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, 1999
-----------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______to ______
Commission File Number
0-19627
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BIOLASE TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 87-0442441
(State or other Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification No.)
981 Calle Amanecer, San Clemente, CA 92673
(Address of Principal Executive Offices)
(949) 361-1200
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No___
---
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Common Stock, $.001 par value 17,728,213
- ----------------------------- ----------------------------
Title Class Number of Shares Outstanding
at August 13, 1999
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 18
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Securities 18
ITEM 3. Defaults Upon Senior Securities 18
ITEM 4. Submission of Matters to a Vote of Security
Holders 18
ITEM 5. Other Information 19
ITEM 6. Exhibits and Reports on Form 8-K 19
SIGNATURE PAGE 20
Page 2
PART 1-FINANCIAL INFORMATION
Item 1. Financial Statements.
- -----------------------------
BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, 1999 December 31, 1998
(Unaudited)
------------- -----------------
Assets:
Current assets:
Cash and cash equivalents $ 1,750,527 $ 424,539
Marketable securities - 251,485
Accounts receivable, less allowance of $118,511 in 1999
and $118,015 in 1998 754,386 563,236
Inventories, net of reserves of $271,694 in 1999 and 1998 1,552,227 1,930,117
Prepaid expenses and other current assets 233,422 168,725
------------- -----------------
Total current assets 4,290,562 3,338,102
Property and equipment, net 397,964 407,142
Patents, trademarks and licenses, less accumulated
amortization of $139,877 in 1999 and $129,312 in 1998 141,538 147,199
Other assets 18,929 18,929
------------- -----------------
Total assets $ 4,848,993 $ 3,911,372
============= =================
Liabilities and Stockholders' Equity:
Current liabilities:
Line of credit $ 1,341,925 $ 1,705,025
Accounts payable 700,097 806,335
Accrued expenses 1,014,213 701,016
Accrued costs related to dissolution of foreign subsidiary 10,514 37,144
------------- -----------------
Total current liabilities 3,066,749 3,249,520
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Stockholders' equity:
Preferred stock, par value $.001, 1,000,000 shares authorized:
no shares issued and outstanding in 1999 or 1998 - -
Common stock, par value, $.001, 50,000,000 shares
authorized, issued 17,504,207 in 1999 and 16,312,007 in 1998
(after deducting 182,880 of escrow shares in 1999 and 1998) 17,504 16,312
Additional paid-in capital 41,649,556 38,614,948
Accumulated deficit (39,884,816) (37,969,408)
------------- -----------------
Net stockholders' equity 1,782,244 661,852
------------- -----------------
Total liabilities and stockholders' equity $ 4,848,993 $ 3,911,372
============= =================
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,
------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
Sales $ 1,406,255 $ 236,087 $ 3,192,238 $ 498,617
Cost of sales 847,127 263,061 1,835,969 501,168
----------- ----------- ----------- -----------
Gross profit (loss) 559,128 (26,974) 1,356,269 (2,551)
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 612,475 267,488 1,146,795 572,747
General and administrative 702,059 480,190 1,137,754 733,970
Engineering and development 488,552 434,921 960,067 708,851
----------- ----------- ----------- -----------
Total operating expenses 1,803,086 1,182,599 3,244,616 2,015,568
----------- ----------- ----------- -----------
Loss from operations (1,243,958) (1,209,573) (1,888,347) (2,018,119)
Other income (expense)
Interest income 20,539 15,675 24,054 21,132
Interest expense (22,133) (9,253) (51,115) (35,275)
----------- ----------- ----------- -----------
Net loss $(1,245,552) $(1,203,151) $(1,915,408) $(2,032,262)
=========== =========== =========== ===========
Loss per share - basic and diluted $ (0.07) $ (0.08) $ (0.11) $ (0.15)
=========== =========== =========== ===========
Weighted average shares outstanding 17,483,771 14,163,487 16,952,192 13,742,334
=========== =========== =========== ===========
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 Net
Preferred Stock Common Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
------ ------ ------ ------ ---------- ----------- -------------
Balance at January 1, 1999 - $ - 16,312,007 $ 16,312 $ 38,614,948 ($37,969,408) $ 661,852
Private placement of common stock - - 1,116,000 1,116 2,746,884 - 2,748,000
Issuance of stock and warrants - - 64,800 65 176,904 - 176,969
for earned services
Exercise of stock options - - 11,400 11 17,089 - 17,100
Extension of stock options - - - - 93,731 - 93,731
Net loss - - - - - (1,915,408) (1,915,408)
-------------------------------------------------------------------------------------------
Balance at June 30, 1999 - $ - 17,504,207 $ 17,504 $ 41,649,556 ($39,884,816) $ 1,782,244
===========================================================================================
See accompanying notes to consolidated condensed financial statements.
