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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2000
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 0-19627
BIOLASE TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 87-0442441
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
981 Calle Amanecer, San Clemente, California 92673
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (949) 361-1200
________________________________
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.001 Per Share
(Title of class)
________________________________
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of March 30, 2001, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was $44,794,161 computed using the closing
price of $2.30 per share of common stock on March 30, 2001 as reported by Nasdaq
based on the assumption that directors and officers and more than 10%
stockholders are affiliates. On March 30, 2001, there were 19,475,722 shares of
the Registrant's common stock outstanding.
Information required by Part III is incorporated by reference to portions
of the Registrant's Proxy Statement for the 2001 Annual Meeting of Stockholders
to be held May 3, 2001, which will be filed with the Securities and Exchange
Commission within 120 days after the close of the 2000 fiscal year.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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 Annual Report on Form 10-K 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 Annual Report on
Form 10-K, 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 Annual Report on Form 10-
K, 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.
Introduction
- ------------
BIOLASE Technology, Inc., a Delaware corporation, ("BIOLASE" or the "Company")
designs, develops, manufactures and markets laser-based systems for use in
dental, cosmetic and medical applications. The Company's laser and water-based
proprietary HydroKinetic(TM) technology incorporated in its dental system, the
Waterlase(TM), utilizes an erbium, chromium: yttrium, scandium, gallium, garnet
("Er,Cr:YSGG") laser as the energy source. The unique laser pulses act to
rapidly energize water to precisely shape or remove enamel, dentin, cavities
(dental hard tissue) and soft tissue. This patented breakthrough technology is
Er,CR:YSGG laser induced hydrokinetics. When operating in this hydrokinetic
mode, the Waterlase(TM) system has significant benefits over any previously
available technology for cutting the entire range from hard to soft tissues.
The Waterlase(TM) system is in the early stages of being marketed both in the
United States and internationally for dental hard and soft tissue applications.
The Company also has clearance from the United States Food and Drug
Administration ("FDA") to market a laser-based surgical tissue cutting system in
the United States for a broad range of dermatological and general surgical soft
tissue applications. This clearance provides the Company the opportunity to
expand use of its HydroKinetic(TM) technology to areas outside of dentistry. In
response to this clearance, the Company began its design of a laser-based system
DermaLase(TM), in a configuration designed for aesthetic and dermatologic
applications. This design utilizes the Er,Cr:YSGG laser employed in the
Waterlase(TM) but configured with laser energy, water and air characteristics
suited for such applications. The Company intends to continue with the gathering
of clinical data during 2001 in support of the on-going development of
its DermaLase(TM).
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The Company also has a soft-tissue laser system, TwiLite(TM), introduced in
late 1999 that incorporates the newest state-of-the-art semiconductor diode
technology for a broad range of dental soft tissue procedures and cosmetic
applications including advanced laser whitening. The Company commenced full
production of the TwiLite(TM) during the latter part of 2000. The Company has
also developed a home consumer product called LazerSmile(TM), a toothbrush that
utilizes a light source and a proprietary gel for whitening teeth. In mid-1999,
the Company licensed the manufacturing and distribution rights of the
LazerSmile(TM) to a home consumer product distributor for a royalty on future
sales. The Company also has under development LaserSpray(TM), an air-water spray
accessory designed to be used on a variety of medical and dental laser systems
to cool the tissue being lazed, and a fluid conditioning system known as
FlavorFlow(TM), for which it has been granted a patent, that sanitizes, flavors
and administers fluids and enhances the scent of air present during dental and
medical procedures.
General
- -------
In 1994, the Company commenced its research and development efforts related to
what is now its patented and proprietary Er,Cr:YSGG HydroKinetic(TM) technology.
This technology employs proprietary laser pulses which rapidly energize and
transform small atomized water droplets from an air-water spray into smaller,
energized water molecules that can precisely remove both dental hard and soft
tissues. This technology has proved to be effective and efficient in removing
enamel and dentin tooth structure in a precise, non-thermal manner. The Company
developed this technology into a product that has evolved into the
Waterlase(TM). Refinements and enhancements to its design have continued
through the present time.
During 1999, the Company designed its first semiconductor diode laser system,
the TwiLite(TM), to meet the demands of today's soft-tissue cosmetic dentistry
applications. The product incorporates the newest state-of-the-art technology
for a broad range of dental cosmetic and soft tissue procedures utilizing an 810
nanometer wavelength packaged in a light-weight system that only weighs
approximately 11 pounds. The Company received FDA clearance to market the
TwiLite(TM) for a variety of soft-tissue medical applications in June 1999 and
cosmetic teeth-whitening applications in January 2001.
The Company also possesses patents and proprietary technology for a group of
biomaterials under the trade names PerioFil(TM), PerioSeal(TM), LaserBond(TM)
and EndoPlas(TM) for use in periodontics, endodontics, general dentistry,
orthopedics and other medical applications. Commercialization of these
biomaterials will depend on, among other things, resource availability and
completion of development and regulatory approval.
Laser Background
- ----------------
The term "laser" is an acronym for Light Amplification by Stimulated Emission
of Radiation. A laser is an apparatus that stimulates the atoms in a core
material (such as a gas or crystal) to emit packets of light and then amplifies
and focuses the light in a single beam. Laser light, which consists of a single
wavelength of light, differs from light emitted from an ordinary light bulb
primarily through greater concentration and intensity. Lasers are typically
classified by the element or compound that emits light when energized, such as
carbon dioxide (CO2), Nd:YAG, argon, ruby and erbium yag, and the unique BIOLASE
Er,Cr: YSGG.
3
Lasers were first developed for research, industrial and military uses and,
more recently, have been adapted for many medical and dental applications. The
benefits of lasers in medical and dental applications are generally believed to
include reduced pain, minimized infection, promotion of rapid healing, reduced
bleeding, reduced scarring, increased precision and time-effective procedures.
In many cases, lasers perform procedures which otherwise could not be achieved
through traditional surgical means. Lasers are currently used in a wide variety
of medical fields including dentistry, dermatology, plastic surgery,
ophthalmology, otolaryngology (ear, nose and throat ("ENT")), gynecology,
urology, cardiology, gastroenterology and general surgery. Of all these fields,
dentistry is the largest (by number of doctors) and is also the youngest, or
least developed.
Medical and dental laser-based systems, including the Company's Waterlase(TM)
system, are highly specialized tools specifically designed for a particular
application or set of applications.
The Waterlase(TM) System
- ------------------------
The Company has recently developed its Waterlase(TM) system, an Er,Cr:YSGG
laser incorporating the Company's patented HydroKinetic(TM) technology for a
variety of dental and medical applications. The HydroKinetic(TM) Er,Cr:YSGG
laser-based system uses water to precisely remove hard tissue, such as tooth,
bone and cartilage. In a different mode, without the full water spray, the
Er,Cr:YSGG laser system has a wide range of soft tissue applications with
effective hemostaces and cutting efficiency.
The current Waterlase(TM) system configured for dental and oral surgical
applications consists of a flexible fiber-optic delivery system and mobile floor
system containing an Er,Cr:YSGG laser, power supply, internal cooling system and
control panel. The Waterlase(TM) Er,Cr:YSGG laser rapidly energizes and
transforms water into a safe, cool and precise biocompatible tissue removing
device. The Waterlase(TM) system is capable of cutting both hard and soft human
tissue. To give medical practitioners more flexibility, Waterlase(TM) systems
may also be used without water or with water as a cooling medium for standard
laser-based soft tissue applications, in fields such as dermatology, orthopedics
and otolaryngology (ENT), although specific applications within these fields
would require additional regulatory clearances by the FDA.
See " - Government Regulation".
The Company believes that its Waterlase(TM) system has a broader range of
applications than conventional laser systems. The Company currently is marketing
the Waterlase(TM) system for dental and oral surgical applications in the U.S.
and internationally. The Company has FDA clearance to market its Waterlase(TM)
for certain dental hard and soft tissue applications and has also received
clearance by the FDA to market a laser system that utilizes a variation of the
Er,Cr:YSGG HydroKinetic(TM) technology for a broad range of dermatological,
aesthetic and general surgical soft tissue applications. The Company intends to
continue the gathering of clinical data related to such applications. Marketing
for certain expanded applications of the Er,Cr:YSGG HydroKinetic(TM) system in
the United States may require additional regulatory clearance. The Company
continues to further develop the Er,Cr:YSGG HydroKinetic(TM) technology to
pursue certain expanded applications. No assurances can be given that any such
clinical studies will be successfully completed or such regulatory clearances
will be granted. See " - Government Regulation". Use of the Company's
proprietary technology for various non-
4
dental applications will require certain modifications to the hardware and
software configurations of the technology.
The Company has CE certification for the Waterlase(TM) system signifying its
compliance with the Medical Device Directive, established within the European
Community. The Waterlase(TM) system has also been granted the Canadian
Standards Association ("CSA") mark symbolizing compliance with certain safety
and performance standards. The CE and CSA marks allow the Company to import and
market its Waterlase(TM) system in the European Community and Canada,
respectively. See " - Government Regulation".
