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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
for the quarterly period ended September 30, 2001
[_] 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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
981 Calle Amanecer, San Clemente, CA 92673
(Address of Principal Executive Offices)
(949) 361-1200
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Common Stock, $.001 par value 19,656,348
Title of Class Number of Shares Outstanding
at October 25, 2001
BIOLASE TECHNOLOGY, INC.
Page Number
-----------
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statement of Stockholders'
Equity 5
Consolidated Condensed Statements of Cash Flows 6
Notes to Consolidated Condensed Financial
Statements 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk 18
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Securities 18
ITEM 3. Defaults Upon Senior Securities 19
ITEM 4. Submission of Matters to a Vote of Security Holders 19
ITEM 5. Other Information 19
ITEM 6. Exhibits and Reports on Form 8-K 19
SIGNATURE PAGE 20
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- ------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, 2001 December 31, 2000
(Unaudited)
------------------ -----------------
Assets:
Current assets:
Cash and cash equivalents $ 2,400,000 $ 2,002,000
Accounts receivable, less allowance of $207,000
in 2001 and $121,000 in 2000 1,258,000 758,000
Inventories, net of reserves of $287,000 in 2001
and $450,000 in 2000 1,831,000 1,222,000
Prepaid expenses and other current assets 276,000 180,000
------------ ------------
Total current assets 5,765,000 4,162,000
Property, plant and equipment, net 371,000 2,329,000
Patents, trademarks and licenses, less accumulated
amortization of $191,000 in 2001 and $174,000 in 2000 97,000 104,000
Other assets 3,000 4,000
------------ ------------
Total assets $ 6,236,000 $ 6,599,000
============ ============
Liabilities and Stockholders' Equity:
Current liabilities:
Line of credit $ 1,792,000 $ 1,792,000
Accounts payable 1,236,000 947,000
Accrued liabilities 1,754,000 1,409,000
Customer deposits 225,000 200,000
Deferred gain on sale of building, current portion 63,000 -
Mortgage note payable, current portion - 20,000
------------ ------------
Total current liabilities 5,070,000 4,368,000
Deferred gain on sale of building 221,000 -
Mortgage note payable - 1,175,000
------------ ------------
Total liabilities 5,291,000 5,543,000
------------ ------------
Stockholders' equity
Preferred stock, par value $.001, 1,000,000 shares authorized,
no shares issued and outstanding in 2001 or 2000 - -
Common stock, par value $.001, 50,000,000 shares authorized,
issued 19,656,348 in 2001 and 19,366,522 in 2000 20,000 19,000
Additional paid-in capital 48,238,000 47,532,000
Accumulated deficit (47,313,000) (46,495,000)
------------ ------------
Total stockholders' equity 945,000 1,056,000
------------ ------------
Total liabilities and stockholders' equity $ 6,236,000 $ 6,599,000
============ ============
See accompanying notes to consolidated condensed financial statements.
Page 3
Item 1. Financial Statements (continued).
- ------------------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
2001 2000 2001 2000
------ ------ ------ ------
Sales $4,676,000 $ 2,187,000 $12,094,000 $ 5,973,000
Cost of sales 1,871,000 1,185,000 4,959,000 3,396,000
---------- ----------- ----------- -----------
Gross profit 2,805,000 1,002,000 7,135,000 2,577,000
---------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 1,811,000 1,151,000 5,277,000 2,595,000
General and administrative 572,000 424,000 1,536,000 1,338,000
Engineering and development 340,000 576,000 1,064,000 1,693,000
---------- ----------- ----------- ------------
Total operating expenses 2,723,000 2,151,000 7,877,000 5,626,000
---------- ----------- ----------- ------------
Income (loss) from
operations 82,000 (1,149,000) (742,000) (3,049,000)
Gain on sale of asset 32,000 - 32,000 -
Interest income 10,000 21,000 24,000 58,000
Interest expense (22,000) (37,000) (132,000) (94,000)
----------- ----------- ---------- -----------
Net income (loss) $ 102,000 $(1,165,000) $ (818,000) $(3,085,000)
=========== =========== ========== ===========
Net income (loss) per share:
Basic $ 0.01 $ (0.06) $ (0.04) $ (0.16)
=========== =========== ========== ===========
Diluted $ 0.01 $ (0.06) $ (0.04) $ (0.16)
=========== =========== ========== ===========
Weighted average shares
outstanding:
Basic 19,655,037 19,781,014 19,453,774 19,115,295
=========== =========== ========== ===========
Diluted 20,915,213 19,781,014 19,453,774 19,115,295
=========== =========== ========== ===========
See accompanying notes to consolidated condensed financial statements.
