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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 March 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 (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 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 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 20,027,948
Title of Class Number of Shares Outstanding
at April 22, 2002
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BIOLASE TECHNOLOGY, INC.
INDEX
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Page Number
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PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 23
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 24
ITEM 2. Changes in Securities and Use of Proceeds 24
ITEM 3. Defaults Upon Senior Securities 24
ITEM 4. Submission of Matters to a Vote of Security Holders 24
ITEM 5. Other Information 24
ITEM 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 26
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- ------------------------------
BIOLASE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2002 December 31, 2001
----------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,469,000 $ 2,670,000
Accounts receivable, less allowance of $100,000 and $195,000 in
2002 and 2001, respectively 2,428,000 2,095,000
Inventories, net of reserves of $228,000 and $232,000 in 2002
and 2001, respectively 2,232,000 1,887,000
Prepaid expenses and other current assets 259,000 260,000
----------------------------------------
Total current assets 7,388,000 6,912,000
Property, plant and equipment, net 1,431,000 392,000
Patents and trademarks, net 85,000 91,000
Other assets 247,000 166,000
----------------------------------------
Total assets $ 9,151,000 $ 7,561,000
========================================
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit $ 1,792,000 $ 1,792,000
Accounts payable 1,740,000 1,656,000
Accrued liabilities 1,855,000 1,976,000
Customer deposits 87,000 290,000
Deferred gain on sale of building, current portion 63,000 63,000
Current portion of long-term debt 300,000 -
----------------------------------------
Total current liabilities 5,837,000 5,777,000
Deferred gain on sale of building 189,000 205,000
Long term debt 700,000 -
----------------------------------------
Total liabilities 6,726,000 5,982,000
----------------------------------------
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 20,018,000 in 2002 and 19,734,000
in 2001 20,000 20,000
Additional paid-in capital 49,185,000 48,462,000
Accumulated other comprehensive income 4,000 -
Accumulated deficit (46,784,000) (46,903,000)
----------------------------------------
Total stockholders' equity 2,425,000 1,579,000
----------------------------------------
Total liabilities and stockholders' equity $ 9,151,000 $ 7,561,000
========================================
See accompanying notes to consolidated financial statements.
3
Item 1. Financial Statements (continued).
- ------------------------------------------
BIOLASE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
March 31,
------------------------------------------------
2002 2001
---------------------- ----------------------
Net sales $ 5,230,000 $ 3,083,000
Cost of sales 2,109,000 1,354,000
---------------------- ----------------------
Gross profit 3,121,000 1,729,000
Operating expenses:
Sales and marketing 2,095,000 1,597,000
General and administrative 474,000 474,000
Engineering and development 419,000 360,000
---------------------- ----------------------
Total operating expenses 2,988,000 2,431,000
---------------------- ----------------------
Income (loss) from operations 133,000 (702,000)
Gain on sale of asset 16,000 -
Interest income 3,000 6,000
Interest expense (33,000) (76,000)
---------------------- ----------------------
Income (loss) before income taxes 119,000 (772,000)
Provision for income taxes - -
---------------------- ----------------------
Net income (loss) $ 119,000 $ (772,000)
====================== ======================
Net earnings (loss) per share -
Basic $ 0.01 $ (0.04)
====================== ======================
Diluted $ 0.01 $ (0.04)
====================== ======================
Weighted average shares outstanding -
Basic 19,791,000 19,430,000
====================== ======================
Diluted 21,250,000 19,430,000
====================== ======================
See accompanying notes to consolidated financial statements.
4
Item 1. Financial Statements (continued).
- ------------------------------------------
BIOLASE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated
Common Stock and Other Total
Preferred Stock Additional Paid-in Capital Comprehensive Accumulated Stockholders'
Shares Amount Shares Amount Income Deficit Equity
--------- ---------- ----------- ----------- ------------- -------------- --------------
Balances at December 31, 2001 - $ - 19,734,000 $48,482,000 $ - $ (46,903,000) $ 1,579,000
Exercise of stock options - - 119,000 310,000 - - 310,000
Exercise of warrants - - 165,000 413,000 - - 413,000
Comprehensive income (loss):
Net income - - - - - 119,000 119,000
Foreign currency translation
adjustment - - - - 4,000 - 4,000
--------- ---------- ----------- ----------- ------------- -------------- --------------
Total comprehensive income - - - - 4,000 119,000 123,000
--------- ---------- ----------- ----------- ------------- -------------- --------------
Balances at March 31, 2002 - $ - 20,018,000 $49,205,000 $ 4,000 $ (46,784,000) $ 2,425,000
========= ========== =========== =========== ============= ============== ==============
See accompanying notes to consolidated financial statements.