While the Company believes that its technology should be effective in a broad
range of medical and dental applications, this belief, except with respect to
certain dental applications for which clinical research has been and is being
conducted, is based largely on preliminary in vitro and in vivo research and
extrapolation of observations in such clinical research. No assurances can be
given that the Company's technology will prove to be applicable to, or will find
market acceptance in additional fields or that the Company will receive
applicable clearance to market the technology for additional applications.
Applications and Potential Applications of the Waterlase(TM) System.
-------------------------------------------------------------------
Dentistry. The Waterlase(TM) system, currently marketed by the Company in the
---------
United States and internationally (principally in Canada, Mexico, Europe, the
Middle East, Australia and Taiwan), is configured for dental and oral surgical
applications. The Company continues to expand its significant markets. These
markets may include, but are not limited to, various South American countries
and the Pacific Rim countries. Depending on the local regulatory requirements
within these respective countries, further regulatory clearances may be
necessary prior to entry into these markets. See " -Government Regulation".
There are approximately 140,000 dentists in the United States and an estimated
400,000 dentists in other countries where the Company intends to market its
products. Industry analysts believe that, as the U.S. population grows and ages
and more natural teeth are retained, the demand for dental services will
increase along with the demand for newer and improved technology. The Company
believes that the Waterlase(TM) system is well suited for a variety of dental
and oral surgical applications such as cavity preparation and restoration,
implant preparation, aesthetic dentistry, periodontics (treatment of gum
disease) and prosthodontics (replacement of teeth).
Cavity Preparation/Aesthetic Dentistry. Aesthetic considerations are gaining
increased importance in dentistry, as patients seek natural looking dental
restorations. Due to these aesthetic and health concerns, natural colored
composites are replacing amalgam (gold and silver) fillings in the restoration
of cavities.
When performing dental procedures, dentists must preserve the tooth structure
to enhance bonding of the composite and minimize stress upon the reconstructed
tooth. Penetration of the bonding materials into the tooth structure and thus
the strength of the adhesive bond between the tooth and the composite material
depend upon cavity preparation procedures that eliminate the smear layer, avoid
micro cracks and minimize trauma to the tooth structure. The decay must be
removed, and the interior of the cavity preparation must be clean and free of
debris such as that left by conventional dental drills. The Company believes
that the Waterlase(TM) system can cut precisely and cleanly with minimal
disruption to tooth structure,
5
thus providing improved preparation for restorations with enhanced adhesive and
aesthetic qualities.
Plaque and Periodontal Disease. Plaque is a sticky, colorless film of
bacteria that forms on teeth. If not removed regularly, it can cause cavities or
gum (periodontal) disease. Most adults have periodontal disease, which can
exist without symptoms for years. When plaque is allowed to build up in the
crevice between tooth and gum, it eventually separates the gum from the tooth
root. As the gum pulls away, the bone underneath deteriorates. The resulting
periodontitis causes tooth loss in 70% of all adults, according to the American
Academy of Periodontology.
When plaque hardens, it becomes tartar, a rough, porous material that can be
removed only by professional cleaning. Although tartar itself is not believed
to cause periodontal disease, the presence of tartar makes plaque harder to
remove. The Waterlase(TM) system can be utilized for the removal of plaque and
tartar as well as the treatment of infected tissue associated with periodontal
disease.
Prosthodontics. The replacement of missing teeth and the significant
--------------
restoration of decayed or damaged teeth have evolved as dental specialties as a
result of the development of stronger ceramic, porcelain and composite
materials. The onlay and inlay require not only precise cavity preparation, but
also strong adhesion of the bonding which is necessary for enhancement of
retention. The Company believes that the Waterlase(TM) system can effectively
minimize cracking, and avoid the heating and fracturing of the enamel or dentin
structure during cavity preparation and promote a stronger bond or adhesion,
thereby facilitating a more durable and aesthetic restoration.
The Waterlase(TM) system can potentially be utilized to shape shoulders and
margins, facilitate improved impressions and promote secure and closed margins.
The Company believes that benefits associated with this use of the Waterlase(TM)
system include reduction of the vibration, high-pitched noise and
microfracturing of teeth associated with the conventional dental drill. The
soft tissue that surrounds the crown preparation area usually requires shaping
prior to taking an impression. The Company believes that use of the
Waterlase(TM) system to remove or reshape the tissue will result in reduced
bleeding and increased patient comfort and time savings to the dentist.
Osseous (Bone) Implant Surgery. Bone implants are used for bone
------------------------------
stabilization, to add strength to existing bone and to serve as the
infrastructure for reconstructive dental procedures. For such procedures, it is
important that the bone cutting for the implant placement be clean and that the
practitioner not damage the bone itself during cutting by the generation of
excessive heat. Thermal damage, such as that caused by conventional dental
drills, can impede or destroy the fusion of the bone to the implant. The
Company believes that the Waterlase(TM) system, through its HydroKinetic(TM)
technology, can effectively cut bone cleanly and without thermal damage;
however, more clinical research is needed and the device is presently not
cleared by the FDA for marketing for cutting bone in the United States.
See " - Government Regulation".
The osseous (bone) implant placement process usually requires procedures
uncovering the soft tissue and shaping around the neck of the tooth. The
Company believes that the Waterlase(TM) system can be used effectively for these
procedures, as a result of its ability to cut oral soft tissue cleanly,
precisely and without induced bleeding.
6
Dermatology and Plastic/Cosmetic Surgery. Laser skin resurfacing, which has
----------------------------------------
been evolving as a surgical technique since it was introduced in 1993, involves
using a high-energy laser beam to remove epidermal layers. This surgical
process normally leaves a swollen, red wound which must heal over a period of
weeks or months. If successful, this procedure reduces wrinkles and may produce
some tightening of the skin. Most of these surgeries are performed by
dermatologists, plastic surgeons, oculoplastic surgeons, and various other sub-
specialists using short-pulsed carbon-dioxide lasers.
The Company believes that its Er,Cr:YSGG HydroKinetic(TM) technology may
provide a significant technological breakthrough for the treatment of wrinkles,
scars and warts and for skin resurfacing. The Company believes the Er,Cr:YSGG
HydroKinetic(TM) system may also offer some clinical advantages in terms of non-
thermal, controlled removal of dermal soft tissue. In particular, a practitioner
would have the ability to use the Er,Cr:YSGG HydroKinetic(TM) technology for
certain cosmetic surgery procedures (e.g., bone, cartilage, and skin reshaping)
or to reduce the power, adjust the energy characteristics and alter the amount
of air and water used during an application, thereby allowing the use of the
laser medium to remove the skin surface with less depth of radiation than that
typically experienced when using laser systems with wavelengths that differ from
that of the Er,Cr:YSGG HydroKinetic(TM) system.
The Company has FDA clearance to market a laser system for a broad range of
dermatological and general surgical soft tissue applications, including scar
revision, removal of tumors and cysts, skin resurfacing and diagnostic biopsies.
See " - Government Regulation". This system, formally under the name of
DermaLase(TM) which the Company is currently developing, can utilize the
Er,Cr:YSGG laser employed in Waterlase(TM), but configured with laser energy,
water and air characteristics optimized for its specific application. In this
configuration, the system can utilize the air-water spray for hydrokinetics, as
well as a cooling agent. In the Company's opinion, the combination of the air-
water spray and the specific wavelength employed provides improved histological
effects on tissue, such as reduced tissue trauma and faster healing.
Oral/Maxillofacial Surgery. Over 7,000 specialists practice
--------------------------
oral/maxillofacial surgery in the U.S. These specialists have also become
involved with cosmetic surgery, including facial skin resurfacing with lasers.
The Company believes that its Er,Cr:YSGG HydroKinetic(TM) system can provide
significant advantages in oral/maxillofacial surgery, as a single surgical
instrument that efficiently cuts bone, cartilage, and soft tissue. While the
Company presently has clearance to market its Er,CR:YSGG Hydrokinetic(TM) system
for various dermatological and other various soft tissue procedures, the device
is presently not cleared for marketing in the United States by the FDA for the
cutting of bone. See " - Government Regulation".
Orthopedic Surgery. According to the American College of Surgeons, nearly
------------------
21,000 orthopedic surgeons in the U.S. perform in excess of 3,000,000 annual
surgeries, including joint arthroscopy, spinal disc alterations and
arthroplasties of knee, shoulder and hip. Statistics on international
procedures are not compiled, but industry experts estimate at least 1,000,000
annual procedures outside of the United States. Laser use in orthopedic surgery
has been limited to a very small percentage of surgeons using long-pulse holmium
lasers in arthroscopic procedures. The main advantage of a holmium laser is
finesse for tissue sculpting. However, the medical community has criticized the
holmium laser as being too slow compared to the traditional mechanical
endoscopic cutting devices. Thermal damage caused by the pulsed holmium laser
has also been an issue. By contrast, the Company believes that the
7
Er,Cr:YSGG HydroKinetic(TM) system can offer significant advantages in terms of
improved speed, non-thermal effect, and providing one surgical device that can
perform all the functions that a surgeon needs for bone and cartilage cutting,
along with the ability to perform bone shaping and sculpting. The device,
however, is presently not cleared for marketing in the United States by the FDA
for orthopedics. See " - Government Regulation".