Page 4
Item 1. Financial Statements (continued).
- --------------------------------------------------------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock and Additional
Paid-in Capital
---------------------------
Accumulated
Shares Amount Deficit Total
------------ ----------- ------------- ----------
Balance at December 31, 2000 19,366,522 $47,551,000 ($46,495,000) $1,056,000
Issuance of warrants for earned services - 15,000 - 15,000
Exercise of stock options 114,826 256,000 - 256,000
Exercise of warrants 175,000 436,000 - 436,000
Net loss - - (818,000) (818,000)
---------- ----------- ------------ ----------
Balance at September 30, 2001 19,656,348 $48,258,000 ($47,313,000) $ 945,000
========== =========== ============ ==========
See accompanying notes to consolidated condensed financial statements.
Page 5
Item 1. Financial Statements (continued).
- ------------------------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
-------------------------
2001 2000
---------- ----------
Cash flows from operating activities:
Net loss $ (818,000) $(3,085,000)
Adjustments to reconcile net loss to net cash used by
operating activities:
Issuance of warrants for earned services 15,000
Depreciation and amortization 126,000 105,000
Net gain on disposition of assets (27,000)
Provision for bad debts 104,000 30,000
Provision for inventory excess and obsolescence 108,000 148,000
Changes in operating assets and liabilities:
Accounts receivable (604,000) (948,000)
Inventories (717,000) (842,000)
Prepaid expenses and other assets (95,000) (18,000)
Accounts payable 289,000 45,000
Accrued expenses 345,000 204,000
Accrued costs related to the reacquisition of foreign
distribution rights (38,000)
Customer deposits 25,000
----------- -----------
Net cash used by operating activities (1,249,000) (4,399,000)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (101,000) (1,067,000)
Additions to patents and licenses (10,000)
Net proceeds from sale of building 1,071,000
----------- -----------
Net cash provided (used) by investing activities 960,000 (1,067,000)
----------- -----------
Cash flows from financing activities:
Payments on notes payable (5,000) (428,000)
Borrowings under the line of credit, net 450,000
Proceeds from issuance of common stock, net 2,451,000
Proceeds from exercise of stock options and warrants 692,000 3,128,000
----------- -----------
Net cash provided by financing activities 687,000 5,601,000
----------- -----------
Increase in cash and cash equivalents 398,000 135,000
Cash and cash equivalents at beginning of period 2,002,000 1,181,000
----------- -----------
Cash and cash equivalents at end of period $ 2,400,000 $ 1,316,000
=========== ===========
Supplemental cash flow disclosure:
Cash paid during the period for interest $ 111,000 $ 92,000
=========== ===========
Noncash financing activities:
Conversion of accrued costs to note payable $ $ 428,000
Issuance of debt to purchase manufacturing facility 1,200,000
Retirement of debt from sale and lease back of
manufacturing facility 1,190,000
----------- -----------
$ 1,190,000 $ 1,628,000
=========== ===========
See accompanying notes to consolidated condensed financial statements.
Page 6
BIOLASE TECHNOLOGY, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2001
Note 1
- ------
The consolidated condensed financial statements of BioLase Technology, Inc.
(the "Company") included herein are unaudited and do not include all disclosures
required by generally accepted accounting principles for complete financial
statements. The consolidated condensed balance sheet at December 31, 2000 was
derived from the Company's audited financial statements, but does not include
all disclosures required by generally accepted accounting principles. In the
opinion of management, the consolidated condensed financial statements included
herein include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial condition of the Company as
of September 30, 2001 and the Company's consolidated results of operations for
the three and nine months ended September 30, 2001 and 2000.