5
Item 1. Financial Statements (continued).
- ------------------------------------------
BIOLASE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
-----------------------------------------------
2002 2001
--------------------- ----------------------
Cash flows from operating activities:
Net income (loss) $ 119,000 $ (772,000)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 40,000 59,000
Gain on disposal of assets (16,000) -
Provision for bad debts (91,000) -
Provision for inventory excess and obsolescence (4,000) 5,000
Changes in assets and liabilities:
Accounts receivable (242,000) (334,000)
Inventory (341,000) 269,000
Prepaid expenses and other assets (81,000) (7,000)
Accounts payable and accrued expenses (37,000) 1,000
Customer deposits (203,000) 14,000
--------------------- ----------------------
Net cash used in operating activities (856,000) (765,000)
--------------------- ----------------------
Cash flows from investing activities:
Additions to property, plant and equipment (72,000) (12,000)
Proceeds from the sale of property, plant and equipment - 2,261,000
--------------------- ----------------------
Net cash (used in) provided by investing activities (72,000) 2,249,000
--------------------- ----------------------
Cash flows from financing activities:
Payments on mortgage note payable - (1,195,000)
Proceeds from exercise of stock options and warrants 723,000 243,000
--------------------- ----------------------
Net cash provided by (used in) financing activities 723,000 (952,000)
--------------------- ----------------------
Effect of exchange rate changes on cash 4,000 -
--------------------- ----------------------
(Decrease) increase in cash and cash equivalents (201,000) 532,000
Cash and cash equivalents at beginning of period 2,670,000 2,002,000
--------------------- ----------------------
Cash and cash equivalents at end of period 2,469,000 2,534,000
===================== ======================
Supplemental cash flow disclosure:
Cash paid during the period for interest $ 13,000 $ 61,000
===================== ======================
Cash paid during the period for taxes $ 2,000 $ -
===================== ======================
Noncash financing activities:
Debt incurred in connection with acquisition of
production facility $ 1,000,000 $ -
--------------------- ----------------------
$ 1,000,000 $ -
===================== ======================
See accompanying notes to consolidated financial statements.
6
BIOLASE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared on a basis consistent with the December 31, 2001 audited consolidated
financial statements and include all material adjustments, consisting of normal
recurring adjustments, necessary to fairly present the information set forth
therein. These unaudited interim consolidated financial statements do not
include all the footnotes, presentations and disclosures normally required by
generally accepted accounting principles for complete financial statements.
Therefore, these financial statements should be read in conjunction with the
December 31, 2001 audited consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission ("SEC") on April 1, 2002.
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
2001. We have eliminated all material intercompany transactions and balances in
the accompanying financial statements. As of March 31, 2002, $1.1 million of net
assets were located outside of the United States, in BIOLASE Europe.
We follow the provisions of all applicable Statements of Financial
Accounting Standards ("SFAS") and related accounting pronouncements to prepare
the accompanying financial statements in accordance with generally accepted
accounting principles ("GAAP").
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Due to the inherent uncertainty involved in making
estimates, actual results reported in future periods may be based on amounts
that differ materially from those estimates.
The results of operations for the three months ended March 31, 2002 are not
necessarily indicative of the results to be expected for the full fiscal year.
NOTE 2 - SUPPLEMENTARY BALANCE SHEET INFORMATION
March 31, 2002 December 31,
Inventories (unaudited) 2001
--------------------- ------------------
Materials $ 990,000 $ 1,020,000
Work-in-process 760,000 656,000
Finished goods 482,000 211,000
--------------------- ------------------
Inventories $ 2,232,000 $ 1,887,000
===================== ==================
7
BIOLASE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
- --------------------------------------------------------------------------------
March 31, 2002 December 31, 2001
Property, plant and equipment, (unaudited)
net ----------------- ------------------
Building $ 1,000,000 $ -
Leasehold improvements 57,000 54,000
Equipment and computers 508,000 448,000
Furniture and fixtures 212,000 202,000
----------------- ------------------
Total 1,777,000 704,000
Less accumulated depreciation (346,000) (312,000)
----------------- ------------------
Property, plant and equipment, $ 1,431,000 $ 392,000
net ================= ==================
March 31, 2002 December 31, 2001
Patents and trademarks, net (unaudited)
----------------- ------------------
Patents $ 112,000 $ 112,000
Trademarks 69,000 69,000
----------------- ------------------
Total 181,000 181,000
Less accumulated amortization (96,000) (90,000)
----------------- ------------------
Patents and trademarks, net $ 85,000 $ 91,000
================= ==================
March 31, 2002 December 31, 2001
Accrued liabilities (unaudited)
----------------- -----------------
Accrued payroll and benefits $ 648,000 $ 652,000
Accrued warranty expense 506,000 561,000
Other accrued liabilities 701,000 763,000
----------------- -----------------
Accrued liabilities $ 1,855,000 $ 1,976,000
================= =================
NOTE 3 - ACCOUNTS RECEIVABLE
At March 31, 2002 our allowance for uncollectible accounts was $100,000,
principally as a reserve for accounts receivable on sales to a foreign
distributor. This amount reflects a reduction of $95,000 from our allowance at
December 31, 2001 due to previously unanticipated payments received from that
distributor.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
In January 2002, our wholly owned subsidiary, BIOLASE Europe, purchased a
production facility in Germany with ten employees. The stated purchase price is
$1,000,000. We are required to pay the first installment of the purchase price
by May 31, 2002. The amount of the first installment will be determined by us,
but must be between $300,000 and $500,000. Thereafter, we must pay $500,000 by
April 1, 2003 and the balance of the purchase price, if any, must be paid by
December 1, 2003. We are currently negotiating with a third party for that party
to pay all or a portion of the first installment in exchange for certain rights
that we would grant to the third party. In the event we do not reach an
agreement with this third party, then both the purchase price and the initial
installment will be reduced by $150,000.