Otolaryngology. The Company believes that the unique bone-cutting capability
--------------
of the Er,Cr:YSGG HydroKinetic(TM) system lends itself to surgical procedures in
the ear and nasal passages, where hard tissue (primarily cartilage) must be
precisely removed under endoscopic control. Approximately 400,000 ear, nose, and
throat (ENT) surgical procedures are performed in the United States each year by
some 10,000 specialists with an estimated 650,000 additional annual procedures
internationally. Currently, lasers are utilized in less than 5% of these
surgeries. Primary applications for lasers in ENT now include: laser assisted
palatoplasty (partial removal of the palate); uvulopalatoplasty (partial removal
of the uvula and the palate to reduce sleep apnea and snoring); tonsillectomy
(surgical removal of tonsils); and myringotomy (surgical creation of a small
hole in the tympanic membrane of a child's ear for drainage of fluid caused by
chronic ear infection). The Company believes, based on in-vitro tests, that the
Waterlase(TM) system may provide an improved surgical tool for performing some
types of ENT procedures. While the Company's Er,Cr:YSGG HydroKinetic(TM) system
is cleared for marketing in the United States for a variety of general surgical
applications, including resection of internal organs, tumors and lesions,
further clearances may be required for specific applications when and if the
Company decides to enter this market arena. See " - Government Regulation".
Other Dental and Medical Products
- ---------------------------------
TwiLite(TM) Diode Laser System. In 1999, the Company developed its first
------------------------------
soft-tissue semiconductor diode laser system for use in the dental cosmetic and
aesthetic market. The laser system, called the TwiLite(TM), incorporates the
latest state-of-the-art technology for use in a broad range of dental cosmetic
and soft tissue procedures. The light-weight, space-saving laser system
incorporates features absent from other competitive soft tissue laser systems
and is priced at a level affordable to most dentists. The dental laser can also
be used to treat early stage gum disease, postponing or in some cases
eliminating the need for periodontal surgery and providing the opportunity for
overall cost savings. The Company is developing more applications and
accessories for the TwiLite(TM). The Company plans to introduce cosmetic tooth
whitening with the TwiLite(TM) in 2001 given its recent clearance by the FDA to
market the Twilite(TM) for cosmetic teeth whitening. The Company has FDA
clearance to market the TwiLite(TM) for a variety of dental and other soft
tissue surgical applications. See "- Government Regulation".
LazerSmile(TM). The company has a toothbrush for the consumer market that
----------
utilizes a monochromatic optical energy source embedded within a toothbrush in
conjunction with a clear, non-abrasive, proprietary, tooth-whitening gel. The
brush, which utilizes the Company's patented and patent-pending technologies, is
designed to bring into the consumer's home technology that utilizes optical
energy to activate ingredients in its proprietary tooth-whitening gel,
formulated by the Company, to clean and whiten teeth. The LazerSmile(TM), which
is configured much like a conventional toothbrush, is smaller than conventional
motorized tooth brushing instruments. In 1999, the Company licensed the brush
to a home-consumer product distributor to manufacture and market the technology.
To date, no significant royalty revenues
8
have been generated from the agreement. Accordingly, the Company is reevaluating
its opportunities related to the technology.
LaserSpray(TM) is a stand-alone or integrated product that incorporates a
----------
patented technology to allow a dental or medical practitioner to deliver a
coolant spray of air and water to tissue sites during surgical laser
interventions. LaserSpray(TM) has the potential to be installed with most fiber-
coupled lasers manufactured by other companies. The LaserSpray(TM) uses a cool
air-water spray for cooling the lazed tissue and has applications for various
medical and dental lasers. The Company believes that thermal effects resulting
from high temperatures can be significantly reduced when the LaserSpray(TM)
cooling system is used during application of laser-based energy. The Company is
currently pursuing final development and will proceed to market a hybrid product
that will incorporate the features of both LaserSpray(TM) and FlavorFlow(TM).
FlavorFlow(TM) Fluid Conditioning System. In response to recently proposed
----------------------------------------
standards for use of sanitized fluids in dental and medical procedures, the
Company had under development the FlavorFlow(TM) fluid conditioning system, a
system utilizing patent-pending technology to sanitize, flavor and administer
fluids and enhance the scent of air present during medical and dental
treatments. FlavorFlow(TM) is designed to overcome the unpleasant tastes and
odors which patients typically associate with pain and discomfort and which
contribute to negative clinical experiences. The Company believes that when the
FlavorFlow(TM) system is utilized to deliver sanitized fluids, the possibility
of parasitic (such as potentially lethal cryptosporidium) and bacterial
infection being introduced through the fluids used during medical and dental
interventions would be significantly reduced. The Company expects to market the
FlavorFlow(TM) as a hybrid product that incorporates the features of the
LaserSpray(TM).
Manufacturing
- -------------
The Company, as a medical device manufacturer, is required by the FDA to
comply with Good Manufacturing Practice ("GMP") regulations. As a result, the
Company's manufacturing processes must meet certain standards regarding quality
assurance and documentation. See " - Government Regulation".
The Company fabricates certain proprietary components of its products and
inspects, tests and packages components prior to inclusion within a finished
product or shipment as a replacement part. By designing and manufacturing key
proprietary products, the Company believes it can better control quality, limit
outside access to its proprietary technology, control costs and manage
manufacturing process changes more efficiently and effectively.
The Company contracts with various companies to manufacture certain components
according to the Company's specifications. Substantially all of the Company's
products are manufactured in the United States. At present, all products
manufactured by third parties are sent to the Company's headquarters in San
Clemente, California for quality control, final assembly if necessary, and
shipment to customers or distributors.
The Company has identified alternate suppliers for most of its components.
There are certain key components for which there is a single supplier. As
feasible, the Company is searching for alternative sources for these components.
A change in the suppliers of certain
9
system components, however, could require new regulatory approvals and, in
particular, could require an amendment to the "CE" mark granted to the Company
pursuant to the European Community's Medical Device Directive, which could
hamper or delay the Company's ability to distribute its systems in the European
countries requiring such an approval.
Field service repairs in the United States are performed by the Company's
direct employee technicians. International field service repairs are performed
primarily by the corresponding distributor's service technicians who are
technically trained by the Company in the servicing of its products. The
Company also provides technical assistance and training seminars to its
international distributor technicians on an as-needed basis.
Engineering and Development
- ---------------------------
During the years ended December 31, 2000, 1999 and 1998, the Company expended
approximately $2,287,503, $2,427,510 and $1,824,901, respectively, on
engineering and development. Such expenditures were directed primarily towards
further development and expanded capabilities of new and existing products.
Competition
- -----------
The dental laser market currently has a limited number of serious competitors.
In the next two to three years, additional serious companies may move into the
dental hard and soft tissue markets due to projections of significant growth.
According to most market estimates, dental laser sales are expected to grow
dramatically.
The entities commonly referenced as hard tissue competitors to BIOLASE utilize
a commonly available laser, the Erbium Yag (Er: Yag). BIOLASE believes it's
Waterlase(TM) laser has dramatic advantage and differentiation in that BIOLASE
is the only company in the world that utilizes Er, Cr: YSGG and patented
HydroKinetic(TM) technology. BIOLASE believes that the Waterlase(TM) is the only
dental laser available that is capable of effectively performing both hard and
soft tissue procedures.
The Company's main competitor in the U.S. hard tissue dental market is a
privately held company, Continuum Biomedical. OpusDent and KaVo have recently
obtained clearance to market an Er:YAG hard tissue laser in the U.S.; KaVo is
also privately held while OpusDent is owned by ESC Medical. Er:YAG is
considered by BIOLASE to be a previous generation product. Premier Laser
Systems is no longer a competitor. Premier marketed the Er:YAG, which did not
perform competitively, and has since dropped out of the market. American Dental
Technology, Inc, (ADT) produces two types of soft tissue lasers, the Nd:YAG and
diode systems. ADT also sells a range of other dental products and is in the
process of restructuring to become a general distributor. CeramOptec sells a
diode dental laser for soft tissue procedures. CeramOptec is a provider of
laser fibers and, to date, has not had a significant impact on the dental laser
market. Lares Research has an Nd:YAG soft tissue laser and an argon laser for
curing and bleaching teeth, but is not focused on lasers as it is selling
several other dental products. HGM Medical Lasers produces high-powered argon
lasers for dentistry that are used for curing, bleaching and soft tissue
procedures. For several years HGM has been consistently selling a small number
of dental lasers each month, but does not currently have an established
distribution system for the dental market. In recent years, CO2 dental laser
10
sales (a soft tissue laser) have declined in the U.S. as they are being replaced
by diode laser systems. Lasermed produces a low powered argon laser used for
curing and bleaching teeth.