The accompanying unaudited consolidated condensed financial statements do
not include footnotes and certain financial presentations normally required
under generally accepted accounting principles. These financial statements
should be read in conjunction with the Company's audited consolidated financial
statements and notes thereto for the year ended December 31, 2000, included in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission ("SEC") on March 30, 2001.
It should be understood that accounting measurements at interim dates
inherently involve greater reliance on estimates and assumptions than at year
end. The results of operations for the three and nine months ended September 30,
2001 are not necessarily indicative of the results to be expected for the full
fiscal year.
Note 2
- ------
Inventories, net of reserves, consist of the following:
September 30, 2001
(unaudited) December 31, 2000
------------------ -----------------
Raw materials $ 806,000 $ 801,000
Work in process and subassemblies 829,000 319,000
Finished goods 196,000 102,000
---------- ----------
$1,831,000 $1,222,000
========== ==========
7
Note 3
- ------
Property, plant and equipment, at cost, consist of the following:
September 30, 2001
(unaudited) December 31, 2000
--------------------- -------------------
Building $ -- $2,004,000
Leasehold improvements 35,000 --
Equipment and computers 415,000 359,000
Furniture and fixtures 202,000 215,000
--------- ----------
Total cost 652,000 2,578,000
Less accumulated depreciation (281,000) (249,000)
--------- ----------
$ 371,000 $2,329,000
========= ==========
In March 2001, the Company entered into a sale-leaseback transaction in
which the Company sold and leased back its manufacturing facility. The result of
the sale was a $316,000 gain, which has been deferred and is being amortized
over the five-year lease term. The related lease is being accounted for as an
operating lease. The minimum lease payments required by the lease over the next
five years are as follows:
2001 $ 58,000
2002 223,000
2003 223,000
2004 223,000
2005 223,000
2006 37,000
--------
$987,000
========
Note 4
- ------
At September 30, 2001 the Company had approximately $1.8 million outstanding
under a revolving line of credit with a bank. The credit agreement provides for
borrowings up to $2.5 million for financing inventories and is collateralized by
substantially all of the Company's accounts receivable and inventories. The
revolving credit agreement expires on December 1, 2001. The Company and bank
have negotiated the renewal terms and have reached agreement in principle on an
extension of the line of credit through January of 2003.
Note 5
- ------
Accrued liabilities consist of the following:
8
September 30, 2001 December 31, 2000
(unaudited)
------------------ -----------------
Accrued payroll and benefits $ 563,000 $ 373,000
Accrued warranty expense 575,000 391,000
Other accrued liabilities 616,000 645,000
---------- ----------
$1,754,000 $1,409,000
========== ==========
Note 6
- ------
Long-term debt consists of the following:
September 30, 2001
(unaudited) December 31, 2000
--------------------- -------------------
Mortgage note payable at prime plus 0.25%, $ -- $1,195,000
twenty-year amortization, collateralized by a first
trust deed on land and building
Less current portion -- (20,000)
$ -- $1,175,000
=========== ==========
In connection with the sale and leaseback of the Company's manufacturing
facility, the mortgage note was retired.
Note 7
- ------
Basic and diluted income and loss per share is based on the weighted
average number of common shares outstanding. Common stock equivalents, which
consist of stock options and warrants, have been excluded from per share
calculations during the periods in which the Company reported a net loss, as the
effect of the assumed exercise of common stock equivalents is not dilutive.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
--------------
Cautionary Statement With Respect To Forward-Looking Information:
This Report contains forward-looking statements which include, but are not
limited to, statements concerning the need for additional capital, our ability
to renegotiate our line of credit and to continue to achieve profitability, the
market acceptance of our products, the competitive nature of and anticipated
growth in our markets, and our projected revenues, expenses, gross profit and
net income. These forward-looking statements are based on our current
expectations, estimates and projections about our industry, and reflect
management's beliefs and certain assumptions made by us based upon information
available to us at the time of this Report. Words such as "anticipates,"
"expects," "intends," "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
9
future performance and are subject to risks, uncertainties and assumptions
that are difficult to predict, including those set forth under "Risk Factors"
below. Therefore, 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.
