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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 June 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
0-19627
BIOLASE TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 87-0442441
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
981 Calle Amanecer, San Clemente, CA 92673
(Address of Principal Executive Offices)
(949) 361-1200
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Common Stock, $.001 par value 19,656,348
----------------------------- ----------
Title Class Number of Shares
Outstanding
at August 8, 2001
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BIOLASE TECHNOLOGY, INC.
Page Number
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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 10
ITEM 3. Quantitative and Qualitative
Disclosures about Market Risk 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 2. Changes in Securities 15
ITEM 3. Defaults Upon Senior Securities 16
ITEM 4. Submission of Matters to a Vote of Security
Holders 16
ITEM 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURE PAGE 17
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, 2001 December 31, 2000
(Unaudited)
------------ ------------
Assets:
- ------
Current assets:
Cash and cash equivalents $ 3,507,307 $ 2,001,884
Accounts receivable, less allowance of $99,720 in 2001 and $120,988 in 2000 331,500 758,219
Inventories, net of reserves of $457,889 in 2001 and $449,597 in 2000 1,264,004 1,221,595
Prepaid expenses and other current assets 198,452 179,985
------------ ------------
Total current assets 5,301,263 4,161,683
Property, plant and equipment, net 336,115 2,329,305
Patents, trademarks and licenses, less accumulated
amortization of $185,477 in 2001 and $174,077 in 2000 92,758 104,158
Other assets 3,204 3,954
------------ ------------
Total assets $ 5,733,340 $ 6,599,100
============ ============
Liabilities and Stockholders' Equity:
- ------------------------------------
Current liabilities:
Line of credit $ 1,791,925 $ 1,791,925
Accounts payable 1,002,216 945,873
Accrued expenses 1,568,073 1,409,367
Customer deposits 224,500 200,000
Deferred gain on sale of building, current portion 63,156 --
Mortgage note payable, current portion -- 20,486
------------ ------------
Total current liabilities 4,649,870 4,367,651
Deferred gain on sale of building 252,627 --
Mortgage note payable -- 1,174,578
------------ ------------
Total liabilities 4,902,497 5,542,229
------------ ------------
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 19,650,722 in 2001 and 19,366,522 in 2000 19,651 19,367
Additional paid-in capital 48,225,581 47,532,026
Accumulated deficit (47,414,389) (46,494,522)
------------ ------------
Total stockholders' equity 830,843 1,056,871
------------ ------------
Total liabilities and stockholders' equity $ 5,733,340 $ 6,599,100
============ ============
See accompanying notes to consolidated condensed financial statements.
Page 3
Item 1. Financial Statements (continued).
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BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Sales $ 4,335,473 $ 2,258,806 $ 7,418,166 $ 3,785,832
Cost of sales 1,734,408 1,219,753 3,088,140 2,210,517
------------ ------------ ------------ ------------
Gross profit 2,601,065 1,039,053 4,330,026 1,575,315
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 1,869,377 806,432 3,466,316 1,444,458
General and administrative 488,807 512,182 963,436 913,060
Engineering and development 364,342 603,739 724,101 1,117,178
------------ ------------ ------------ ------------
Total operating expenses 2,722,526 1,922,353 5,153,853 3,474,696
------------ ------------ ------------ ------------
Loss from operations (121,461) (883,300) (823,827) (1,899,381)
Interest income 7,064 29,643 13,420 36,889
Interest expense (33,065) (34,119) (109,460) (57,380)
------------ ------------ ------------ ------------
Net loss $ (147,462) $ (887,776) $ (919,867) $ (1,919,872)
============ ============ ============ ============
Loss per share - basic and diluted $ (0.01) $ (0.04) $ (0.05) $ (0.10)
============ ============ ============ ============
Weighted average shares outstanding 19,487,260 19,740,396 19,458,954 18,882,527
============ ============ ============ ============
See accompanying notes to consolidated condensed financial statements.
Page 4
Item 1. Financial Statements (continued).