Internationally, there are a small number of hard tissue lasers available:
OpusDent, owned by ESC Medical Systems, an Israeli corporation, has produced
with limited success, a combination Er:YAG/CO2 hard and soft tissue laser. In
1999, ESC started selling this system in Europe and Latin America; Fotona, Inc,
a Slovenian company, produces a combination Er:YAG/Nd:YAG for hard and soft
tissue procedures. Fotona is most active in a few European markets and, to a
limited degree, in Latin America; KaVo, Inc, a large German dental company,
sells an Er:YAG hard tissue laser, mostly in Europe and Latin America. KaVo
does not manufacture this system, but has it contracted with another German
company, Aesculap-Meditec to manufacture this system.
A number of the Company's competitors have substantially greater financial
resources. The Company believes that its patent protection, and pending patent
protection, should provide a competitive advantage to the Company over the next
several years. However, there can be no assurance that technology superior to
that of the Company will not be developed or that the Company's patent and
patent-pending protection will be upheld or will prove to have commercial value.
See " - Patents and Proprietary Technology".
BIOLASE faces substantial competition in all markets which it seeks to
distribute product. Competition in these markets consists of numerous medical
laser manufacturers promoting their respective lasers to users via trade show
exhibitions, advertisements, product demonstrations, educational workshops, and
sales representatives. In addition, the Company will compete against
conventional non-laser surgical methodologies and devices such as high and low-
speed drills, and air abrasion systems in the dental field and air abrasion,
electrosurgery, scalpels, saws, drills and punches in the medical field. Some
of these alternative and traditional methods have been proven and tested,
require minimal special training for established practitioners, and generally
require less capital investment than the Waterlase(TM) system. However, the
Company believes that users of conventional methods and traditional laser-based
methods are continually evaluating new technologies that may provide improved
and effective techniques to replace existing technologies. BIOLASE believes
that the Er,Cr:YSGG HydroKinetic system represents a strong candidate to replace
existing technologies in various markets.
Patents and Proprietary Technology
- ----------------------------------
The Company has patented and patent-pending technology related to the
Waterlase(TM) system and its HydroKinetic(TM) technology. In April 1998, the
U.S. Patent and Trademark Office granted BIOLASE a patent (U.S. Patent No.
5,741,247) entitled "Atomized Fluid Particles for Electromagnetically Induced
Cutting" with broad applicability in dentistry, medicine and various industrial
applications. The proprietary technology encompassed within this patent serves
as the foundation for BIOLASE's Er,Cr:YSGG Hydrokinetic(TM) platform. In
June 2000, the Company was granted an additional key patent that further
strengthened its proprietary position. U.S. Patent No. 6,086,367 has a priority
filing date of December 1988 (France) and January 18, 1989 (US). The first
independent claim is extremely broad, disclosing the use of `any suitable laser
wavelength' in conjunction with water for dental laser procedures.
Further strengthening the Company's proprietary position of its
HydroKinetic(TM) technology, in October 1999, the Company was awarded a patent
(U.S. Patent No. 5,968,037)
11
entitled "User Programmable Combination of Atomized Particles for
Electromagnetically Induced Cutting". This patent provides the Company with
broad claims related to a laser/water cutting apparatus and the user controls
specifying the resolution and penetration depth of the cut. This apparatus is
intended for cutting various tissues and materials including but not limited to
cartilage, bone, tooth, glass and semi-conductor chips.
In March 1999, the U.S. Patent and Trademark Office awarded BIOLASE a patent
(U.S. Patent No. 5,885,082) entitled "Dental and Medical Procedures Employing
Laser Radiation" that further broadens the Company's claims related to its
proprietary air and water cooling technology. The patent claims a method for
cutting dental tissues such as enamel, dentin, cementum, root material and bone
with a laser having a wavelength suitable for cutting such tissues and a cooling
fluid that contains water or a water and air mixture. This patent serves as a
continuation of U.S. Patent No. 5,020,995 awarded the Company in June 1999, with
a priority date of December 1988.
In June 1998, a patent (U.S. Patent No. 5,762,501) entitled "Surgical and
Dental Procedures using Laser Radiation" was awarded the Company which provides
it with broader claims related to its proprietary air and water cooling
technology (TTCS(TM)), designed to cool the tissue receiving laser energy and
adjacent tissue. This patent also serves as a continuation of U.S. Patent No.
5,020,995 awarded the Company in June 1991.
In July 1998, the Company was awarded a patent (U.S. Patent No. 5,785,521)
entitled "Fluid Conditioning System". This proprietary fluid conditioning
technology allows the practitioner to simultaneously apply medications,
anesthesia, vitamins and flavored fluids during certain dental and medical
procedures, thereby eliminating the need for separate, more cumbersome tools
while reducing operating time and the risk of infection. The Company intends
to incorporate this technology into its FlavorFlow(TM) product that is under
development.
In April 1995, the United States Patent and Trademark Office granted the
Company U.S. Patent 5,741,247 entitled "Atomized Fluid Particles for
Electromagnetically Induced Cutting". This patent forms the basis for the
Company's unique HydroKinetic(TM) technology.
In 1994, the United States Patent Office granted the Company a patent covering
a portable, hand-held laser tooth brushing instrument which was the predecessor
to the LazerSmile tooth whitening system. Other patents included within the
Company's domestic and foreign patent portfolios consist of awards issued and
pending related to the Company's Er,Cr:YSGG HydroKinetic(TM) technology, its
LaserSpray(TM), LazerSmile(TM) and FlavorFlow(TM) products, and other
proprietary laser technology.
There can be no assurance that the issued patents or subsequent patents, if
issued, will adequately protect the Company's technology or that such patents
will provide protection against infringement claims by competitors.
BIOLASE also relies upon trade secrets, unpatented proprietary know-how ,
continuing technological innovation and management experience to develop its
competitive position. The Company enters into confidentiality and technology
agreements with its employees pursuant to which such employees agree to maintain
the confidentiality of the Company's proprietary information and to assign to
the Company any inventions relating to the Company's business made by them while
in the Company's employ. There can be no assurance, however, that others may
not acquire or independently develop similar technology or, if patents are not
issued with respect to products arising from the Company's engineering and
development activities, that the Company will be able to maintain information
pertinent to such research as proprietary technology or trade secrets.
12
Marketing
- ---------
The Company markets its Waterlase(TM) and TwiLite(TM) diode laser system in
the U.S. through a direct sales force. The Company is in the process of
expanding its domestic sales force to better serve the domestic market.
Internationally, the Company sells its products through distributors that are
trained by the Company in the clinical and service aspects of the related
technology.
The Company currently distributes its laser-based products in the United
States, Europe, the Middle East and the Far East and is actively working to
expand its worldwide network through pursuance of qualified and proven
distributors. The Company is presently developing aesthetic and dermatologic
applications for its Er,Cr:YSGG HydroKinetic(TM) technology.
The Company seeks third-party endorsements from respected practitioners,
professional associations and universities. By working with selected entities
to conduct testing and evaluation, the Company hopes to induce those entities to
become influential independent supporters of the Company's products. Management
believes that the perceived benefits of the Company's products to practitioners
and patients will result in positive word-of-mouth publicity for the Company.
The Company attends regional, national and international trade shows and
sponsors seminars to promote its products. Health professionals often
participate in seminars and in some regions are required to engage in continuing
certified education regarding advancements in the dental and medical fields.
The Company's marketing strategy adopts the premise that establishing lasers and
advanced technology as competitive marketing advantages for practitioners will
be important in creating sales growth.
Given the dramatic patient benefits of the Waterlase(TM); avoiding the
needle, shot, drill and pain, combined with the clinical benefits, the Company
believes that patient demand will continue to grow resulting in higher sales
volume.
The Company accepts the evidence that the public is becoming increasingly
aware of the benefits of lasers in dental, ENT, ophthalmological,
dermatological, cosmetic and general surgical applications and that the
consuming public will be a key factor in increasing demand for laser and
HydroKinetic(TM) technologies within the medical and dental professions.
Customers
- ---------
The Company's customers include dentists, distributors, medical doctors and
hospitals. During 1999, one distributor, Sweden & Martina, the Company's
Italian distributor, accounted for approximately 19% of the Company's sales.
During 1998, two distributors, Sweden & Martina and Ash Temple, the Company's
Canadian distributor, accounted for approximately 20% and 11%, respectively, of
the Company's sales. No other customers accounted for more than 10% of the
Company's sales in 2000, 1999, or 1998.
Government Regulation
- ---------------------
13
The Company's products are subject to significant government regulation in
the United States and other countries. To clinically test, manufacture and
market products for human diagnostic and therapeutic use, the Company must
comply with mandatory regulations and safety standards established by the FDA
and comparable state and foreign regulatory agencies. Typically, 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 and
time consuming, and no assurance can be given that any agency will grant
additional clearance for the sale of the Company's products for routine clinical
applications, that the length of time the process will require will not be
extensive, or that the cost of the process will not be substantial.