8
BIOLASE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
- --------------------------------------------------------------------------------
NOTE 5 - LINE OF CREDIT
At March 31, 2002, we had approximately $1,792,000 outstanding under a
revolving credit agreement with a bank. The agreement provides for borrowings up
to $2,500,000 for financing inventories and is collateralized by substantially
all accounts receivable and inventories. The interest rate is based upon LIBOR
plus 0.5% at the time of any borrowings. At March 31, 2002, the interest rate on
the outstanding balance was 2.4%. The effective interest rate for the three
months ended March 31, 2002, including the amortization of the fair value of
warrants in connection with issuing our line of credit was 5.91%. The revolving
credit agreement expires on January 31, 2003. The maximum available under the
line will decrease to $1,800,000 on May 1, 2002.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
In March 2001, we entered into a sale-leaseback transaction in which we
sold and leased back our 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.
We also lease certain office equipment under operating lease
arrangements. Future minimum rental commitments under operating leases for each
of the periods ending March 31 are as follows:
2002 $ 258,000
2003 256,000
2004 253,000
2005 247,000
-----------------
Total $ 1,014,000
=================
NOTE 7 - EARNINGS PER SHARE
We compute basic earnings (loss) per share by dividing the net income
(loss) attributable to common stockholders by the weighted average number of
shares outstanding. We compute diluted earnings per share by dividing net income
by the weighted average number of shares outstanding including potentially
dilutive securities such as stock options and warrants. Potential common shares
totaling 78,000 were not included in the diluted earnings per share amounts for
the three months ended March 31, 2002 as their effect would have been
anti-dilutive.
Three Months Ended March 31,
-------------------------------
2002 2001
--------------- ---------------
Net income (loss) $ 119,000 $ (772,000)
=============== ===============
Weighted average shares outstanding - basic 19,791,000 19,430,000
Dilutive effect of stock options and warrants 1,459,000 -
--------------- ---------------
Weighted average shares outstanding - diluted 21,250,000 19,430,000
=============== ===============
9
BIOLASE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
- --------------------------------------------------------------------------------
NOTE 8 - DERIVATIVE FINANCIAL INSTRUMENTS
At January 1, 2001, we adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
(FAS 133) as amended by Statement of Financial Accounting Standards No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FAS 133. The adoption of FAS 133 did not have a material impact
on our consolidated financial position or results of operations. Our derivative
financial instruments under FAS 133 are discussed below.
All derivatives are recorded in our consolidated balance sheet at fair
value. The estimated fair value of derivative financial instruments represents
the amount required to enter into similar offsetting contracts with similar
remaining maturities based on quoted market prices. Our foreign exchange forward
contracts are not designated as hedges. Changes in the fair value of these
derivatives are recorded in current earnings.
The notional amount of forward exchange contracts is the amount of
foreign currency bought or sold at maturity. Notional amounts are indicative of
the extent of our involvement in the various types and uses of derivative
financial instruments and are not a measure of our exposure to credit or market
risks through its use of derivatives.
Credit exposure for derivative financial instruments is limited to the
amounts, if any, by which the counterparties obligations under the contracts
exceed the obligations of us to the counterparties. Potential credit losses are
minimized through careful evaluation of counterparty credit standing, selection
of counterparties from a limited group of high-quality institutions and other
contract provisions.