You should read the following discussion and analysis in conjunction with
the Unaudited Consolidated Condensed Financial Statements and related Notes
thereto contained elsewhere in this Report. The information contained in this
Quarterly Report on Form 10-Q 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 this Report
and in our other reports filed with the SEC, including our Annual Report on Form
10-K for the year ended December 31, 2000, and our subsequent reports on Forms
10-Q and other filings with the SEC that discuss our business in greater detail.
Overview
BioLase Technology, Inc. is an advanced medical technology company which
manufactures and markets dental and surgical products, including Waterlase (TM)
(HydroKinetic(R)) surgical cutting systems an other laser and non-laser products
for the medical market. We are also involved in the research and development of
related products with cosmetic, aesthetic and various medical applications. Our
products incorporate patented and patent-pending technologies in the pursuit of
painless surgery. The Company is currently a leading provider of painless hard
and soft tissue dental laser surgery.
The Company's principal products consist of the Waterlase(TM) system used
for both hard and soft tissue applications, the TwiLite(TM) diode laser used
solely for soft tissue applications and LaserSmile(TM), an add-on application to
the TwiLite(TM) laser for cosmetic tooth whitening.
Sales and related cost of sales are recognized upon the shipment of product
to customers provided the Company has received a purchase order, the price is
fixed, collection of the resulting receivable is probable, product returns are
reasonably estimable and there are no remaining obligations. The Company's
products are generally under warranty against defects in material and
workmanship for a period of one year. The Company provides for the estimated
future returns of inventory and the estimated costs of warranty at the time of
sale based on historical experience.
10
Results of Operations
The following table sets forth certain statement of operations data
expressed as a percentage of net sales:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ --------------------------------
2001 2000 2001 2000
----- ------ ----- ------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 40.0 54.2 41.0 56.9
----- ------ ----- ------
Gross profit 60.0 45.8 59.0 43.1
Operating expenses:
Sales and marketing 38.7 52.6 43.6 43.4
General and administrative 12.2 19.4 12.7 22.4
Engineering and development 7.3 26.3 8.8 28.3
----- ------ ----- ------
Total operating expenses 58.2 98.3 65.1 94.1
----- ------ ----- ------
Income (loss) from operations 1.8 (52.5) (6.1) (51.0)
Gain on sale of asset 0.7 -- 0.3 --
Interest income 0.2 1.0 0.2 1.0
Interest expense (0.5) (1.7) (1.1) (1.6)
----- ------ ----- ------
Net income (loss) 2.2% (53.2)% (6.7)% (51.6)%
===== ====== ===== ======
Net Sales. Net sales for the three months ended September 30, 2001 were
$4.7 million, an increase of $2.5 million or 114%, as compared with net sales of
$2.2 million for the three months ended September 30, 2000. Net sales for the
nine months ended September 30, 2001 were $12.1 million, an increase of $6.1
million or 103%, as compared with net sales of $6.0 million for the nine months
ended September 30, 2000. This increase was largely attributable to an increase
in the volume of our Waterlase(TM) and TwiLite(TM) lasers sold domestically and
reflects our increased sales and marketing activities to aggressively expand the
awareness of the benefits of our laser technologies. The increase in net sales
also includes the initial sales of our LaserSmile(TM) tooth whitening
application, which was launched in the third quarter of 2001 as an optional add-
on feature to the TwiLite(TM) soft tissue laser system. The LaserSmile(TM)
application allows the dentist to deliver both cosmetic and soft tissue services
from the same laser system, expanding the applications of the TwiLite(TM)
system.
In July 2001, we were granted a U.S. patent for our laser-based technology
for liposuction and other cosmetic soft tissue procedures. We plan to explore
the feasibility of licensing this technology for certain related applications;
but we intend to remain focused on the dental market for at least the near-term
future. Also in July 2001, we received clearance by the Food and Drug
Administration to market our Waterlase (TM) product for additional soft tissue
procedures, such as the removal of diseased tissue in the treatment of gum
disease, the recovery of dental implants, biopsies and other soft tissue
procedures.