There are two principal methods by which FDA regulated devices may be
marketed in the United States. One method is under a Pre-Market Approval
("PMA"). A PMA application is required for a Class III medical device that does
not qualify for consideration under Section 510(k), discussed below. The review
period for a PMA application is fixed at 180 days, but the FDA typically takes
much longer to complete its review. As part of the approval of a PMA
application, the FDA typically requires clinical testing to determine safety and
efficacy of the device. To conduct human clinical testing, typically the FDA
must approve an Investigational Device Exemption ("IDE"). Currently, the Company
does not have PMA applications pending for any of its products.
The other method is under Section 510(k) of the Food, Drug and Cosmetics
Act where applicants must demonstrate that the device for which clearance is
sought is substantially equivalent to a predicate device. The FDA's stated
intention is to review 510(k) notifications as quickly as possible, generally
within 90 days; however, the complexity of a submission or a requirement for
additional information will typically extend the review period beyond 90 days.
Domestic marketing of the product must be deferred until clearance is received
by the applicant from the FDA. In some instances, an IDE is required for
clinical trials for a 510(k) notification. The Company intends to utilize the
510(k) notification procedure whenever applicable.
On January 25, 2001, the Company was granted a significant FDA clearance to
market, the first cosmetic whitening clearance granted for an 810 nanometer
wavelength diode laser system. This clearance allows the Company to market the
TwiLite(TM) for teeth whitening.
The Company received one new FDA clearance during the year 2000, for the
LazerSmile(TM) home tooth whitening system. The LazerSmile(TM) was granted new
clearances for using a photodiode system in conjunction with a toothbrush to
deliver safe, monochromatic light around the bristles to enhance the tooth
whitening process and whiten teeth.
In 1999, the Company received several FDA clearances to market its laser
systems under various claims. Two of these clearances enhanced the hard-tissue
marketing claims already obtained in 1998 for the Company's HydroKinetic(TM)
technology incorporated in its Waterlase(TM) laser system. These additional
claims allow the Company to market its Waterlase(TM) laser system for cavity
preparation I through V, and more importantly, children, such that the system is
cleared for all patients, young and old alike.
The Company also received clearance to market its TwiLite(TM) soft-tissue
diode laser system in June 1999 for a variety of dental soft-tissue procedures
and other surgical soft-tissue applications in various medical fields.
14
In October 1998, the Company received its long-awaited FDA clearance to
market the Waterlase(TM) system, which incorporates the Company's proprietary
Er,Cr:YSGG HydroKinetic(TM) technology, for certain dental hard tissue
applications. The hard tissue clearance allowed the Company to commence sales
and marketing domestically of its Waterlase(TM) system for hard tissue
applications. In July 1997, the Company received FDA clearance to market a laser
system, incorporating the Company's Er,Cr:YSGG HydroKinetic(TM) technology, for
a broad range of dermatological and general surgical soft tissue applications.
The Company also received clearance from the FDA for its LaserSpray(TM)
tissue cooling system in 1995.
The Company expects to pursue clearances to market its Er,Cr:YSGG
HydroKinetic(TM) systems for other medical applications as well. The Company
completed clinical studies in the U.S. related to certain hard tissue dental
applications of its HydroKinetic(TM) technology that are on file with the FDA in
connection with the Company's submission of its 510(k) application. Such data
was the basis for the Company's successful clearance to market such technology
in the U.S. for certain dental hard tissue applications.
The Company continues to gather clinical data to strengthen its claims for
dental applications and to pursue claims in other medical fields that can
benefit from the use of the Company's HydroKinetic(TM) technology.
There can be no assurance that additional approvals from the FDA will be
granted or that the Company will have sufficient funds to pursue such approvals.
The process to obtain approvals can be expensive or lengthy. The failure to
receive requisite approvals for the Company's products or processes, when and if
developed, or significant delays in obtaining such additional approvals, could
prevent the Company from commercializing its products as anticipated and could
have a materially adverse effect on the financial condition, results of
operations, cash flows and prospects of the Company.
The following table sets forth the status of FDA clearance of the Company's
principal products:
- -----------------------------------------------------------------------------------------
Product Market Date Cleared Status
- -----------------------------------------------------------------------------------------
Waterlase(TM) Dental 1998/1999 Cleared To Market
TwiLite(TM) Teeth Whitening 2000 Cleared To Market
Dental / General Surgical 1999 Cleared To Market
LazerSmile(TM) Teeth Whitening 2000 Cleared To Market
DermaLase(TM) Dermatology, General Surgery 1997 Cleared To Market
LaserSpray(TM) Tissue Cooling 1995 Cleared To Market
FlavorFlow(TM) Dental Fluid Conditioning N/A Application Not Yet
Submitted
- -----------------------------------------------------------------------------------------
The Company is also subject to regulation under the Radiation Control for
Safety and Health Act of 1968 (the "Safety Act") administered by the Center for
Devices and Radiological Health ("CDRH") of the FDA. The CDRH controls energy
emissions of light and sound and electronic waves from electronic products.
These regulations require a laser manufacturer to file new product and annual
reports, to maintain quality control, product testing and sales records, to
distribute appropriate operation manuals, to incorporate certain design and
operating features in lasers sold to end-users and to certify and label each
laser sold to end-users as one
15
of four classes of lasers (based on the level of radiation from the laser). In
addition, various warning labels must be affixed to the product and certain
protective devices must be installed, depending upon the class of product. Under
the Safety Act, the Company is also required to register with the FDA as a
medical device manufacturer and is subject to inspection on a routine basis by
the FDA for compliance with Good Manufacturing Practice ("GMP") regulations. The
GMP regulations impose certain procedural and documentation requirements upon
the Company relevant to its manufacturing, testing and quality control
activities. The CDRH is empowered to seek remedies for violations of these
regulatory requirements under the Federal Food, Drug and Cosmetic Act. The
Company believes that it is currently in substantial compliance with these
regulations.
Various state dental boards are considering the adoption of restrictions on
the use of lasers by dental hygienists. In addition, dental boards in a number
of states are considering educational requirements regarding the use of dental
lasers. The scope of these restrictions and educational requirements is not now
known, and they could have an adverse effect on sales of the Company's laser-
based products.
Foreign sales of the Company's laser-based products are subject to the
regulatory requirements of the importing country or, if applicable, the
harmonized standards of the European Community. These vary widely among the
countries and may include technical approvals, such as electrical safety, as
well as demonstration of clinical efficacy. The Company is currently working to
meet certain foreign country regulatory requirements for certain of its
products, and there can be no assurance that additional approvals will be
obtained.
The Waterlase(TM) system has been granted the "CE" mark evidencing
compliance with quality, safety and performance requirements mandated by the
Medical Device Directive adopted by the European Community. The Medical Device
Directive is the latest standard of medical device safety and performance which
has been adopted by the fourteen member states of the European Community and
requires that all medical device products be compliant to be eligible for
marketing within the member states.
The Waterlase(TM) system has also been granted the Canadian Standards
Association ("CSA") mark symbolizing compliance with certain safety and
performance standards. The CSA mark allows the Company to import and market its
Waterlase(TM) system in Canada.
The FDA and other governmental agencies, both in the United States and in
foreign countries, may adopt additional rules and regulations that may affect
the Company's ability to develop and market its products. There can be no
assurances that the Company's existing products will meet any future legislative
acts or requirements.
Employees
- ---------
As of March 15, 2001, the Company employed 87 people on a full-time basis,
consisting of 49 people in engineering/development/manufacturing, 8 in
administration and 30 in sales/customer service. The Company's employees are
not represented by a labor union, and it has experienced no work stoppage. The
Company believes that its employee relations are good.
ITEM 2. PROPERTIES
16
The Company's principal offices are at 981 Calle Amanecer, San Clemente,
California where, until August 2000, it had leased approximately 23,000 square
feet. The Company purchased its principal offices in August, 2000 with the
property encumbered by a first trust deed to a bank. In March 2001, the Company
sold the building and entered into a lease, expiring in March, 2006. The Company
believes that its facilities are sufficient for its current needs.
ITEM 3. 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, results of operations, cash flows or prospects, and that
adequate provision has been made for the resolution of such actions and
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since November 12, 1992, the Company's common stock has been authorized for
inclusion on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") and is included in The Nasdaq Stock Market, Inc.'s SmallCap
Market. The Company's common stock is quoted on such system under the symbol
"BLTI". The following table sets forth, for the periods indicated, the high and
low sales prices for the common stock as reported by NASDAQ.
High Low
---- ---
2000
----
1st Quarter 7 1 3/16
2nd Quarter 3 3/4 2
3rd Quarter 2 23/32 1 31/32
4th Quarter 2 9/32 1 1/32
1999
----
1st Quarter 3 1/4 2
2nd Quarter 2 15/16 1 13/16
3rd Quarter 3 3/4 2 1/8
4th Quarter 2 7/8 2
On December 1, 2000, the Company issued to GEM Holdings Corp. ("GEM")
36,600 shares of unregistered Common Stock, par value $.001 per share, and
common stock purchase warrants expiring December 1, 2003 (the "GEM Warrants")
entitling the holder to purchase up to
17
100,000 shares of Common Stock at an exercise price of $2.00 per share. The
securities were issued to GEM in consideration for GEM continuing to provide a
guaranty of a $2,500,000 credit facility, expiring December 1, 2001.