At March 31, 2002, derivative financial instruments comprise of foreign
exchange forward contracts with notional amounts of $702,000 and estimated fair
value of $5,000.
10
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 future performance and are subject to risks, uncertainties and assumptions
that are difficult to predict, including those set forth under the heading "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 Consolidated Financial Statements and related Notes thereto contained
elsewhere in this Report before deciding to invest in our company or to maintain
or increase your investment. 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 this Report and in our other reports filed with the
Securities and Exchange Commission ("SEC"), including our Annual Report on Form
10-K for the year ended December 31, 2001, 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 a medical technology company that designs,
develops, manufactures and markets advanced dental, cosmetic and surgical
products. We currently market two primary products. The Waterlase(TM) system,
utilizing our patented Hydrokinetic(R) technology of combining water and laser
energy, is a device which can be applied to the treatment of both hard and soft
dental tissues. The LaserSmile(TM) system incorporates a diode semiconductor
laser for a broad range of soft tissue and cosmetic procedures.
In January 2002, we received from the United States Food and Drug
Administration ("FDA") clearance for the application of our Hydrokinetic
technology to perform complete root canal therapy (EndoLase(TM)). In February
2002, we received FDA clearance for the use of Hydrokinetic technology to cut
oral bone tissue (OsseoLase(TM)). We believe these clearances substantially
broaden the application of our technology within the dental market.
We have patents and have received clearances from the FDA for
applications in markets other than dentistry, such as dermatology. However, our
current business plan is focused on the dental market because of the significant
market potential and our leading position in that market.
In January we acquired a production facility in Germany to strengthen
our international sales plan in Europe and neighboring regions. This transaction
significantly increased our overall manufacturing capacity and provided us with
an improved ability to service European sales.
11
Critical Accounting Policies and Estimates
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.
The following represents a summary of our critical accounting policies,
defined as those policies that we believe are: (a) the most important to the
portrayal of our financial condition and results of operations, and (b) 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
Sales. We record sales in accordance with SEC Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements ("SAB 101"), as amended by SAB
101A and 101B. SAB 101 requires that four basic criteria must be met before
revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the price is fixed and
determinable; and (4) collectibility is reasonably assured.
Warranty Cost. Products sold are generally covered by a warranty against
defects in material and workmanship for a period of one year. We accrue a
warranty reserve to measure the risk of incurring costs to provide warranty
services. We estimate costs to service warranty obligations based on historical
experience and expectation of future conditions.
Valuation of Accounts Receivable. We maintain an allowance for
uncollectible accounts receivable to measure 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.
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.
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
productively support the business goals of the Company. 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.
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. To date, we
have not been affected by any litigation or other contingencies that have had,
or are currently anticipated to have, a material impact on our results of
operations or financial position. 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 its contingencies. Such additional expense could potentially have a material
impact on our results of operations and financial position.
12
Results of Operations
The following table sets forth certain statement of operations data
expressed as a percentage of net sales:
Three Months Ended
March 31,
2002 2001
------------------------
Net sales 100.0% 100.0%
Cost of sales 40.3 43.9
----------- -----------
Gross profit 59.7 56.1
Operating expenses:
Sales and marketing 40.1 51.8
General and administrative 9.1 15.3
Engineering and development 8.0 11.7
----------- -----------
Total operating expenses 57.2 78.8
----------- -----------
Income (loss) from operations 2.5 (22.7)
Gain on sale of asset 0.3 --
Interest income 0.1 0.2
Interest expense (0.6) (2.5)
------------ -----------
Net income (loss) 2.3% (25.0)%
============ ===========
During the first fiscal quarter of 2002, demand for our products continued
to increase when compared to the same period in previous years. Net sales for
the three months ended March 31, 2002 were $5.2 million, an increase of $2.1
million or 70%, as compared with net sales of $3.1 million for the three months
ended March 31, 2001. The growth was attributable to strong domestic increase in
unit volume of both our Waterlase and LaserSmile systems. The addition of the
cosmetic tooth whitening application in the third quarter of last year was a key
factor in the increase of LaserSmile sales. International sales were not a
factor in sales growth for the quarter. Sales of consumables increased to 4% of
total sales this quarter compared to 2% in the first quarter of 2001. Consistent
with the seasonality we have experienced in prior years, sales for the first
quarter were lower than the preceding fourth quarter despite the overall
increasing trend in sales.
Gross profit for the three months ended March 31, 2002 increased 81% to
$3.1 million as a result of the increase in sales and consequent greater
absorption of fixed manufacturing costs. Gross margin for the quarter was 60%
compared to 56% for the quarter ended March 31, 2001. Increased manufacturing
efficiencies contributed to the increase in gross margin, offset partially by
start-up costs for our German facility and the addition of resources to
manufacturing in anticipation of greater production.