Gross Profit. Gross profit for the three months ended September 30, 2001
was $2.8 million or 60% of net sales, an increase of $1.8 million or 180% from
gross profit of $1.0 million or 46% of net sales for the three months ended
September 30, 2000. Gross profit for the nine months ended September 30, 2001
was $7.1 million or 59% of net sales, an increase of $4.6 million or 177% from
gross profit of $2.6 million or 43% of net sales for the nine months ended
September 30, 2000. The increase in gross margin primarily reflects realized
economies of
11
scale associated with higher sales volumes, the relative increase of domestic
sales which carry higher margins and manufacturing e fficiencies.
Sales and Marketing Expense. Sales and marketing expense for the three
months ended September 30, 2001 was $1.8 million or 39% of net sales, an
increase of $660,000 or 57% from sales and marketing expense of $1.2 million or
53% of net sales for the three months ended September 30, 2000. Sales and
marketing expense for the nine months ended September 30, 2001 was $5.3 million
or 44% of net sales, an increase of $2.7 million or 103% from sales and
marketing expense of $2.6 million or 43% of net sales for the nine months ended
September 30, 2000. The increase in absolute dollars was primarily due to
higher commissions and other variable costs driven by higher sales and the
hiring of additional sales personnel to support the TwiLite(TM) and
LaserSmile(TM) products. The decline as a percent of net sales reflects the
significant increase in net sales.
General and Administrative Expense. General and administrative expense for
the three months ended September 30, 2001 was $572,000 or 12% of net sales, an
increase of $148,000 or 35% from general and administrative expense of $424,000
or 19% of net sales for the three months ended September 30, 2000. General and
administrative expense for the nine months ended September 30, 2001 was $1.5
million or 13% of net sales, an increase of $198,000 or 15% from general and
administrative expense of $1.3 million or 22% of net sales for the nine months
ended September 30, 2000. The increase in absolute dollars reflects an increase
in the provision for doubtful accounts of $104,000 relating to certain slow
paying international accounts.The decline as a percent of net sales reflects the
significant increase in net sales.
Engineering and Development Expense. Engineering and development expense
for the three months ended September 30, 2001 was $340,000 or 7% of net sales, a
decrease of $236,000 or 41% from engineering and development expense of $576,000
or 26% of net sales for the three months ended September 30, 2000. Engineering
and development expense for the nine months ended September 30, 2001 was $1.1
million or 9% of net sales, a decrease of $629,000 or 38% from engineering and
development expense of $1.7 million or 28% of net sales for the nine months
ended September 30, 2000. The decrease in engineering and development expense
reflects the successful completion of the development of the TwiLite(TM) soft
tissue laser in November of 2000 and a corresponding decrease in our engineering
personnel. This decrease was also due to improvements in our design processes
that significantly increased the productivity of our engineering staff and
reduced the time to market for new products. During the past twelve months, our
engineering and development expenses have been targeted to specific projects to
support the continuous improvement and additional applications of our principal
products.
Gain on Sale of Asset. In March 2001, we entered into a sale-lease back
transaction in which we sold our manufacturing facility for an aggregate sales
price of $2.3 million and subsequently leased the facility back from the new
owner. This transaction resulted in a gain of $316,000, which has been deferred
and is being amortized over the five-year term of the lease. We recorded a gain
in the amount of $32,000 in the three and nine months ended September 30, 2001,
related to this transaction.
Interest Income and Expense. Interest income decreased 52% and 59%
respectively for the three months and nine months ended September 30, 2001,
primarily as a result of the decrease in bank savings and short-term investment
rates. Interest expense decreased 41% in the third quarter of 2001 as a result
of the decrease in LIBOR governing our line of credit rate, plus the reduction
in interest on the mortgage note payable which was retired in March of 2001.
Interest expense for the nine months ended September 30, 2001 increased 40% as a
result of
12
the mortgage note payable which was in place from August, 2000 to March, 2001,
offset by the decrease in LIBOR on our line of credit.