Page 5
Item 1. Financial Statements (continued).
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BIOLASE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
------------------------------------
1999 1998
---- ----
Cash flows from operating activities:
Net loss $ (1,915,408) $ (2,032,262)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 58,629 46,207
Issuance of common stock and warrants for earned services 176,969 32,063
Extension of stock options 93,731 -
Provision for bad debts 496 69,123
Provision for inventory write-off 44,000 -
Changes in operating assets and liabilities:
Accounts receivable (191,646) 715,156
Inventories 333,890 (723,143)
Prepaid expenses and other current assets (64,697) (184,409)
Accounts payable (106,238) (250,772)
Accrued expenses 313,197 146,328
Accrued costs related to dissolution of foreign subsidiary (26,630) (925)
------------- -------------
Net cash used by operating activities (1,283,707) (2,182,634)
------------- -------------
Cash flows from investing activities:
Sale of marketable securities 251,485 869,159
Purchase of marketable securities - (2,525,000)
Additions to property and equipment (38,886) (47,583)
Additions to patents, trademarks and licenses (4,904) (63,877)
------------- -------------
Net cash provided (used) by investing activities 207,695 (1,767,301)
------------- -------------
Cash flows from financing activities:
Borrowings under line of credit 184,000 860,958
Payments of line of credit (547,100) -
Proceeds from issuance of common stock, net 2,748,000 3,592,800
Proceeds from exercise of stock options 17,100 46,425
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Net cash provided by financing activities 2,402,000 4,500,183
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Increase (decrease) in cash and cash equivalents 1,325,988 550,248
Cash and cash equivalents at beginning of period 424,539 213,074
------------- -------------
Cash and cash equivalents at end of period $ 1,750,527 $ 763,322
============= =============
Supplemental cash flow disclosure:
Cash paid during the period for interest $ 55,880 $ 35,275
============= =============
See accompanying notes to consolidated condensed financial statements.
Page 6
BIOLASE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
Note 1
- ------
The accompanying consolidated condensed financial statements of BioLase
Technology, Inc. (the "Company") have been prepared by the Company without audit
and do not include all disclosures required by generally accepted accounting
principles for complete financial statements. The consolidated condensed balance
sheet at December 31, 1998 was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, the consolidated condensed financial
statements include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial condition of the Company as
of June 30, 1999 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 reported net losses of $10,346,069,
$2,823,910 and $2,463,259 for the years ended December 31, 1998, 1997 and 1996,
respectively, and net losses of $1,245,552 and $1,915,408 for the three and six-
month periods ended June 30, 1999, respectively, and has an accumulated deficit
of $39,884,816 at June 30, 1999. These recurring losses and the need for
continued funding, discussed below, raise substantial doubt about the Company's
ability to continue as a going-concern.
The Company's business focuses on and is expected to continue to focus on
the manufacturing and marketing of its Er,Cr:YSGG HydroKinetic(TM) laser-based
tissue cutting system, the Millennium(TM), initially for applications in the
field of dentistry.
Financing the operations of the Company and the development of laser-based
medical dental devices and instruments and the operations of the Company has
been achieved principally through the private placements of preferred and common
stock and the exercise of stock options and warrants. During the three years
ended December 31, 1998, the Company has raised approximately $8,713,000 of
equity funds. During the first quarter of 1999, the Company raised an additional
$2,748,000, after commission and expenses, in equity funds.