Operating expenses were 57% of net sales for the three months ended March
31, 2002, compared to 79% for the first quarter of 2001. The decrease in
operating expenses as a percentage of sales was due to the gain in sales
relative to the change in costs required to support the increased level of
operations. In terms of absolute dollars, operating expenses for the three
months ended March 31, 2002 increased $0.5 million or 23% to $3.0 million.
Increases relate primarily to higher sales and marketing costs.
Sales and marketing expenses increased 31% to $2,095,000 at March 31, 2002
compared to $1,597,000 for the quarter ended March 31, 2001. Primary reasons for
the increase are labor increases due to growth in the size of the sales force,
commission expense on a higher level of sales and an increase in the scope of
our nationwide seminar marketing program for 2002.
General and administrative expenses remained constant with the prior year
quarter. However, there were increases due principally to higher labor expense
and consulting fees plus start-up expenses
13
related to our German subsidiary, increase in insurance rates and the cost of
infrastructure needed to support the growth of the business, which were offset
by a reduction in the allowance for doubtful accounts.
Engineering and development expenses increased $59,000 or 16% to $419,000
for the first quarter of 2002 compared to $360,000 for the first quarter of
2001. Increased expenses primarily related to materials and consulting fees on
new product development.
Gain on Sale of Assets. The gain on sale of assets of for the three months
ended March 31, 2002 increased $16,000 primarily 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.
Net interest expense decreased from $70,000 in the first quarter of 2001 to
$30,000 in the first quarter of 2002 as a result of the payoff of the mortgage
note payable on our manufacturing facility in 2001.
Liquidity and Capital Resources
At March 31, 2002, we had $1.6 million in working capital. Our principal
source of liquidity at March 31, 2002 consists of our cash balance of $2.5
million. For the quarter, significant sources of cash were from the exercise of
stock options and warrants of $723,000. These sources of cash were offset by
increases in accounts receivable and inventory of $583,000 and other working
capital items totaling $321,000.
Accounts receivable, net, increased to $2.4 million at March 31, 2002 from
$2.1 million at December 31, 2001. The increase was due to the higher sales
volume experienced in the first quarter for which the receivable will be
collected in the second quarter of 2002. We believe that the allowance for
doubtful accounts at March 31, 2002 of $100,000 is adequate to provide for
anticipated losses on uncollectible amounts.
Inventories, net, increased to $2.2 million at March 31, 2002 from $1.9
million at December 31, 2001. The increase was due to increased production
necessary to meet expected 2002 demand.
Our business continues to focus on the manufacturing and marketing of
laser-based technologies the Waterlase(TM) and the LaserSmile(TM) laser systems.
Financing the development of our products and our operations has been achieved
principally through the private placements of common stock and the exercise of
stock options and warrants, though we have experienced significant increased
sales over the last two years.
In January 2002, our wholly owned subsidiary, BIOLASE Europe, purchased a
production facility in Germany with ten employees for $1,000,000. We are
required to pay the first installment of the purchase price by May 31, 2002. The
amount of the first installment will be determined by us, but must be between
$300,000 and $500,000. Thereafter, we must pay $500,000 by April 1, 2003 and the
balance of the purchase price, if any, must be paid by December 1, 2003. We are
currently negotiating with a third party for that party to pay all or a portion
of the first installment in exchange for certain rights that we would grant to
the third party. In the event we do not reach an agreement with this third
party, then both the purchase price and the initial installment will be reduced
by $150,000.
The German facility, which is ISO 9001 certified, consists of two buildings
equipped for laser production. This facility will substantially increase our
production capacity. BIOLASE Europe also has a highly qualified technical staff
experienced in laser principles and design, delivery systems, optics,
14
technical service and field support. BIOLASE Europe will manufacture our
products in Germany, provide direct support for our expanding international
dealer network and contribute to our ongoing research and development of new
products.
We have no other material commitments for capital expenditures as of March
31, 2002.
At March 31, 2002, we had $1.8 million outstanding under a revolving credit
agreement with a bank. The revolving credit agreement provides for borrowings of
up to $2.5 million for the financing of inventory and is collateralized by
substantially all of our accounts receivable and inventories. The interest rate
is computed based upon LIBOR plus 0.5%. The balance at December 31, 2001 was
$1.8 million and during the quarter, there were no draws or repayments. We do
not intend to make any further borrowings under this line of credit in the
immediate future. In May 2002, the maximum borrowings available under this line
of credit will be reduced to $1.8 million. The current revolving credit
agreement expires on January 31, 2003, at which point we will be required either
to pay any remaining balance of the credit facility or refinance the credit
facility.