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BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
-------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at January 1, 2001 -- $ -- 19,366,522 $ 19,367 $ 47,532,026 $(46,494,522) $ 1,056,871
Issuance of warrants for
earned services -- -- -- -- 15,100 -- 15,100
Exercise of stock options -- -- 109,200 109 242,910 -- 243,019
Exercise of warrants -- -- 175,000 175 435,545 -- 435,720
Net loss -- -- -- -- -- (919,867) (919,867)
-------- ------------ ---------- ---------- ------------ ------------ ------------
Balance at June 30, 2001 -- $ -- 19,650,722 $ 19,651 $ 48,225,581 $(47,414,389) $ 830,843
======== ============ ========== ========== ============ ============ ============
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)
Six Months Ended
June 30,
--------------------------
2001 2000
----------- -----------
Cash flows from operating activities:
Net loss $ (919,867) $(1,919,872)
Adjustments to reconcile net loss to net cash used by
operating activities:
Issuance of warrants for earned services 15,100 --
Depreciation and amortization 92,478 56,797
Write-off of asset 4,463 --
Provision for bad debts 409 --
Provision for inventory excess and obsolescence 8,292 44,046
Changes in operating assets and liabilities:
Accounts receivable 426,310 (859,924)
Inventories (50,701) (324,334)
Prepaid expenses and other assets (17,717) (15,131)
Accounts payable 56,343 (166,831)
Accrued expenses 158,706 143,276
Customer deposits 24,500 --
----------- -----------
Net cash used by operating activities (201,684) (3,041,973)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (38,045) (265,269)
Net proceeds from sale of building 1,071,471 --
----------- -----------
Net cash provided (used) by investing activities 1,033,426 (265,269)
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Cash flows from financing activities:
Payments on mortgage note payable (5,058) --
Proceeds from issuance of common stock, net -- 2,450,516
Proceeds from exercise of stock options and warrants 678,739 3,098,174
----------- -----------
Net cash provided by financing activities 673,681 5,548,690
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Increase in cash and cash equivalents 1,505,423 2,241,448
Cash and cash equivalents at beginning of period 2,001,884 1,180,982
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Cash and cash equivalents at end of period $ 3,507,307 $ 3,422,430
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Supplemental cash flow disclosure:
Cash paid during the period for interest $ 108,545 $ 47,802
=========== ===========
Noncash financing activities:
Conversion of accrued costs to note payable $ -- $ 428,000
Retirement of mortgage note payable in connection
with the sale of building 1,190,006 --
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$ 1,190,006 $ 428,000
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See accompanying notes to consolidated condensed financial statements.
Page 6
BIOLASE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
Note 1
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The accompanying consolidated condensed financial statements of BioLase
Technology, Inc. (the "Company") have been prepared by the Company without audit
and do not include all disclosures required by generally accepted accounting
principles for complete financial statements. The consolidated condensed
balance sheet at December 31, 2000 was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. In the opinion of management, the consolidated condensed
financial statements include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial condition of the
Company as of June 30, 2001 and the results of operations for the three and six-
month periods then ended.
The Company's consolidated condensed financial statements have been
presented on the basis that the Company will continue as a going-concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company's business continues to focus on the
manufacturing and marketing of its laser-based technologies incorporated in its
newly introduced products, the Waterlase and the Twilite laser systems.
Financing the development of laser-based medical and dental devices and
instruments and the operations of the Company has been achieved principally
through the private placements of preferred and common stock and the exercise of
stock options and warrants. During the six months ended June 30, 2001 and the
three years ended December 31, 2000, the Company raised $678,739 and
$12,135,679, respectively, of net equity funds in this manner.
Based upon the expected continued increase in sales, the Company believes
that it should have sufficient capital resources to sustain it during the year
in relation to its fiscal year 2001 business plan. In addition, management
believes that the Company's financial performance and financial condition
continues to strengthen.
Until the Company can achieve sustained profitability, however, it remains
dependent on its ability to renew or replace its existing line of credit and/or
issue additional shares of stock to finance continuing operations. No
assurances can be given that the Company will be able to renew or replace its
present credit facility or obtain additional financing should the need arise.
Operating results for the three and six-month periods ended June 30, 2001
are not necessarily indicative of the results to be expected for the year ending
December 31, 2001. These statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 2000.