The Company believes that its clearance to market its Millennium(TM) system
for certain dental hard tissue procedures in the United States should contribute
to the Company's ability to generate working capital through higher sales volume
and associated increased gross profits. However, management believes that the
Company will require significant capital resources during 1999 to fund its
present operations, to fund efforts directed towards further extensions and
refinements of existing products, and to fund continuing research and
development activities. Combined with the capital obtained during the first
quarter of 1999 through the issuance of common stock, the Company expects to
generate the necessary resources to continue with its 1999 business plan through
the sales of its products. Should its current operations fall short of providing
such resources, the Company would need to obtain the necessary capital resources
through other sources such as debt or equity financing. No assurances can be
given, however, that the Company will be able to achieve and sustain
profitability or have other sources available to provide the capital resources
necessary to
Page 7
continue its operations. If the Company were unable to obtain such financing,
its ability to meet its obligations and to continue its operations would be
adversely affected. The Company's consolidated condensed financial statements
have been prepared under the assumption of a going concern. The consolidated
condensed financial statements do not give effect to any adjustments that might
be necessary if the Company were unable to meet its obligations or continue
operations.
Operating results for the three and six-month periods ended June 30, 1999
are not necessarily indicative of the results to be expected for the year ending
December 31, 1999. These statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's Form 10-K, as amended, for the year ended December 31, 1998.
Note 2
- ------
Inventories, net of reserves, June 30, 1999 December 31, 1998
consist of the following: (unaudited)
------------- ------------------
Raw materials $ 1,069,194 $ 1,372,172
Work-in-process and subassemblies 459,201 183,889
Finished goods 23,832 374,056
----------- --------------
$ 1,552,227 $ 1,930,117
=========== ==============
Note 3
- ------
Property and equipment, June 30, 1999 December 31, 1998
at cost, consist of the following: (unaudited)
------------- -----------------
Leasehold improvements $ 170,927 $ 170,927
Equipment and computers 1,038,932 1,001,263
Furniture and fixtures 200,805 199,588
Demonstration units 247,354 247,354
----------- --------------
Total cost 1,658,018 1,619,132
Less, accumulated depreciation and amortization (1,260,054) (1,211,990)
----------- --------------
$ 397,964 $ 407,142
=========== ==============
Page 8
Note 4
- ------
Accrued expenses consist
of the following: June 30, 1999 December 31, 1998
(unaudited)
------------- -----------------
Accrued payroll and benefits $ 356,851 $152,124
Accrued professional fees 62,342 89,124
Accrued legal costs 169,000 144,166
Accrued warranty 86,200 40,315
Other 339,820 275,287
---------- --------
$1,014,213 $701,016
========== ========
Note 5
- ------
Basic and diluted loss per share is based on the weighted average number of
common shares outstanding. Potential common stock, which consists of stock
options and warrants, has been excluded from per share calculations, as the
effect of the assumed exercise of this potential common stock is anti-dilutive
at June 30, 1999 and 1998.
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 "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, 1999 as compared to
the three-month period ended June 30, 1998:
Sales for the three months ended June 30, 1999 were $1,406,255 compared to
$236, 087 for the same period in 1998, an increase of $1,170,168. The increase
in sales reported for the second quarter of 1999 compared to the same period in
1998 was due principally to increases in sales of the Company's Millennium(TM)
HydroKinetic laser system. While sales of the Company's laser-based systems in
the second quarter of 1999 exceeded those reported in the same period of 1998,
such sales were lower than anticipated and less than those of the first quarter
of 1999 due principally to problems associated with certain supplier component
changes
Page 10
and deficiencies. These supplier related component changes and deficiencies
required the Company to redesign certain subassemblies to accommodate available
components. Certain residual effects of the supplier deficiencies are expected
to carry into the first part of the third quarter of 1999; however, such
supplier deficiencies are expected to be fully resolved during such quarter with
1999 third quarter sales expected to surpass those reported during the second
quarter of 1999.
During the second quarter of 1999, the Company announced an exclusive
distribution agreement with a home-consumer product distributor to manufacture
and market the Company's LazerSmile Tooth Whitening product under the name IGEA
LazerWhite Tooth Whitening System. The agreement provides for a royalty to be
paid to the Company and includes a minimum annual sales quota of 500,000 units.
The Company has received certain prepaid royalties and anticipates recognition
of such royalties as revenue to commence in the latter part of the third quarter
of 1999.
Cost of sales as a percentage of sales improved to 60%, or $847,127, during
the second quarter of 1999 compared to 111%, or $263,061, reported for the
comparable period in 1998. The increase of $584,066 from the three months ended
June 30, 1998 to the three months ended June 30, 1999 was due principally to the
increased sales volume combined with increased indirect expenses reflecting the
Company's present growth, partially offset by improved production efficiencies.