Our liquidity and cash requirements fluctuate based on the timing and
extent of a number of factors. For instance, during periods of sales growth, net
changes in assets and liabilities will tend to represent a use of cash because
we will incur costs and expend cash in advance of receiving cash from our
customers. We believe that our current cash balances plus cash to be generated
from operations will be adequate to meet our debt service requirements, capital
expenditures and sustain our operations through the end of fiscal 2002. In
addition, during 2002, we expect that additional warrants expiring in 2002 will
be exercised, generating up to an additional $1.7 million from external sources.
Should we require further capital resources in 2002, we would most likely
address such requirement through a combination of product sales, sales of equity
securities through private placements, and/or debt financing. If such additional
debt or equity is needed, no assurances can be given that we would be able to
obtain such additional capital resources. If unexpected events occur requiring
us to obtain additional capital and we are unable to do so, we then might
attempt to preserve our available resources by deferring the creation or
satisfaction of various commitments, deferring the introduction of various
products or entry into various markets, or otherwise scaling back our
operations. If we were unable to raise such additional capital or defer certain
costs as described above, such inability would have an adverse effect on our
financial position, results of operations and cash flows.
Risk Factors
Before investing in our company or deciding 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. 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.
We May Not Be Able to Continue or Increase Our Net Income in the Future,
Which May Cause the Trading Price of Our Common Stock to Decline.
We may not be able to continue to achieve net income. Prior to the third
quarter of 2001, we had not reached the break-even point as we transitioned from
our research and development phase and began commercializing our technology.
Even if we continue to achieve net income, we may not be able to increase net
income on a quarterly or annual basis in the future. Our ability to achieve
sustained or increased net income is, in turn, dependent on many of the other
risk factors identified in this report
15
below. If we are unable to continue or increase our net income in the future, we
may not be able to successfully operate our business and our stock price may
decline.
We May Not Be Able to Secure Additional Financing to Meet Our Future
Capital Needs.
Our line of credit expires on January 31, 2003. If we are unable to renew
our line of credit at that time on acceptable terms, or at all, and we are
required to repay the line of credit, absent sufficient cash flow from
operations or the sale of securities, 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. In addition, during 2002 and
2003 all of our long-term debt will become due and payable. 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 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. If we raise additional funds by issuing debt, we
may be subject to limitations on our operations, including limitations on the
payment of dividends. Our inability to raise additional funds on a timely basis
will make it difficult for us to achieve our business plan and will have a
material adverse effect on our business, financial condition and results of
operations.
Our Quarterly Revenues 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 revenues 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 quarterly revenues 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 revenues and operating results include the factors described
in the subheadings below as well as:
. The evolving and varying demand for dental and medical lasers;
. Our ability to 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;
. 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; and
. General global economic and political conditions, including international
conflicts and acts of terrorism.
In addition, a significant amount of our sales in any quarter may consist
of sales through a single distributor. As a result, the timing of orders by this
distributor may impact our quarter-to-quarter results. The loss of or a
substantial reduction in orders from this distributor could seriously harm our
business, financial condition and results of operations. Due to all of the
factors listed above and the other risks
16
discussed in this report, you should not rely on quarter-to-quarter comparisons
of our operating results as an indication of our future performance.
Our Business Depends on the Acceptance of Our Products, and It Is Uncertain
Whether the Market Will Broadly Accept Our Products.
Our future success will depend on 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 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 under 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 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 Depend on a Limited Number of Suppliers, and If We Cannot Secure
Alternate Suppliers, Our Business May Be Harmed.
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.
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 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. 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 and distracting to management, 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 our products to
avoid infringement. Any of the foregoing adverse events could seriously harm our
business, financial condition and results of operations.
17
We Have Significant International Sales and Are Subject to Risks Associated with
Operating in International Markets.
In the past few years, international sales have comprised a significant
portion of our net sales. Our international sales declined in the prior year,
and political and economic conditions outside the United States could make it
difficult for us to increase our international sales or to operate abroad. In
addition, in February of this year we made a significant investment in a
production facility in Germany to manufacture and service devices to be sold in
Europe.
In the future, we intend to continue to pursue and expand our international
business activities. International operations, including our production facility
in Germany, are subject to many inherent risks, including:
. Political, social and economic instability and increased security
concerns;
. 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;
. 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.
We believe that international sales will continue to represent a
significant portion of our net sales, and that continued growth and
profitability may require further expansion of our international operations. A
substantial percentage of our international sales are denominated in the local
currency. As a result, an increase in the relative value of the dollar could
make our products more expensive and potentially less price competitive in
international markets. Other than a forward contract to offset the risk related
to the amounts payable for the German production facility, we do not currently
engage in any transactions as a hedge against risks of loss due to foreign
currency fluctuations. Any of these factors may adversely affect our future
international sales and, consequently, affect our business, financial condition
and operating results.