Page 7
Note 2
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Inventories, net of reserves, June 30, 2001 December 31, 2000
consist of the following: (unaudited)
------------- -----------------
Raw materials $ 446,314 $ 801,050
Work-in-process and subassemblies 505,428 318,795
Finished goods 312,262 101,750
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$1,264,004 $1,221,595
========== ==========
Note 3
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Property, plant and equipment, June 30, 2001 December 31, 2000
at cost, consist of the following: (unaudited)
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Building $ - $2,004,148
Leasehold improvements 18,712 -
Equipment and computers 376,596 359,186
Furniture and fixtures 192,648 215,058
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Total cost 587,956 2,578,392
Less, accumulated depreciation (251,841) (249,087)
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$ 336,115 $2,329,305
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Note 4
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Accrued expenses consist
of the following: June 30, 2001 December 31, 2000
(unaudited)
------------- -----------------
Accrued payroll and benefits $ 460,284 $ 372,964
Accrued professional fees 28,955 90,000
Accrued legal costs 119,500 90,750
Accrued warranty 531,445 391,398
Accrued sales taxes 216,756 157,275
Other 211,133 306,980
---------- ----------
$1,568,073 $1,409,367
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Page 8
Note 5
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Long-term debt consists
of the following: June 30, 2001 December 31, 2000
(unnaudited)
------------- -----------------
Mortgage, prime interest rate plus 0.25%
fixed rate for three years, twenty-year
amortization with minimum monthly
installments of $11,382 with a final payment of
$550,205 due September 1, 2015, collateralized
by a first trust deed on land and building $ -- $1,195,064
Less current portion -- (20,486)
---------- ----------
$ -- $1,174,578
========== ==========
Note 6
- ------
Basic and diluted loss per share is based on the weighted average number of
common shares outstanding. Potential common stock, which consists of stock
options and warrants, has been excluded from per share calculations, as the
effect of the assumed exercise of this potential common stock is anti-dilutive
for the three and six-month periods ended June 30, 2001 and 2000, respectively.
Note 7
- -----
In March 2001, the Company entered into a $2,261,477 sale-leaseback
transaction whereby the Company sold and leased back its corporate headquarters
located in San Clemente, California. The result of the sale was a $315,783
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. Also, in
connection with the transaction, a mortgage payable of $1,190,006 was retired.
The minimum lease payments required by the lease over the next five years are as
follows:
2001 $ 111,744
2002 223,488
2003 223,488
2004 223,488
2005 223,488
2006 37,248
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$ 1,042,944
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Page 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- --------------
Qualifying Statement With Respect To Forward-Looking Information:
The United States Private Securities Litigation Reform Act of 1995 provides
a "safe harbor" for certain forward-looking statements. Such forward-looking
statements are based upon the current expectations of the Company and speak only
as of the date made. These forward-looking statements involve risks,
uncertainties and other factors. The factors discussed below under "Factors
That Could Affect Forward-Looking Statements" and elsewhere in this Quarterly
Report on Form 10-Q are among those factors that in some cases have affected the
Company's historic results and could cause actual results in the future to
differ significantly from the results anticipated in forward-looking statements
made in this Quarterly Report on Form 10-Q, in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases and
in oral statements made by authorized officers of the Company. When used in
this Quarterly Report on Form 10-Q, the words "estimate," "project,"
"anticipate," "expect," "intend," "believe," "hope," "may" and similar
expressions, as well as "will," "shall" and other indications of future tense,
are intended to identify forward-looking statements.
The following discussion should be read in conjunction with the
consolidated condensed financial statements and notes thereto.
Results of Operations - Three-month period ended June 30, 2001 as compared to
the three-month period ended June 30, 2000:
Sales for the three months ended June 30, 2001 increased $2,076,667, or
92%, to $4,335,473 from the $2,258,806 reported for the same period in 2000.
The increase was due principally to the Company's overall increased marketing
efforts and new product introductions of its Waterlase(TM) soft and hard tissue
laser system and its Twilite(TM) dental diode soft tissue laser system, both
launched in quantity during the third quarter of 2000. The increased marketing
efforts included increases in the Company's sales and marketing infrastructure,
strengthening of growing alliances with various international distributors and
raising customer and patient awareness of the Company's flagship product, the
Waterlase(TM). The Company anticipates increased sales volume during the third
quarter of 2001 from its Twilite(TM) diode laser system due to the recent
clearance by the FDA to market the LaserSmile(TM) tooth whitening system, an
optional add-on feature to the Twilite(TM) soft-tissue laser system. The
LaserSmile(TM) FDA clearance is the first tooth-whitening application cleared by
the FDA for use with an 810 nanometer diode laser system, thereby, allowing a
dentist to require only one system for both soft-tissue dental applications and
in-office tooth-whitening applications.