The improvement in cost of sales as a percentage of sales during the second
quarter of 1999 compared to the same period in 1998 was a result of higher
sales, which also permitted fixed manufacturing costs to be spread over a higher
volume of goods manufactured.
Gross profit increased $586,102 to $559,128 during the three months ended
June 30, 1999 from the gross loss of $26,974 reported for the comparable period
in 1998 due principally to the increase in sales and an improved absorption rate
of fixed overhead costs. The gross profit improvement also reflects the
inclusion in 1999 of cost-effective features designed into the Company's
flagship product, the Millennium(TM).
Operating expenses increased $620,487 during the three months ended June
30, 1999 compared to the same period in 1998 reflecting increases in (i) sales
and marketing expenses of $344,987, (ii) general and administrative expenses of
$221,869, and (iii) engineering and development expense of $53,631. The net
increase in sales and marketing expense was due principally to variable selling
costs related to the increased sales level, an increase in the Company's sales
infrastructure and the Company's increased participation at professional trade
shows, both nationally and internationally. The $221,869 increase in general and
administrative expense included a non-recurring expense of $110,462 associated
with a severance agreement, of which, $93,731 was non-cash related, increases in
the Company's staffing and related personnel expenses, and increases in various
professional and administrative costs related to the Company's growth. The
increase in engineering and development expense of $53,631 included a non-
recurring, non-cash charge of $60,938 related to a consulting arrangement and
increases in (i) employee related expenses associated with increased engineer
staffing and (ii) engineering project expenses related to existing product
redesigns and enhancements and development of new products. These increases to
engineering and development expense were significantly offset by the absence in
the second quarter of 1999 of clinical trial and regulatory expenses.
Interest income for the three months ended June 30, 1999 increased $4,864
compared to the same period in 1998, while interest expense increased $12,880
during the 1999 period as compared to 1998. The increase in interest expense was
due principally to a higher average
Page 11
outstanding balance under the Company's line of credit during the second quarter
of 1999 compared to 1998, with slightly higher interest rates experienced in
1999 versus 1998.
The Company's net loss increased from $1,203,151, or $0.08 per share, for
the three months ended June 30, 1998 to $1,245,552, or $0.07 per share, for the
same period in 1999. The decrease in the per share loss from 1998 to 1999 is due
to a 23% increase in the weighted average number of shares outstanding.
Results of Operations - Six-month period ended June 30, 1999 as compared to the
six-month period ended June 30, 1998:
Sales during the first six months of 1999 were $3,192,238 compared to
$498,617 for the same period in 1998, an increase of $2,693,621. The increase
was due principally to increases in sales of the Company's Millennium(TM)
HydroKinetic laser system.
Cost of sales as a percentage of sales improved to 58%, or $1,835,969,
during the first half of 1999 compared to 101%, or $501,168, reported for the
comparable period in 1998. The increase of $1,334,801 from the six months ended
June 30, 1998 to the six months ended June 30, 1999 was due principally to
increased sales volume combined with increased indirect expenses reflecting the
Company's present growth, partially offset by improved production efficiencies.
The improvement in cost of sales as a percentage of sales during the first half
of 1999 compared to the same period in 1998 was a result of higher sales, which
also permitted fixed manufacturing costs to be spread over a higher volume of
goods manufactured.
Gross profit for the first half of 1999 increased to $1,356,269, or 42% of
sales, from a gross loss of $2,551 reported for the same period in 1998. The
increase is due principally to increased sales and an improved absorption rate
of fixed overhead costs, as well as the inclusion in 1999 of cost-effective
features designed into the Company's flagship product, the Millennium(TM).
Operating expenses for the first half of 1999 were $3,244,616 compared to
$2,015,568 reported for the first half of 1998, an increase of $1,229,048. Sales
and marketing expense increased $574,048 due principally to increased variable
selling costs related to the higher sales level, an increase in the Company's
sales infrastructure, increased participation at professional trade shows, both
nationally and internationally, and increased costs in advertising of the
Company's Millennium(TM) system. General and administrative expense increased
$403,784 and included a non-recurring charge of $129,981, of which $93,731 was
non-cash related, associated with a severance agreement. The other significant
items associated with the increase to general and administrative expense were
increases in staffing and related personnel expenses combined with increases in
various professional and administrative costs related to the Company's growth.