If We Are Not Successful In Generating Revenue From Our German Production
Facility, Our Business And Financial Condition May Be Materially Adversely
Affected.
In January 2002, we committed to invest a significant amount of our
available cash in purchasing a German production facility with ten employees and
various contracts held by the facility. The production facility is a new
operation and we will face significant challenges in integrating it with our
existing business and operations, including but not limited to the following:
. entering into service agreements for devices sold in Europe;
. retraining existing employees in our operations, and hiring additional
employees for the facility;
. integrating the facility's operations with our existing operations; and
. generating German facility revenue and achieving profitability.
18
The German facility has a very limited operating history upon which to
assess whether it will be able to meet all of the challenges required to
successfully operate and generate revenue. If we are not able to develop a
successful operation with revenue and profits at the German facility, we will
not receive the anticipated benefits of our investment in the German facility
and our business, financial condition and results of operations would be
materially and adversely affected.
Product Liability Claims Against Us Could Be Costly and Could Harm Our
Reputation.
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.
Rapid Changes in Technology Could Harm the Demand for Our Products or
Result in Significant Additional Costs.
The markets in which our laser products compete are subject to rapid
technological change, evolving industry standards, changes in the regulatory
environment, 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 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 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. We
have in the past experienced delays in product development. We cannot assure you
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 product and technologies developed by others
will not render our products obsolete.
We May Not Be Able to Compete Successfully Against Our Current and Future
Competitors.
Our products compete with those of a number of foreign and domestic
companies, including those 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. Some of our competitors have
greater financial, technical, marketing or other resources than us. This may
allow them to respond more quickly to new or emerging technologies and to devote
greater resources to the 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 technology changes in laser products and methods
could cause commoditization of such products, require price discounting or
otherwise adversely affect our gross margins.
Changes in Government Regulation or the Inability to Obtain Necessary
Government Approvals Could Harm Our Business.
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,
19
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 for us to remain competitive.
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
then bill various third party payors, such as government programs or private
insurance plans, for the procedures conducted using these products. In the
United States third party payors review and frequently challenge the prices
charged for medical services. 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. The inability to obtain reimbursement for
services using our products could deter dentists and physicians 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 would
act as disincentives for capital investments by dental and medical professionals
and could have an adverse effect on our business, financial condition and
results of operations.
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 Jeffrey W. Jones, our Chief Executive Officer, Edson J.
Rood, our Chief Financial Officer, Ioana Rizoiu, our Vice President of Clinical
Research, and Keith Bateman, our Vice President of Global Sales. We do not have
employment agreements with any of our key employees, other than with Mr. Jones,
whose employment agreement was renewed in January 2002 for an additional
two-year term.
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 employees, particularly development
engineers, is intense. We may not be able 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.
Potential Future Acquisitions Could Have Unintended Negative Consequences
Which Could Harm Our Business and Cause Our Stock Price to Decline.
We may 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:
. We may encounter difficulties in assimilating and integrating the
perations, 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,
20
adverse tax consequences, substantial depreciation or deferred
compensation charges, or the amortization 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. In the event we do pursue
any acquisitions, it is possible that we may not realize the anticipated
benefits from such acquisitions.
Our Common Stock Price Has Been Volatile, Which Could Result in Substantial
Losses for Individual Stockholders.
Our common 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 per share sale price of our common stock fluctuated from
$7.00 to $1.03 over the course of 2001 despite steady improvement in our
financial performance. On August 9, 2001, the closing sale price of our common
stock declined 12% from $5.87 per share on volume of approximately 900,000
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 report. 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, it would be difficult to sell a significant
amount of our stock, which could cause a significant decline in the trading
price of our stock. If our stock price drops below $1.00 per share 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 Small Cap Market and the marketability, liquidity and
price of our common stock would be adversely affected.
We are exposed to Risks Associated with the Recent Worldwide Economic
Slowdown and Related Uncertainties.
Concerns about decreased consumer confidence, reduced corporate profits and
capital spending, and recent international conflicts and terrorist and military
activity have resulted in a downturn in economic conditions, both domestically
and internationally. These unfavorable economic conditions could ultimately
cause a slowdown in customer orders, an increase in the number of cancellations
and the rescheduling of backlog, if any. In addition, recent political and
social turmoil related to international conflicts and terrorist acts may put
further pressure on economic conditions in the U.S. and worldwide. 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 be materially and adversely affected.