Gross profit for the second quarter of 2001 increased $1,562,012, or 150%,
to $2,601,065, or 60% of sales, compared to $1,039,053, or 46% of sales, for the
second quarter of 2000. The increase in gross profit was due principally to the
increased sales volume allowing for a greater absorption of fixed manufacturing
costs combined with engineered advancements and cost reductions of the Company's
product line.
Sales and marketing expense increased $1,062,945, or 132%, during the
second quarter of 2001 compared to the same period in 2000 due principally to
the Company's expansion of its domestic sales force, its marketing
infrastructure, its advertising through professional journals and media
modalities, and participation in highly recognized dental conventions and trade
shows. The Company expects to increase sales and marketing expense over the
remainder of year 2001 as a result of further expansion of its sales personnel
to
Page 10
support the anticipated higher volume in Twilite(TM) and LaserSmile(TM) product
sales; however, most of the increase will be commissioned base and variable in
nature.
General and administrative expense was $488,807 for the second quarter of
2001 compared to $512,182 for the same period in 2000, a modest decrease of
$23,375, or 5%. The decrease was due principally to reductions in various
professional fees during the second quarter of 2001, offset by a non-cash
increase of $15,100 related to the issuance of stock purchase warrants for
services rendered in connection with the Company's line-of-credit.
Engineering and development expense was $364,342 for the second quarter of
2001 compared to $603,739 for the same period in 2000, a decrease of $239,397,
or 40%. The decrease was due in part to normal variation in the Company's
project development cycles.
Interest income for the three months ended June 30, 2001 was $7,064
compared to $29,643 for the same period in 2000. The decrease was due
principally to higher average balances in the Company's interest bearing
accounts during the second quarter of 2000 coupled with higher interest rates in
place during the same period over those in 2001. Interest expense remained
comparable between the second quarters of 2001 and 2000.
The Company's net loss for the second quarter of 2001 improved to $147,462
or $0.01 per share, compared to $887,776, or $0.04 per share, for the same
period in 2000. The improvement was due solely to the improved operations
during the second quarter of 2001 versus the second quarter of 2000. Based on
the sales increases achieved in the last several quarters and expected on-going
growth in demand for the Company's products, the Company believes that it will
achieve profitability no later than the fourth quarter of 2001.
Results of Operations - Six-month period ended June 30, 2001 as compared to the
six-month period ended June 30, 2000:
Sales for the first half of 2001 increased $3,632,334, or 96%, to
$7,418,166 compared to $3,785,832 for the first half of 2000. The increase was
due principally to continued marketing efforts of the Company coupled with
increased awareness by dentists and dental patients of the benefits associated
with the Company's primary product, the Waterlase(TM).
Gross profit increased by $2,754,711, or 175%, to $4,330,026 representing
58% of sales during the first half of 2001 from the $1,575,315, or 42% of sales
for the first half of 2000. The increase in gross profit and gross margin is
due principally to the increased sales volume allowing for a greater absorption
of fixed manufacturing costs combined with engineered advancements and cost
reductions of the Company's product line.
Sales and marketing expense was $3,466,316, or 47% of sales, for the first
half of 2001 compared to $1,444,458, or 38% of sales, for the first half of
2000. The increase of $2,021,858 was due principally to the expansion of the
Company's domestic sales force, increased marketing expenses related to the
Company's Waterlase(TM) and Twilite(TM) products and greater participation in
highly recognized dental conventions, trade shows and Company sponsored product
seminars at key regional locations.
General and administrative expense increased nominally to $963,436, or 13%
of sales, during the first half of 2001 compared to $913,060, or 24% of sales,
for the same period in 2000. The small increase was associated with higher
administrative expenses associated with the Company's present growth.