Research and development expense increased $251,216 and included a non-
recurring, non-cash charge of $100,781 related to a consulting arrangement.
Remaining significant components of the increase to engineering and development
expense were increases in engineering project expenses related to existing
product redesigns and enhancements and development of new products. These
increases to engineering and development expense were significantly offset by
the absence in the first half of 1999 of clinical trial and regulatory expenses
incurred during the second quarter of 1998.
Interest income for the first half of 1999 was comparable to the same
period in 1998 while interest expense increased $15,840 from that reported
during the same period in 1998. The increase in interest expense was due
principally to a higher average outstanding balance
Page 12
under the Company's line of credit during the first half of 1999 compared to
1998, with slightly higher interest rates experienced in 1999 versus 1998.
The Company's net loss decreased to $1,915,408, or $0.11 per share, for the
first half of 1999 compared to $2,032,262, or $0.15 per share, for the first
half of 1998. The reduction in the per share loss for the first half of 1999 was
enhanced by a 23% increase in weighted average shares outstanding.
Acquisition of Laser Skin Toner, Inc.
On July 2, 1998, the Company acquired substantially all of the assets of
Laser Skin Toner, Inc., a development stage company ("LSTI"). The assets
acquired related primarily to the proprietary in-process laser-based technology
being developed by LSTI for non invasive laser treatment in the field of
aesthetic skin rejuvenation, including all intellectual property rights
consisting of patents, patent applications, a trademark application and certain
know-how.
Page 13
At the time of the acquisition, the intellectual property embodying this
developmental effort represented substantially all of LSTI's assets, and the
developmental efforts did not appear applicable to any alternative use. At the
time of acquisition, the Company intended to proceed with those additional
research and development efforts needed to bring the product to market and to
fund the costs from working capital. In anticipation of and then in response to
the
Page 14
clearance it received in October 1998 from the FDA to market its Millennium(TM)
tissue cutting system for dental hard tissue applications, the Company shortly
after acquiring the LSTI technology decided to focus its limited resources on
the marketing of its Millennium(TM) system, including a build-up of inventory
and expansion of sales staff. The Company continued the clinical trials related
to the LSTI technology, while other research and development efforts required to
complete and commercialize the LSTI technology were largely deferred.
The Company has since determined that it is in the best interests of its
stockholders to continue its focus on the marketing and further enhancement of
products embodying its HydroKinetic(TM) technology, including its Millennium(TM)
system, and not to further develop the LSTI technology.
The Company's efforts devoted to the LSTI technology since the date of
acquisition have not provided a basis for the Company either to revise or to
validate its estimates made at the time of acquisition regarding the time and
resources required to complete the development of the LSTI technology.
Financial Condition
Cash and cash equivalents increased from $424,539 at December 31, 1998 to
$1,750,527 at June 30, 1999 principally as a result of a private placement of
Company common stock and stock purchase warrants in March 1999 that generated
net proceeds of $2,748,000 and the sale of $251,485 of marketable securities.
These increases in cash and cash equivalents were offset primarily by cash used
in operating activities aggregating $1,283,707, capital expenditures of $38,886
and a net $363,100 reduction in the balance outstanding under a bank line of
credit.
Marketable securities decreased $251,485 from December 31, 1998 to June 30,
1999 as a result of the sale of the securities, with the proceeds being placed
in a money market account that is classified as a cash equivalent.
Accounts receivable increased $191,150 from the $563,236 reported at
December 31, 1998 to $754,386 at June 30, 1999. The increase is due principally
to orders shipped at the end of June 1999 for which payments were received in
July 1999.
Inventories at June 30, 1999 were $1,552,227 compared to $1,930,117 at
December 31, 1998, a decrease of $377,890. The decrease was due principally to
the Company's use of higher levels of inventory. The Company believes that its
business does not presently operate in a normalized cycle in which information
regarding inventory turns would be meaningful but that such information will
become meaningful once productions and deliveries of Millennium(TM) systems are
normalized.
Prepaid expenses and other current assets at June 30, 1999 were $64,697
higher than those at December 31, 1998, reflecting increases in prepaid
conventions related to future dental shows and prepaid expenses associated with
relocation costs of certain employees.