The issuance of the securities to GEM 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. GEM represented to
the Company that it is an accredited investor as defined in Rule 501 promulgated
pursuant to the Securities Act and agreed that it would offer or resell the
securities issued only if they were registered under the Securities Act or an
exemption from such registration is available, in which case the Company, if it
so requests, shall have received an opinion of counsel to GEM, in form and
substance reasonably satisfactory to the Company, to that effect. GEM also
agreed that the Company shall not permit the transfer of such securities unless
such registration has been effected or such an exemption is available. The
Company has issued "stop transfer" instructions to the transfer agent of its
Common Stock with respect to the shares of Common Stock issued to GEM and acts
as the transfer agent for the GEM Warrants. The certificates representing the
securities issued to GEM have had legends endorsed thereon reflecting the
restrictions on transferability described above.
The Company has not paid any cash dividends on its common stock since its
incorporation and anticipates that, for the foreseeable future, earnings, if
any, will continue to be retained for use in its business.
As of March 5, 2001, the total number of record holders of the Company's
common stock was 370.
18
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain consolidated financial data for
the five years ended December 31, 2000, 1999, 1998, 1997, and 1996. This
information should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto included in Item 8 herein and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 herein.
Year Ended December 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(in thousands, except per share data)
-------------------------------------
Consolidated Statements of
Operations Data:
Sales $ 9,657 $ 7,004 $ 1,465 $ 1,786 $ 692
Gross profit $ 4,828 $ 2,852 $ 47 $ 259 $ 133
Operating expenses (1) $ 8,462 $ 7,601 $ 10,369 $ 3,258 $ 2,622
Loss from operations $ (3,633) $ (4,748) $(10,322) $ (2,999) $ (2,489)
Net loss $ (3,728) $ (4,797) $(10,346) $ (2,824) $ (2,463)
Loss per share
- basic and diluted $ (0.19) $ (0.28) $ (0.69) $ (0.21) $ (0.21)
Shares used in computation of
basic loss per share (2) 19,171 17,254 15,062 13,385 11,532
December 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(in thousands)
--------------
Consolidated Balance Sheet Data:
Working Capital $ (206) $ (1,331) $ 89 $ 1,719 $ 3,670
Total assets $ 6,599 $ 2,672 $ 3,911 $ 3,396 $ 4,689
Long-term liabilities $ 1,175 $ - $ - $ - $ -
Stockholders' equity (deficit) (3) $ 1,057 $ (939) $ 662 $ 2,095 $ 3,914
(1) Includes non-recurring charges in 1999 and 1998 of $1,093,000 and
$5,135,000, respectively, related to (i) a severance agreement, (ii) a
consulting agreement, and (iii) a write-off of product development assets
in 1999, and a $5,135,000, write-off of in-process research and development
costs related to the purchase of Laser Skin Toner, Inc. assets in 1998.
(2) The basis for determining the number of shares used in computing basic
loss per share is described in Note 1 to Consolidated Financial Statements.
(3) The Company has never declared or paid dividends on its common stock.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - 2000 as Compared to 1999
- ------------------------------------------------
Sales continued to grow during 2000 to $9,657,389 from the $7,004,272
reported during 1999, an increase of $2,653,117, or 38%, representing another
new sales record for the Company. Export sales increased to $4,189,059 during
2000 compared to $2,356,000 during 1999, an increase of $1,833,059, or 78%.
Domestic sales were $5,468,330 for 2000, reflecting an increase of $820,330, or
18%, from the $4,648,272 reported for 1999. The increase in sales was due
principally to sales and marketing coupled with the progression from the
original Millennium(R) version to the new, more advanced Waterlase(TM) system
and the introduction of the new Twilite(TM) diode laser system, both launched in
quantity during the third quarter of 2000. Successful alliances with synergistic
international distributors have contributed to the increase in export sales.
During 2000, the Company recommenced sales to Germany through its new
German distributor. Management believes the German selling market represents one
of its, if not the single, largest selling market in Europe. The Company also
commenced sales in France, Korea, Taiwan and Japan during 2000 and, with the
recommencement in Germany, all contributed to the increase in export sales
during 2000 over those in 1999.
Gross profit during 2000 increased $1,975,835, or 69%, to $4,828,361, or
50% of sales, compared to $2,852,526, or 41% of sales, for 1999. The
improvement in the gross margin was due principally to increased sales volume
combined with the improved design of the Waterlase(TM) system, allowing for
lower material costs and increased manufacturing efficiencies. The introduction
of the Company's Twilite(TM) diode laser system also contributed to the higher
gross profit.
Operating expenses were $8,461,799 for 2000 compared to $7,600,682 in 1999,
an increase of $861,117, or 11%. Absent $1,093,175 of non-recurring charges
included in 1999, operating expenses in 2000 would have reflected an increase of
$1,954,292, or 30%, over those reported comparatively in 1999.
Sales and marketing expense during 2000 was $4,333,346 compared to
$2,700,628 for 1999, an increase of $1,632,718, or 60%. The increase was due
principally to (i) higher sales volume, (ii) expansion of the Company's domestic
sales force and marketing infrastructure, (iii) increased marketing and
advertising, and (iv) teaching and educational seminars and activities promoting
the Company's products, both domestically and abroad.
General and administrative expense for 2000 decreased $631,594, or 26%, to
$1,840,950 compared to the $2,472,544 reported for 1999. Absent $609,981 in
non-recurring charges included in 1999, general and administrative expense for
2000 would reflect a nominal decrease of $21,613, or 1% compared to 1999.
Engineering and development expense decreased $140,007, or 6%, to
$2,287,503 in 2000 compared to the $2,427,510 reported for 1999. After
consideration of $483,194 of non-recurring charges included in fiscal 1999,
engineering and development expense for fiscal 2000
20
would have reflected an increase of $343,187, or 18%, over fiscal 1999. The
increase was due principally to ongoing product development.
Interest income increased nominally to $68,854 during 2000 from the $44,666
reported for 1999 due principally to higher average cash balances maintained in
interest-bearing accounts over the previous year. Interest expense was $163,393
in 2000 compared to $93,647 for 1999, an increase of $69,746, or 75%. The
increase was due principally to a higher average balance during 2000 in the
Company's line of credit than that in 1999.
Results of Operations - 1999 as Compared to 1998
- ------------------------------------------------
Sales for 1999 increased $5,539,081, or 378%, to $7,004,272 from the
$1,465,191 reported for 1998 representing the highest reported sales in the
Company's history. Export sales were $2,356,000 during 1999 compared to
$598,000 during 1998, an increase of $1,758,000, or 294%. Domestic sales
increased $3,781,081, or 436%, to $4,648,272 during 1999 from the $867,191
reported during 1998. The significant increase in sales was due principally to
the successful transition from a primarily research and development company to
the initial phases of a sales and marketing organization. During 1999 and 1998,
the Company did not have any sales to its German distributor.
In June, 1999, the Company announced an exclusive distribution agreement
with a home-consumer product distributor to manufacture and market the Company's
LazerSmile(TM) 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
had received certain prepaid royalties and had not recognized any such royalties
during 1999. Prior to the distribution agreement, the Company recorded a
nominal amount of sales related to its LazerSmile(TM) system. The exclusive
distribution agreement expired in June, 2000. The Company intends to continue
evaluating its opportunities related to the sales and marketing of its
LazerSmile(TM) technology.
Gross profit was $2,852,526, or 41% of sales, in 1999, an increase of
$2,805,895 from the $46,631 reported in 1998. The increase in gross profit was
due to the significant increase in sales. The significant improvement in the
gross margin, from 3% in 1998 to 41% in 1999, was due principally to an improved
sales product mix and realized economies of scale associated with the higher
sales volume.
Operating expenses decreased $2,767,975 from the $10,368,657 reported in
1998 to $7,600,682 in 1999. Operating expenses for 1999 and 1998 included non-
recurring charges of $1,093,175 and $5,134,920, respectively. 1999's non-
recurring chargers related to (i) a severance agreement for a former executive
officer, (ii) a consulting agreement, (iii) a write-off of assets related to
product development, and (iv) a provision related to the reacquisition of
distribution rights in Germany from the Company's previous distributor. 1998's
non-recurring charges consisted of a write-off of certain purchased research and
development costs related to the acquisition of certain undeveloped technology.
Absent these non-recurring charges, operating expenses for 1999 would have been
$6,507,507 compared to $5,233,737 for 1998, a comparative increase of
$1,273,770, or 24%.
Sales and marketing expenses were $2,700,628 for 1999 compared to
$1,628,821 reported for 1998, an increase of $1,071,807, or 66%. The increase
was due principally to the significant rise in sales volume during 1999 and the
Company's increased marketing efforts
21
associated with creating public awareness of its technology and products.
