOPERS LLP  

PricewaterhouseCoopers LLP

Orange County, California

September 10, 2003

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey W. Jones, Chief Executive Officer of BioLase Technology, Inc., certify that:

1. I have reviewed this Annual Report on Form 10-K of BioLase Technology, Inc., as amended;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. [Omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days of the initial filing date of this Annual Report on Form 10-K based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: September 16 , 2003	/s/    JEFFREY W. JONES
	Jeffrey W. Jones Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Edson J. Rood, Chief Financial Officer of BioLase Technology, Inc., certify that:

1. I have reviewed this Annual Report on Form 10-K/A of BioLase Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. [Omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days of the initial filing date of this Annual Report on Form 10-K based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: September 16, 2003	/s/    EDSON J. ROOD
	Edson J. Rood Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Jeffrey W. Jones, hereby certify that to my knowledge, the annual report on Form 10-K/A for the year ended December 31, 2002, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of BioLase Technology, Inc.

Dated: September 16, 2003	/s/    JEFFREY W. JONES
	Jeffrey W. Jones Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Edson J. Rood, hereby certify that to my knowledge the annual report on Form 10-K/A for the year ended December 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of BioLase Technology, Inc.

Dated: September 16, 2003	/s/    EDSON J. ROOD
	Edson J. Rood
	Chief Financial Officer