Liquidity and Capital Resources
Since inception, we have financed our operations through a combination of
equity financings, option and warrant exercises and bank borrowings. At
September 30, 2001, we had $695,000 in working capital and $2.4 million in cash
and cash equivalents. At December 31, 2000, we had a $206,000 deficit in
working capital and $2.0 million in cash and cash equivalents.
For the nine months ended September 30, 2001 the principal sources of cash
have been the proceeds of $1.1 million from the sale and leaseback of the
Company's manufacturing facility (which the Company had purchased in August of
2000) and proceeds of $692,000 from the exercise of warrants and options. The
principal uses of cash have been to finance operating activities in the amount
of $1.2 million.
Since 1997 the Company has used a $2.5 million revolving line of credit for
the financing of inventory. At both December 31, 2000 and September 30, 2001,
approximately $1.8 million was outstanding under this line of credit, which has
an expiration date of December 1, 2001. The Company has reached agreement in
principle with the lender and guarantor to renew the line through January of
2003.
Provided that we are able to renew our line of credit and continue to
achieve profitability, we believe that borrowings available under our line of
credit and funds generated from our operations, together with our existing cash
balances, will be sufficient to support our current operations and planned
capital expenditures through the end of 2002. Nonetheless, we may still seek to
raise additional funds by selling equity or debt securities to the public or to
selected investors, or by borrowing money.
Should the Company be unable to complete the renewal of its line of credit,
we would need to issue additional shares or divert resources to repay the line
of credit, which would adversely affect the Company's operations and financial
condition.
Risk Factors
Before deciding to invest in our company or to maintain or increase your
investment, you should carefully consider the risks described below, in addition
to the other information contained in this Report and in our other filings with
the SEC, including our Annual Report on Form 10-K for the year ended December
31, 2000 as well as our subsequent reports on Form 10-Q. The risks and
uncertainties described below are not the only ones facing our company.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business operations. If any of
these risks actually occur, our business, financial condition or results of
operations could be seriously harmed. In that event, the market price for our
common stock could decline and you may lose all or part of your investment.
The forward-looking statements contained in this Report are subject to
various risks, uncertainties and other factors, most of which are not completely
within our control, that could
13
cause actual results to differ materially from the results anticipated in such
forward-looking statements. These risks and uncertainties, some of which are
more fully discussed below and in our other filings with the SEC, include but
are not limited to the following:
. Uncertainties relating to general economic conditions;
. Uncertainties relating to worldwide political stability 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 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.
Need for additional capital and uncertainty of future profitability. Our
line of credit expires on December 1, 2001. While we have reached agreement in
principle to renew this line of credit through January of 2003, the renewal has
not yet been completed. If we are unable to renew and we are required to repay
the line of credit, the diversion of resources for that purpose will adversely
affect our operations and financial condition and our ability to achieve future
growth in our net sales. Unless we can generate sufficient cash flow from
sustained profitability, we will continue to be dependent on the availability of
external financing to meet our operating and capital needs, including the
repayment of current debt obligations. We may not be able to continue to achieve
profitability and have historically encountered significant net losses in all
prior periods, other than the three months ended September 30, 2001. Our
ability to achieve sustained profitability is, in turn, dependent on many of the
other risk factors identified in this Report below. We may not be able 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.
Our inability to raise additional funds on a timely basis would make it
difficult for us to achieve our business plan and would have a material adverse
effect on our business, financial condition and results of operations.
Dependence on market acceptance of our products. Our future success will
depend upon our ability to demonstrate to dentists and physicians the potential
cost and performance advantages of our laser systems over traditional methods of
treatment and, to a lesser extent over competitive laser systems. Our products
represent relatively new technologies in the dental market, and have not yet
achieved widespread market acceptance. Factors that may
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inhibit mass adoption of laser technologies by dentists and physicians include
the cost of the products, concerns about the safety, efficacy and reliability of
lasers and the ability to obtain reimbursement of laser procedures by health
plans. Current economic pressure may make dentists and physicians reluctant to
purchase substantial capital equipment or invest in new technologies. The
failure of medical lasers to achieve broad market acceptance would ultimately
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.