Current liabilities decreased $182,771 from December 31, 1998 to June 30,
1999, due principally to net repayments made on a line of credit amounting to
$363,100 and reductions in accounts payable of $106,238, offset principally by a
$313,197 increase in accrued expenses. The increase in accrued expenses
consists principally of increases in (i) employee related
Page 15
expenses due to the Company's 1999 change in its payroll cycle and (ii) other
accrued expenses associated with the Company's growth.
Capital expenditures during the first half of 1999 totaled $38,886 related
primarilly to the purchase of personal computers to accommodate the increase in
personnel at the Company. Patents, trademarks and licenses were comparable to
those reported at December 31, 1998, less normal amortization for the first half
of 1999.
Stockholders' equity increased $1,120,392 to $1,782,244 at June 30, 1999
from $661,852 at December 31, 1998 due principally to net proceeds of $2,748,000
received from a private placement in March, 1999, offset by the 1999 six-month
loss of $1,915,408.
Liquidity and Capital Resources
The Company's business now focuses on and is expected to continue to focus
on the manufacturing and marketing of its Er,Cr:YSGG HydroKinetic(TM) tissue
cutting system, the Millennium(TM), initially for applications in the field of
dentistry.
Financing the development of laser-based medical and dental devices and
instruments and the operations of the Company has been achieved principally
through the private placements of preferred and common stock and the exercise of
stock options and warrants. During the three years ended December 31, 1998, the
Company has raised approximately $8,713,000 of equity funds. During the first
quarter of 1999, the Company raised an additional $2,748,000, after commission
and expenses, in equity funds.
The Company's increased sales of its Millennium(TM) system for certain
dental hard and soft tissue procedures in the United States should contribute to
the Company's ability to generate working capital through higher sales volume
and associated increased gross profits. However, management believes that the
Company will require significant capital resources during 1999 to fund its
present operations, to fund efforts directed towards further extensions and
refinements of existing products, and to fund continuing research and
development activities. Combined with the capital generated from the issuance
and sale of securities, the Company expects to generate the necessary resources
to continue with its 1999 business plan through the sales of its products.
Should its current operations fall short of providing such resources, the
Company would need to obtain the necessary capital resources through other
sources such as debt or equity financing. No assurances can be given, however,
that the Company will be able to achieve and sustain profitability or have other
sources available to provide the capital resources necessary to continue its
operations. If the Company were unable to obtain such financing, its ability to
meet its obligations and to continue its operations would be adversely affected.
The Company's financial statements have been prepared under the assumption of a
going concern. The consolidated condensed financial statements do not give
effect to any adjustments that might be necessary if the Company were unable to
meet its obligations or continue operations.
At June 30, 1999, the Company had $1,341,925 outstanding under a revolving
credit agreement with a bank. The revolving credit agreement provides for
borrowings of up to $2,500,000 for the financing of inventory and is
collateralized by substantially all of the Company's accounts receivable and
inventories. The interest rate is fixed throughout the term of the credit
agreement and is computed based upon LIBOR plus 0.5% at the time of any
borrowings. The Company is required to reduce the outstanding loan balance by
an amount equal to the cost of goods sold associated with sales of inventory
upon collection of sales proceeds. The current revolving credit agreement
expires on December 1, 1999, by which time
Page 16
the Company hopes to negotiate a renewal of the present line with its present
bank or establish a replacement line with another bank. The Company will be
required to renew, pay off or refinance the existing line of credit by December
1, 1999. No assurances can be given that the Company will be able to renew or
refinance the line of credit or that the terms on which it may be able to renew
or refinance the line of credit will be as favorable as the terms of the
existing line. If the Company is unable to renew or refinance and therefore
required to repay the line of credit, the diversion of resources to that purpose
may adversely affect the Company's operations and financial condition.
The Company is presently continuing its analysis of its computer software
and hardware requirements. Included among the software to be purchased would be
a new accounting system that, unlike the present system, would be Year 2000
compliant. The Company's present software and hardware is personal computer
based and is unaltered from its original purchased state except for those
upgrades offered by the suppliers of such software. The Company has received
assurances from the suppliers of the software it employs, other than the
accounting system software, that such software is Year 2000 compliant. The
Company intends to obtain certification that any computer software and hardware
purchased in 1999 is Year 2000 compliant. The Company does not believe that its
insistence upon Year 2000 compliant hardware or software will materially
increase the cost of any hardware or software acquired. Should the Company be
unable to obtain Year 2000 compliant software or hardware, the worst case
scenario would require the Company to transition to a manual financial reporting
and information gathering system.