21
Future Sales of Our Common Stock Could Affect the Stock Price.
If our stockholders sell substantial amounts of our common stock, including
shares issued on the exercise of options and warrants, in the public market, the
market price of our common stock could fall. These sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate. As of March 31, 2002, we had 20,018,000
shares of common stock outstanding. All of these shares, other than shares held
by affiliates, are freely tradable.
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 a third 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.
Our certificate of incorporation authorizes the issuance of up to 1,000,000
shares of "blank check" preferred stock, which will have terms as may be
determined from time to time by our Board of Directors. Accordingly, our Board
of Directors may, without obtaining stockholder approval, issue preferred stock
with terms, which could have preference over and adversely affect the rights of
the holders of common stock. This issuance may make it more difficult for a
third party to acquire a majority of our outstanding voting stock. We are also
subject to the Delaware anti-takeover laws, which may prevent, delay or impede a
merger or takeover of our company, and we have not opted out of the provisions
of such laws through either our certificate of incorporation or our bylaws.
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 the event that a third party
acquires 15% or more of our outstanding common stock, the holders of 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. The mere existence of a stockholder rights plan often delays or makes a
merger, tender offer or proxy contest more difficult. The existence of these
features could prevent others from seeking to acquire shares of our common stock
in transactions at premium prices.
22
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
-----------------------------------------------------------
Our debt currently consists of a revolving credit facility of up to $2.5
million, and is collateralized by substantially all accounts receivable and
inventories. The interest rate on our line of credit varies with the short-term
interest markets and is adjusted quarterly to match LIBOR plus 0.5%. At March
31, 2002, we had an outstanding balance of $1.8 million and the interest rate on
the outstanding balance was 5.91%. The revolving credit agreement expires on
January 31, 2003. In May 2002, the maximum available under this line of credit
will be reduced to $1.8 million.
We have sales to, and purchase a small amount of components from, foreign
countries. Foreign currency exchange risks in these transactions have been
minimal. Until our acquisition of the laser production facility in Germany in
January 2002, we had no assets located outside of the United States. In
conjunction with the $700,000 of promissory notes issued by us in that
acquisition, which are due in 2003, we purchased a forward contract to hedge the
risk of currency fluctuations.
We do not believe that the future market risks related to the above debt
and derivatives will have a material adverse impact on our financial position,
results of operations or liquidity.
23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
From time to time, we are involved in legal proceedings incidental to our
business. We believe that pending actions, individually and in the aggregate,
will not have a material adverse effect on our financial condition, results of
operations or cash flows, and that adequate provision has been made for the
resolution of such actions and proceedings.
Item 2. Changes in Securities and Use of Proceeds.
------------------------------------------
Sale of Unregistered Securities
On March 27, 2002, Corner Bank Ltd. and Corner Banque S.A. partially
exercised warrants to purchase an aggregate of 360,000 shares and 100,000
shares, respectively, of our common stock. Upon the partial exercise of the
warrants, we issued 100,000 shares of unregistered common stock to Corner Bank
Ltd. and 65,000 shares of unregistered common stock to Corner Banque S.A., in
consideration for an aggregate exercise price of $412,500. The issuance of the
common stock to Corner Bank Ltd. and Corner Banque S.A. was exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to the provisions of Section 4(2) of the Securities
Act as a transaction by an issuer not involving any public offering.
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
3.1 Restated Certificate of Incorporation, as Amended.
Incorporated by reference to the Registrant's Annual Report on
Form 10-K filed on April 14, 1994
3.2 Amended and Restated Bylaws. Incorporated by reference to the
Registrant's Quarterly Report on Form 10-QSB filed on
September 15, 1995.
10.1+ Employment Offer Letter dated January 8, 1999 from Jeffrey W.
Jones, the Registrant's CEO, to Keith G. Bateman, the
Registrant's Vice President, Global Sales.
10.2 Employment Agreement dated January 1, 2002 between the
Registrant and Jeffrey W. Jones.
24
10.3+ Asset Purchase Agreement, dated January 29, 2002, between
Asclepion-Meditec AG and the Registrant's subsidiary, BIOLASE
Europe GmbH.
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.
10.5+ Agreement, dated January 29, 2002, between Asclepion-Meditec
AG and the Registrant's subsidiary, BIOLASE Europe GmbH.
- -------------------
+ Confidential treatment has been 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 have
been omitted from this exhibit and filed separately with the SEC.
(b) Reports on Form 8-K
None
25
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.
May 15, 2002 BIOLASE TECHNOLOGY, INC.,
(Registrant)
By: /s/ Edson J. Rood
-----------------------------------
Edson J. Rood
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
26