Reliance on key suppliers. We purchase certain raw materials and components
included in our products from a limited group of qualified suppliers, and we do
not have long-term supply contracts with any of our key suppliers. Our growth
and ability to meet customer demand depends in part on our ability to obtain
timely deliveries of materials and components from our suppliers. Certain
components of our products are currently available only from a single source or
limited sources. Although we believe that alternate sources of supply are
available for most of our single sourced materials and components, a change in a
single or limited source supplier, or an inability to find an alternate
supplier, could create manufacturing delays, disrupt sales and cash flow, and
harm our reputation, any of which could adversely affect our business, financial
condition and results of operations.
Dependence on patents and proprietary technology. Our success will
depend, in part, on our ability to obtain patent protection for our products and
technology, to preserve our trade secrets and to operate without infringing the
intellectual property of others. We rely on patents to establish and maintain
proprietary rights in our technology and products. However, we cannot assure you
that we will be able to obtain any further patents, that any of our proprietary
rights will not be challenged, invalidated or circumvented, or that any such
rights will provide a sustainable competitive advantage. Also, competitors may
claim that we have infringed their current or future 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, result
in costly litigation, cause product shipment delays, or require us to enter into
royalty or licensing agreements. Additionally, in the event 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 to
avoid infringement. Any of the foregoing adverse events could seriously harm our
business, financial condition and results of operations.
Risks inherent in international sales. In the past few years, international
sales have comprised a significant portion of our net sales. Political and
economic conditions outside the United States could make it difficult to
increase our international sales or to operate abroad.
In the future, we intend to continue to pursue and expand our international
business activities. International operations are subject to many inherent
risks, including:
. political, social and economic instability;
. fluctuations in currency exchange rates;
. exposure to different legal standards;
. reduced protection for our intellectual property in some countries;
. burdens of complying with a variety of foreign laws;
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. 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;
. changes in tariffs;
. difficulties in staffing and managing international operations;
. longer collection periods and difficulties in collecting receivables from
foreign entities; and
. potentially adverse tax consequences.
Risk of rapid changes in technology. The markets in which our laser
products compete are subject to rapid technological change, evolving industry
standards, frequent new device and pharmaceutical introductions and evolving
dental and surgical techniques. These changes could render our products
noncompetitive or obsolete. The success of our existing and future products is
dependent on differentiation of our product from those of our competitors, the
timely introduction of new products and the perceived benefit to the customer in
terms of patient service 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. There can be no
assurance that we will successfully identify new product opportunities, be
financially or otherwise capable of the research and development 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 risks and costs of government regulation. Our products are subject to
extensive government regulation, both in the United States and other countries.
To clinically test, manufacture and market products for human diagnostic and
therapeutic use, we must comply with regulations and safety standards set by the
U.S. Food and Drug Administration and comparable state and foreign agencies.
Generally, products must meet regulatory standards as safe and effective for
their intended use prior to being marketed for human applications. The clearance
process is expensive, time-consuming and uncertain. The failure to receive
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 to remain
competitive in our industry.
The risk of competition. Our products compete with those of a number of
foreign and domestic companies, including those companies who market traditional
dental products such as dental drills, as well as other companies who market
laser technologies in the dental and medical markets that we address. Some of
our competitors have greater resources, financial, technical or otherwise, than
us. And 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 technology changes in laser products and methods could cause
commoditization of such products, require price discounting or otherwise
adversely affect our gross margins.
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Product liability exposure. The sale of dental and medical products
involves the inherent risk of product liability claims against us. While we
currently maintain product liability insurance coverage in an amount that we
believe is adequate for our level of sales, this insurance is expensive, is
subject to various coverage exclusions and may not be obtainable in the future
on terms acceptable to us, or at all. We do not know whether claims against us,
if any, with respect to our products will be successfully defended or whether
our insurance will be sufficient to cover liabilities resulting from such
claims.