The Year 2000 problem arises out of the convention by which years have been
represented in computer programs by a two digit number representing the final
two digits in the year's designation and concern that time sensitive components
could fail or provide erroneous output if they do not correctly recognize years
beginning with 20 rather than 19.
The Company currently has limited information regarding the Year 2000
compliance status of its principal suppliers of goods and services and of its
principal customers. The Company has initiated formal communications with all
such suppliers and customers with respect to the status of such persons'
computer systems in terms of Year 2000 compliance. If any principal customers
lack systems that are Year 2000 compliant or programs that provide reasonable
assurance that such systems will be Year 2000 compliant well before the end of
1999, the Company will attempt to establish communications channels with such
customers that bypass the non-compliant computer systems. If any principal
suppliers lack systems that are Year 2000 compliant or programs that provide
reasonable assurance that such systems will be Year 2000 compliant well before
the end of 1999, the Company will attempt to identify and establish relations
with alternate suppliers who have Year 2000 compliant systems. There is a
single source supplier of optic fiber for the Millennium(TM) which could not be
easily replaced if it has non-compliant systems, and in the event such supplier
had a non-compliant system, the Company would attempt to establish
communications channels with such supplier that bypass the supplier's non-
compliant computer system. There can be no assurance however that the Company
would be successful in locating new suppliers and an inability to do so could
create difficulties in the Company obtaining certain components used in its
manufacturing process. The Company believes that the costs associated with
monitoring Year 2000 compliance by suppliers and customers and dealing with any
non-compliance will not be material. The failure of the Company or any of its
principal suppliers and customers to become Year 2000 compliant in a timely
manner and the failure to establish alternate communications channels could have
a material adverse effect on the Company's business, financial condition,
results of operations and cash flow.
Page 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
- --------------------------------------------------------------------
Not Applicable
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- ---------------------------
See Item 3 "Legal Proceedings" included within the Company's Annual
Report on Form 10-K for fiscal year ended December 31, 1998 for information
regarding certain pending legal proceedings.
From time to time, the Company is involved in legal proceedings
incidental to its business. It is management's opinion that pending actions,
individually and in the aggregate, will not have a material adverse effect on
the Company's financial condition, and that adequate provision has been made for
the resolution of such actions and proceedings.
Item 2. Changes in Securities.
- -------------------------------
None
Item 3. Defaults Upon Senior Securities.
- -----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
Following are the results of matters submitted to a vote at the Annual
Meeting of Stockholders held May 25, 1999:
(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 7,374,171 1,418,830
George V. d'Arbeloff 7,393,671 1,399,330
William A. Owens 7,563,337 1,229,664
Jeffrey W. Jones 7,394,171 1,398,830
Other 715,060 -
(2) The approval of the Company's 1998 Stock Option Plan. The number of
votes cast for were 5,069,421; votes cast against were 1,308,139;
abstentions were 762,508; and there were 2,367,993 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, 1999.
Page 18
The number of votes cast for were 8,640,674; votes cast against were
125,379; and 742,008 votes abstained.
Item 5. Other Information.
- ---------------------------
The deadline for submission of stockholder proposals pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, as amended, ("Rule 14a-8"), for
inclusion in the Company's proxy statement for its 2000 Annual Meeting of
Stockholders is December 14, 1999. After March 6, 2000, notice to the Company
of a stockholder proposal submitted otherwise than pursuant to Rule 14a-8 will
be considered untimely, and the persons named in proxies solicited by the Board
of Directors of the Company for its 2000 Annual Meeting of Stockholders may
exercise discretionary voting power with respect to any such proposal as to
which the Company does not receive timely notice.
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits
27. Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
None
Page 19
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 20, 1999 /s/ Jeffrey W. Jones
-------------------- --------------------
Jeffrey W. Jones
President & Chief Executive Officer
Date: August 20, 1999 /s/ Stephen R. Tartamella
-------------------- -------------------------
Stephen R. Tartamella
Vice President & Chief Financial Officer
Page 20