General and administrative expenses, absent the non-recurring charges related to
the severance agreement for a former executive officer and costs related to the
reacquisition of the Company's distribution rights in Germany of $129,681 and
$480,300, respectively, were $1,862,563 for 1999 compared to $1,780,015 for
1998, a modest increase of $82,548, or 5%. The increase was due principally to
higher levels of administrative staffing and related personnel expenses combined
with increases in various professional and administrative costs associated with
the Company's growth. Engineering and development expenses were $1,944,316 in
1999 excluding non-recurring charges related to the consulting agreement with a
former principal of LSTI and the write-off of assets related to product
development of $100,781 and $382,413, respectively, compared to $1,824,901 in
1998, an increase of $119,415, or 7%. The comparative increase was due
principally to increased engineering staffing associated with the Company's
growth and higher engineering project expenses related to existing product
enhancements and redesigns combined with new product development, in particular,
the Waterlase(TM) and the Twilite(TM) laser systems.
In December, 1999, the Company licensed the undeveloped LSTI technology
acquired in 1998 to a developmental company in exchange for a royalty on future
sales of products encompassing such technology. The decision to license the
undeveloped technology was based on the Company's intention to focus on the
marketing and further enhancement of products embodying its HydroKinetic(TM)
technology, including the Waterlase(TM), and development of new products.
Interest income during 1999 was $44,666, a decrease of $12,925, or 22%,
from the $57,591 reported in 1998, while interest expense increased $12,013, or
15%, to $93,647 during 1999 from the $81,634 reported in 1998. The decrease in
interest income was due to lower average balances of cash and marketable
securities during 1999 compared to the balances held in interest-bearing
accounts in 1998. The increase in interest expense was due principally to higher
average outstanding balances under the Company's line of credit in 1999 versus
1998.
Financial Condition
- -------------------
The Company's working capital requirements have been financed over the past
several years through the private placement of the Company's equity securities.
Such placements generated net proceeds of $2,450,516, $2,748,000, $3,592,800
during 2000, 1999 and 1998, respectively. The Company has also received proceeds
from the exercise of stock options and warrants of $3,200,624, $85,313 and
$58,426 during 2000, 1999 and 1998, respectively. In addition, the Company has a
$2,500,000 short-term line of credit, of which, $708,075 is available, for the
purchase of inventory.
Cash and cash equivalents increased $820,902 during 2000. Operating
activities during 2000 utilized $3,778,430 of cash compared to $1,897,337 and
$4,848,700 in 1999 and 1998, respectively; the increase due principally to
higher receivables due to the increase in fourth-quarter sales combined with
increased inventory levels required to sustain the continued growth of the
Company. Investing activities utilized $1,068,862 in cash during 2000 compared
to providing cash of $183,567 and $5,147 in 1999 and 1998, respectively. The use
of cash during 2000 was due to increased capital expenditures principally from
the purchase of the Company's facility in August, 2000; whereas, 1999 and 1998
investing activities principally reflected cash proceeds from the sale of
marketable securities for use as working capital. Financing activities provided
$5,668,204 in cash during 2000 compared to $2,470,213 and $5,055,018 in 1999 and
22
1998, respectively. The increase in 2000 versus 1999 was due principally to a
greater number of stock purchase warrants and options exercised combined with an
increase in proceeds received from borrowings under the Company's line of
credit, offset by payment of a note payable and reduced proceeds from the
issuance of stock in 2000 versus 1999.
Accounts receivable increased considerably in 2000 to $758,219 compared to
$330,840 in 1999 due to the higher sales volume experienced in the fourth
quarter for which the receivable will be collected in the first quarter of 2001.
Inventories increased significantly to $1,221,595 in 2000 compared to
$658,462 in 1999. The increase is attributed principally to (i) 1999's ending
level reflecting intentional reductions in componentry related to the first
generation Millennium(R) as the Company prepared for the launch of its
Waterlase(TM), and (ii) increased purchase of Waterlase(TM) and Twilite(TM)
components necessary to sustain the Company's current growth and production
requirements for 2001. Inventory turnover improved during 2000 to an average of
4.8 times, or every 76 days, from an average of 3.0 times, or every 121 days in
1999.
Prepaid assets increased to $179,985 in 2000 from $110,062 in 1999, an
increase of $69,923 due principally to increased deposits for 2001 trade shows
and seminars.
Liability under a line of credit established in December 1997 to finance
inventory increased $450,000 from 1999 to 2000. The increase was a result of the
Company's need to retain higher levels of inventory to sustain its present
growth pattern. The balance available for future inventory purchases, should the
need arise, is $708,075; the line of credit is due to expire December 1, 2001.
The aggregate of accounts payable and accrued liabilities increased $85,580
to $2,355,240 in 2000 from $2,269,660 in 1999. The increase is attributable
principally to (i) higher payroll related accruals associated with the Company's
growth and greater warranty level reserves required given the higher sales
volume during 2000 offset by payments made against $480,300 in accrued expenses
associated with the reacquisition of distribution rights in Germany, of which,
$428,000 was converted to a note payable in March 2000, paid in September 2000.
Customer deposits for new orders increased $200,000 in 2000 reflecting the
increased demand of the Company's products during 2000 over that of 1999. All of
the orders related to these deposits were shipped during the first quarter of
2001.
Capital expenditures during 2000 totaled $1,068,872 and were related
primarily to the purchase of the Company's facility (see "Liquidity and Capital
Resources" below), a new sales booth and various computer workstations
associated with the Company's growth. Depreciation of fixed assets was $143,096
during 2000 compared to $90,427 in 1999. The decrease in patents, trademarks and
licenses in 2000 was due solely to amortization of $22,800.
Stockholders' equity at December 31, 2000 improved to $1,056,871 from a
deficit position of $939,272 in 1999. The improvement was due principally to (i)
net proceeds of $2,450,516 received from a private placement in March 2000, (ii)
proceeds of $3,200,624 from the exercises of certain stock options and stock
purchase warrants during 2000, and (iii) the issuance of stock and warrants for
services rendered aggregating $72,980. The increase to stockholder's equity in
2000 was offset by the $3,727,977 loss for the year.
23
Liquidity and Capital Resources
- -------------------------------
The Company remains dependent upon its ability to obtain outside financing
either through the issuance of additional shares of its common or preferred
stock or through borrowings until it achieves sustained profitability through
increased sales and improved product margins. The Company's business continues
to focus on the manufacturing and marketing of its laser-based HydroKinetic(TM)
tissue cutting system, the Waterlase(TM) and its new diode laser product, the
Twilite(TM).
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, though the Company has experienced significant
increased sales of its laser-based products over the last two years. During the
three years ended December 31, 2000, the Company raised approximately
$12,136,000 of net equity funds in this manner.
Management believes that sales will continue to increase and that the
Company should have sufficient capital resources to sustain it during 2001 based
on its 2001 business plan. Should the Company require further capital resources
during 2001, it would most likely address such requirement through a combination
of sales of its products, sales of equity securities through private placements,
and/or debt financings. If circumstances changed, and additional capital was
needed, no assurance can be given that the Company would be able to obtain such
additional capital resources.
If unexpected events occur requiring the Company to obtain additional
capital and it is unable to do so, it then might attempt to preserve its
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 its operations. If the Company were
unable to raise such additional capital or defer certain costs as described
above, such inability would have an adverse effect on the financial position,
results of operations, cash flows and prospects of the Company and ultimately on
its ability to continue as a going-concern.
At December 31, 2000, the Company had $1,791,925 outstanding under a
revolving credit agreement with a bank. The revolving credit agreement provides
for borrowings of up to $2,500,000 for the financing of inventory and is
collateralized by substantially all of the Company's accounts receivable and
inventories. The interest rate is fixed throughout the term of the credit
agreement and is computed based upon LIBOR plus 0.5% at the time of any
borrowings. At December 31, 2000, the weighted average interest rate on the
outstanding balance was 7.22%. The Company is required to reduce the outstanding
loan balance by an amount equal to the cost of goods sold associated with sales
of inventory upon collection of sales proceeds. The current revolving credit
agreement expires on December 1, 2001 at which point the Company will be
required to either pay any remaining balance of the credit facility or refinance
the credit facility. No assurances can be given that the Company will be able to
refinance the line of credit or that the terms on which it may be able to
refinance the line of credit will be as favorable as the terms of the existing
line. If the Company is unable to refinance and is therefore required to repay
the line of credit, the diversion of resources to that purpose may adversely
affect the Company's operations and financial condition.
The Company's lease on its facility expired in September 2000. The lessor
had notified the Company that it did not intend to renew the lease with the
Company. In response,
24
the Company researched similar leasing rates in close proximity to its present
location and determined that competitive lease rates on a similar building in
structure and size were dramatically higher than the Company's current rate. In
addition, the cost of relocation to the Company would have been substantial and
could have included, but not have been limited to, business interruption costs,
actual moving costs and large up-front deposits typically required on new lease
potentials. Accordingly, the Company entered into an agreement to purchase its
existing facility with escrow closing in August 2000 at a purchase price of
$1,983,000, plus direct expenses of $21,148. The Company paid $804,148 in cash
and financed the remaining purchase with a $1,200,000 first trust deed mortgage.