Dependence on third party reimbursement. Our products are generally
purchased by dental or medical professionals who then bill various third party
payors, such as government programs or private insurance plans, for the
procedures conducted using these products. Third party payors review and
frequently challenge the prices charged for medical services in the United
States. In many foreign countries, the prices are predetermined through
government regulation. Payors may deny coverage and reimbursement if they
determine that the procedure was not medically necessary (for example, cosmetic)
or that the device used in the procedure was investigational. We believe that
most of the procedures being performed with our current products generally have
been reimbursed, with the exception of cosmetic applications such as tooth
whitening. However, 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 dentist 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 medical and dental
professionals and could have an adverse effect on our business, financial
condition and results of operations.
Volatility of stock price. Our stock is currently traded on the Nasdaq
Small Cap Market and has only limited daily trading volume. The trading price of
our common stock has been and may continue to be volatile. The market for
technology companies, in particular, has, from time to time, experienced extreme
volatility that often has been unrelated to the operating performance of
particular companies. These broad market and industry fluctuations may
significantly affect the trading price of our common stock, regardless of our
actual operating performance. For example, the closing sale price of our common
stock fluctuated from $6.70 to $1.13 over the last year despite steady
improvement in our financial performance. On August 9, 2001, the closing sale
price of our common stock declined 12% on volume of approximately nine million
shares, absent any news about or announcements by us. The trading price of our
common stock could be affected by a number of factors, including, but not
limited to, changes in expectations of our future performance, changes in
estimates by securities analysts (or failure to meet such estimates), quarterly
fluctuations in our revenue and financial results and a variety of risk factors,
including the ones described elsewhere in this filing. Periods of volatility in
the market price of a company's securities sometimes result in securities class
action litigation. If this were to happen to us, such litigation would be
expensive and would divert management's attention. In addition, with only a
limited public market for our stock, the sale of a significant number of shares
could be difficult to achieve and could cause a significant decline in the
trading price of our stock. If our stock price drops below $1.00 for an
extended period of time or we are otherwise unable to satisfy the continued
listing requirements of the Nasdaq Small Cap 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.
Risk related to acquisitions. Although we have not made any acquisitions
to date, we might consider pursuing acquisitions of businesses, products or
technologies in the future as a part of our growth strategy. Acquisitions could
require significant capital infusions and could involve many risks, including
but not limited to the following:
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. We may encounter difficulties in assimilating and integrating the
operations, products and workforce of the acquired companies;
. Acquisitions may materially and adversely affect 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 of amounts related to intangible assets;
. Acquisitions may be dilutive to our existing stockholders;
. Acquisitions may disrupt our ongoing business; 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. In the event we do pursue
any acquisitions, it is possible that we may not realize the anticipated
benefits from such acquisitions.
Reliance on key employees. Our future success depends in part upon the
continued service of certain key personnel, including Jeffrey W. Jones, our
Chief Executive Officer, whose employment agreement has a renewal date of
December, 2001. Our future success also depends on our ability to attract,
retain and motivate qualified personnel. The loss of the services of any of our
key personnel or our inability to attract and retain qualified personnel could
adversely affect our business, financial condition and results of operations.
Potential anti-takeover effects of our preferred stock. Our certificate of
incorporation authorizes the issuance of up to 1.0 million shares of "blank
check" preferred stock, which will have terms as may be determined from time to
time by the Board of Directors. Accordingly, the Board of Directors may, without
obtaining stockholder approval, issue preferred stock with terms which could
adversely affect the rights of the holders of common stock. We have also adopted
a stockholder rights plan in which preferred stock could be issued, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of BioLase. The existence of these features could prevent
others from seeking to acquire shares of our common stock in transactions at
premium prices.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
-----------------------------------------------------------
Not Applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
From time to time, we are involved in legal proceedings in the ordinary
course of our business. It is management's opinion that pending actions,
individually and in the aggregate, will not have a material adverse effect on
our financial condition and results of operations, and that adequate provision
has been made for the resolution of such actions and proceedings.
Item 2. Changes in Securities.
----------------------
None.
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Item 3. Defaults Upon Senior Securities.
--------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
Item 5. Other Information.
------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
November 9, 2001 BIOLASE TECHNOLOGY, INC.,
(Registrant)
By: /s/ EDSON J. ROOD
----------------------------
Edson J. Rood
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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