Page 11
Engineering and development expense decreased $393,077 to $724,101, or 10%
of sales, during the first half of 2001 compared to $1,117,178, or 30% of sales,
for the first half of 2000. The decrease was due principally to the absence
during 2001 of project development expenses related to the final design of the
present Waterlase(TM) and Twilite(TM) configurations that were present during
2000.
Interest income decreased to $13,420 during the first half of 2001 compared
to $36,889 for the same period in 2000. The decrease was due to lower average
balances in interest-bearing accounts combined with reduced interest rates
during 2001 versus 2000. Interest expense increased to $109,460 during the
first half of 2001 compared to $57,380 for the first half of 2000. The increase
in interest expense was due principally to the Company's $1,200,000 note related
to the purchase of its manufacturing facility that was in place until the sale
of the property in March 2001.
The Company's net loss for the first half of 2001 was $919,867 or $0.05 per
share, compared to $1,919,872, or $0.10 per share, for the same period in 2000.
The improvement was based primarily on the increase in sales. The decrease in
the per-share loss for the first half of 2001 was enhanced partially by a 3%
increase in weighted average shares outstanding.
Financial Condition
Cash and cash equivalents increased to $3,507,307 at June 30, 2001 from
$2,001,884 at December 31, 2000 due principally to (i) net proceeds of
$1,071,471 received from the sale and lease-back of the Company's manufacturing
facility in March 2001, and (ii) the exercise of certain stock options
generating $678,739 in cash proceeds, offset by cash used by operating
activities aggregating $201,684 and capital expenditures of $38,045.
Accounts receivable, net, decreased to $331,500 at June 30, 2001 from the
$758,219 reported at December 31, 2000. The decrease was due principally to
emphasized collection efforts coupled with the placement of international orders
occurring ratably over the second quarter of 2001 compared to the last month of
the quarter in 2000.
Inventories, net, at June 30, 2001 were $1,264,004 compared to $1,221,595
at December 31, 2000, a nominal increase of $42,409. The slight increase was
due principally to the Company's increased production, requiring higher levels
of inventory, partially offset by improved material planning and production
forecasting. Inventory turnover was comparable for the first half of 2001 with
the same period of 2000 at 5.4 times, or every 68 days, versus 5.5 times, or
every 66 days, respectively. The Company expects inventory levels to increase
over the remainder of year 2001 in support of anticipated higher sales levels.
Prepaid expenses and other current assets at June 30, 2001 were $198,452,
reflecting an increase of $18,467 from the $179,985 reported at December 31,
2000. The increase was due principally to deposits placed for booth space at
dental trade shows that are to be held during 2001 and 2002.
Current liabilities increased to $4,649,870 at June 30, 2001 from the
$4,367,651 reported at December 31, 2000. Current portion of long-term debt
decreased $20,486 as a result of the sale and lease-back of the Company's
manufacturing facility (retirement of the related mortgage note payable),
replaced by the $63,156 current portion of the deferred gain on such sale.
Accounts payable increased $56,343 at June 30, 2001 compared to December 31,
2000 due principally to increased inventory levels necessary for current
production requirements. Accrued expenses increased $158,706 at June 30, 2001
compared to December 31, 2000 reflecting higher levels of operating expenses
associated with the Company's growth, principally increased warranty levels.
Customer deposits increased to $224,500 at June 30, 2001 compared to $200,000 at
December 31, 2000 representing slightly higher deposits on sales orders.
Page 12
Net proceeds received from the sale of the Company's manufacturing facility
in March 2001 were $1,071,471, after considering the retirement of the related
mortgage note payable (see "Liquidity and Capital Resources" below). Capital
expenditures during the first half of 2001 were $38,045 represented principally
by additions of computer hardware and software. Patents, trademarks and
licenses were comparable to those reported at December 31, 2000, less normal
amortization for the first six months of 2001.
Stockholders' equity decreased to $830,843 at June 30, 2001 from $1,056,871
at December 31, 2000 due principally to the six-month loss of 2001 offset by
proceeds of $678,739 received from the exercise of stock options and warrants.
Liquidity and Capital Resources
The Company's business continues to focus on the manufacturing and
marketing of its laser-based technologies incorporated in its newly introduced
products, the Waterlase(TM) and the Twilite(TM) laser systems. Financing the
development of laser-based medical and dental devices and instruments and the
operations of the Company has been achieved principally through the private
placements of preferred and common stock and the exercise of stock options and
warrants. During the six months ended June 30, 2001 and the three years ended
December 31, 2000, the Company raised $678,739 and $12,135,679, respectively, of
net equity funds in this manner.
Based upon the expected continued increase in sales, the Company believes
that it should have sufficient capital resources to sustain it during the year
in relation to its fiscal year 2001 business plan. In addition, management
believes that the Company's financial performances and financial condition
continues to strengthen.
Until the Company can achieve sustained profitability, however, it remains
dependent on its ability to renew or replace its existing line of credit and/or
issue additional shares of stock to finance continuing operations. No
assurances can be given that the Company will be able to renew or replace its
present credit facility or obtain additional financing should the need arise.
At June 30, 2001 and December 31, 2000, the Company had $1,791,925
outstanding under a revolving credit agreement with a bank. The revolving credit
agreement provides for borrowings of up to $2,500,000 for the financing of
inventory and is collateralized by substantially all of the Company's accounts
receivable and inventories. The interest rate is fixed throughout the term of
the credit agreement and is computed based upon LIBOR plus 0.5% at the time of
any borrowings. At June 30, 2001, the weighted average interest rate on the
outstanding balance was 4.6%. The Company is required to reduce the outstanding
loan balance by an amount equal to the cost of goods sold associated with sales
of inventory upon collection of sales proceeds. The current revolving credit
agreement expires on December 1, 2001, at which point the Company will be
required to either pay any remaining balance of the credit facility or refinance
the credit facility. No assurances can be given that the Company will be able
to refinance the line of credit or that the terms on which it may be able to
refinance the line of credit will be as favorable as the terms of the existing
line. If the Company is unable to refinance and is therefore required to repay
the line of credit, the diversion of resources to that purpose may adversely
affect the Company's operations and financial condition.
Page 13
In March 2001, the Company entered into a $2,261,477 sale-leaseback
transaction whereby the Company sold and leased back its corporate headquarters
located in San Clemente, California. The result of the sale was a $315,783
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. Also, in
connection with the transaction, a mortgage payable of $1,190,006 was retired.
Factors That Could Affect Forward-Looking Statements
The forward looking statements contained in this Quarterly Report on
Form 10-Q are subject to various risks, uncertainties and other factors, most of
which are not completely within the control of the Company, that could cause
actual results to differ materially from the results anticipated in such forward
looking statements. Included among the important risks, uncertainties and other
factors are those hereinafter discussed.
There is substantial government regulation of the manufacture and sale of
medical products, including many of the Company's products, by governmental
agencies in both the United States and foreign countries. Actions, decisions or
delays from these agencies can significantly impact the Company's business.
The Company has been dependent on its ability to finance its operations
through the sale of securities. The availability of equity and debt financing
to the Company is affected by, among other things, domestic and world economic
conditions and the competition for funds. Rising interest rates might affect
the feasibility of debt financing that is offered. Potential investors and
lenders will be influenced by their evaluations of the Company and its products
and comparisons with alternative investment opportunities.
The Company's products do not provide the exclusive means for
accomplishing an objective, and customers may choose alternative means. The
adoption curve for new technology requires the Company to successfully
communicate the cost, safety and efficacy benefits of dental lasers to address
the concerns of dentists and patients and overcome the inertia associated with
conventional means of treatment. Failure to accomplish this may prevent the
Company from achieving broad-market acceptance which is necessary for its
success.
Other manufacturers of laser technology, including certain existing and
potential competitors of the Company, have greater financial resources than does
the Company. Access to such financial resources may provide other manufacturers
with a substantial competitive advantage.
The Company has identified alternate suppliers for most of its components.
There are certain key components for which there is a single supplier. The
Company is searching for alternative sources for these components. A change in
the suppliers of certain system components, however, could interrupt production,
have an adverse impact on product reliability and ultimately increase the cost
of production, all or any of which could materially affect the Company's results
of operations and financial condition.
International sales have historically, and are expected to continue to,
account for a significant portion of the Company's revenues. Foreign sales are
subject to a number of risks, including political and economic instability in
certain countries, fluctuating foreign exchange rates and regulatory
requirements. The Company is also dependent on its ability to obtain and
maintain relationships with qualified and proven distributors in foreign
markets.
Page 14
The Company's patents may not offer effective protection against
competitors. Competitors may be able to design around the Company's patents or
employ technologies not covered by such patents. In addition, the Company's
patents may be challenged, and even if such patents are upheld, the diversion of
financial and human resources associated with patent litigation could adversely
affect the Company. The Company may be found to be violating the patents of
others and forced to obtain a license under such patents or modify the design of
its products.
Rapid technological developments are expected to continue in the
industries in which the Company competes. The Company may not be able to
develop, manufacture and market products which meet changing user requirements
or which successfully anticipate or respond to technological changes on a cost-
effective and timely manner.
The Company has established a market position in certain hard and soft
tissue dental applications. While the Company believes that its technology
incorporated into its Waterlase system should be effective in a broad range of
medical applications, this belief is based largely on preliminary in vitro and
in vivo research and extrapolation of observations in such clinical research.
No assurances can be given that the Company's Waterlase(TM) technology will
prove to be applicable to, or will find market acceptance in, other medical
fields or that the Company will receive clearance from the FDA or other
regulatory agencies to market the Waterlase(TM) system or other products
embodying its HydroKinetic(TM) technology or variations thereof for any
additional applications or in any additional jurisdictions.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
- --------------------------------------------------------------------
Not Applicable
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
- ---------------------------
From time to time, the Company is involved in legal proceedings incidental
to its business. It is management's opinion that pending actions, individually
and in the aggregate, will not have a material adverse effect on the Company's
financial condition, and that adequate provision has been made for the
resolution of such actions and proceedings.
Item 2. Changes in Securities.
- -------------------------------
On May 1, 2001, the Company issued to GEM Holdings Corp. warrants to
purchase an aggregate of 50,000 shares of common stock at $3.00 per share which
expire on May 1, 2003. The warrants were issued in consideration for GEM having
provided a guaranty of a $2.5 million credit facility which expires December 1,
2001, and as an inducement to GEM to continue to provide a guaranty in the
future. The warrants were issued in reliance on an exemption from the
registration requirements of the Securities Act of 1933 provided by Section 4(2)
thereof. GEM represented to the Company that it is an accredited investor as
defined in Rule 501 under the Securities Act, and made investment
representations to the Company. The certificates representing the warrants bear
legends restricting their transfer except in compliance with the Securities Act
and stop transfer instructions have been placed on the shares issuable upon
exercise of the warrants.
Page 15
Item 3. Defaults Upon Senior Securities.
- -----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
Following are the results of matters submitted to a vote at the Annual
Meeting of Stockholders held May 3, 2001:
(1) The election of the following individuals to the Company's Board of
Directors, to serve until the next Annual Meeting of Stockholders and
until their successors are duly elected and qualified:
Votes For Votes Withheld
---------- --------------
Federico Pignatelli 11,633,289 84,492
George V. d'Arbeloff 11,625,419 92,362
William A. Owens 11,633,339 84,442
Jeffrey W. Jones 11,632,569 85,212
(2) The approval of an amendment to the 1998 Stock Option Plan increasing
the number of authorized shares of Common Stock reserved under the
Plan from 1,000,000 to 2,000,000 shares. The number of votes cast for
were 4,463,913; votes cast against were 426,638; votes abstained were
53,633; and 6,773,597 were broker non-votes.
(3) The ratification of the appointment of PricewaterhouseCoopers LLP as
the Company's independent public accountants for the year ending
December 31, 2001. The number of votes cast for were 11,660,684; votes
cast against were 33,277; and 23,820 votes abstained.
Item 5. Other Information.
- ---------------------------
None
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
None
Page 16
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOLASE TECHNOLOGY, INC.
a Delaware Corporation
Date: August 13, 2001 /s/ Jeffrey W. Jones
-------------------- --------------------
Jeffrey W. Jones
President & Chief Executive Officer
Date: August 13, 2001 /s/ Edson Rood
-------------------- --------------
Edson Rood
Vice President & Chief Financial Officer
Page 17