The terms of the commitment include (i) a variable interest rate of prime plus
0.25%, adjusted every three years (currently 9.75%), (ii) a term of 15 years
(matures September 1, 2015), and (iii) a loan amortization term of 20 years. In
March, 2001, the Company entered into an agreement to sell the facility at a
fair market value of $2,350,000 with a commitment to lease the facility for a
term of 5 years (with an option to extend another 5 years) at a starting monthly
lease rate of $0.80 per square foot (approximately $18,624 per month) with
incremental rate increases annually of no less than 2% and no more than 5% based
on the increase in a local consumer price index. The Company expects to close
escrow on the sale of its facility by the end of its first quarter of 2001.
Selected Quarterly Financial Data
- ---------------------------------
Quarter Ended
----------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
----------------------------------------------------------------------------
Fiscal Year Ended December 31, 2000
Sales $ 1,527,026 $ 2,258,806 $ 2,187,168 $ 3,684,389
Gross profit $ 536,262 $ 1,039,053 $ 1,001,865 $ 2,251,181
Loss from operations $(1,016,081) $ (883,300) $(1,148,433) $ (585,624)
Net loss $(1,032,096) $ (887,776) $(1,164,714) $ (643,391)
Loss per share - basic and diluted $ (0.06) $ (0.04) $ (0.06) $ (0.03)
Quarter Ended
----------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
----------------------------------------------------------------------------
Fiscal Year Ended December 31, 1999
Sales $ 1,785,983 $ 1,406,255 $ 2,012,824 $ 1,799,210
Gross profit $ 797,141 $ 559,128 $ 816,002 $ 680,255
Loss from operations $ (644,389) $(1,243,958) $ (865,408) $(1,994,401)
Net loss $ (669,856) $(1,245,552) $ (873,479) $(2,008,250)
Loss per share - basic and diluted $ (0.04) $ (0.07) $ (0.05) $ (0.11)
Impact of Changing Prices on Sales and Income
- ---------------------------------------------
The Company attempts to minimize the impact of inflation on production and
operating costs through cost control programs and productivity improvements.
Over the past three years, the inflation rate has been relatively low.
Nonetheless, the Company has continued to experience increases in the cost of
labor and some materials, in the face of requests for price reductions from
customers. Due to competitive forces and market imposed selling price ceilings
during 2000, the Company was unable to raise prices to its customers to pass
along the cost increases experienced. The Company, however, shall continue to
pursue price reductions from its materials vendors in an attempt to improve or
maintain margins.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not currently hold any market risk sensitive instruments
for trading or other purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company at December 31, 2000
and 1999 and for the three year period ended December 31, 2000, along with the
notes thereto, and the Report Of Independent Accountants thereon, required to be
filed in response to this Item 8, begin at page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 10 of Part III is incorporated by reference
to the definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to
be held May 3, 2001, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Item 11 of Part III is incorporated by reference
to the definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to
be held May 3, 2001, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information called for by Item 12 of Part III is incorporated by reference
to the definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to
be held May 3, 2001, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by Item 13 of Part III is incorporated by reference
to the definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to
be held May 3, 2001, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are being filed with this Annual Report on Form 10-K
or are incorporated by reference therein in accordance with the designated
footnote references.
3. Articles of Incorporation and Bylaws
3.1 Restated Certificate of Incorporation, as Amended. (2)
3.2 Amended and Restated Bylaws. (3)
4. Instruments Defining the Rights of Holders, Including Indentures
4.3 Certificate of Designations, Preferences and Rights of Series A
6% Redeemable Cumulative Convertible Preferred Stock of BioLase
Technology, Inc. (5)
4.4 Form of Participant Stock Purchase Warrant Certificate. (6)
26
4.5 Form of Agent Stock Purchase Warrant Certificate. (6)
4.6 Rights Agreement dated as of December 31, 1998 between the
Company and U.S. Stock Transfer Corporation. (7)
10. Material Contracts
10.2 1990 Stock Option Plan. (1)
10.9 1992 Stock Option Plan. (1)
10.18 Amended and Restated 1993 Stock Option Plan. (3)
10.18a First Amendment to Amended and Restated 1993 Stock Option
Plan. (4)
10.19 Amended and Restated 1993 Stock Compensation Plan. (2)
10.20 Form of Stock Option Agreement under the 1993 Stock Option
Plan. (2)
10.26* Distribution Agreement between the Company and Orbis High Tech
Dental GmbH. (6)
10.27* Distribution Agreement between the Company and Henry Schein,
Inc. (8)
10.28 Amended and Restated Employment Agreement, dated December 18,
1998, by and between the Company and Jeffrey W. Jones. (8)
10.29 Offer of Employment, dated January 8, 1999, from the Company to
Keith G. Bateman. (8)
10.30* Distribution Agreement between the Company and Sweden & Martina
SpA. (8)
21. Subsidiaries (1)
23. Consents of Experts and Counsel
_____________________________________________________
* Portions of these Agreements have been omitted pursuant to a
confidentiality request filed with the Securities and Exchange Commission.
(1) Filed with the Company's Registration Statement on Form S-1 dated October
9, 1992 and incorporated by reference.
(2) Filed with the Company's 1993 Annual Report on Form 10-K dated April 14,
1994 and incorporated by reference.
(3) Filed with the Company's 1995 Second Quarter Report on Form 10-QSB dated
September 15, 1995 and incorporated by reference.
(4) Filed with the Company's 1995 Annual Report on Form 10-KSB dated May 6,
1996 and incorporated by reference.
(5) Filed with the Company's 1996 Third Quarter Report on Form 10-QSB dated
November 19, 1996 and incorporated by reference.
(6) Filed with the Company's 1996 Annual Report on Form 10-KSB dated April 11,
1997 and incorporated by reference.
(7) Filed with the Company's Registration Statement on Form 8A dated December
29, 1998 and incorporated by reference.
(8) Filed with Amendment No. 1 to the Company's Registration Statement on Form
S-3 dated February 12, 1999 and incorporated by reference.
(b) Reports on Form 8-K
27
None
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 30, 2001 BIOLASE TECHNOLOGY, INC.
a Delaware corporation
/s/ Jeffrey W. Jones
-----------------------------------
Jeffrey W. Jones
President, Chief Executive Officer,
and Director
Pursuant to the requirements of the Securities Exchange act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 2001.
Signatures Title
- ---------- -----
Principal Executive Officer:
/s/ Jeffrey W. Jones President, Chief Executive Officer,
- -------------------- and Director
Principal Financial and Accounting Officer:
/s/ Stephen R. Tartamella Vice President, Chief Financial Officer,
- ------------------------- and Secretary
/s/ Federico Pignatelli Director and Chairman of the Board
- -----------------------
/s/ William A. Owens Director
- --------------------
/s/ George V. d'Arbeloff Director
- ------------------------
29
BioLase Technology, Inc. and Subsidiary
Index to Consolidated Financial Statements and Schedule
- --------------------------------------------------------------------------------
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7
SCHEDULE
Schedule numbered in accordance with Rule 5.04 of Regulation S-X:
II Consolidated Valuation and Qualifying Accounts and Reserves S-1
All Schedules, except Schedule II, have been omitted as the required information
is shown in the consolidated financial statements, or notes thereto, or the
amounts involved are not significant or the schedules are not applicable.
F-1
Report of Independent Accountants
To the Board of Directors and Stockholders of
BioLase Technology, Inc.
San Clemente, California
In our opinion, the consolidated financial statements listed in the index on
page F-1 present fairly, in all material respects, the financial position of
BioLase Technology, Inc. and its subsidiary at December 31, 2000 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our
opinion, the consolidated financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and the financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming
that BioLase Technology, Inc. and its subsidiary will continue as a going-
concern. As discussed in Note 2 to the consolidated financial statements, the
Company has suffered recurring losses from operations and shows a need for
continued funding that raises substantial doubt about its ability to continue as
a going-concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Orange County, California
February 22, 2001
F-2
BioLase Technology, Inc. and Subsidiary
Consolidated Balance Sheets
- --------------------------------------------------------------------------------------------------------------------
December 31,
2000 1999
------------ ------------
Assets
Current assets
Cash and cash equivalents $ 2,001,884 $ 1,180,982
Accounts receivable, less allowance of $120,988 and
$117,745 in 2000 and 1999, respectively 758,219 330,840
Inventories, net of reserves of $449,597 and $309,420
in 2000 and 1999, respectively 1,221,595 658,462
Prepaid expenses and other current assets 179,985 110,062
------------ ------------
Total current assets 4,161,683 2,280,346
Property, plant and equipment, net 2,329,305 203,529
Patents, trademarks and licenses, less accumulated amortization
of $174,077 and $151,278 in 2000 and 1999, respectively 104,158 126,958
Other assets 3,954 61,480
------------ ------------
Total assets $ 6,599,100 $ 2,672,313
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Line of credit $ 1,791,925 $ 1,341,925
Accounts payable 945,873 792,073
Accrued expenses and other current liabilities 1,409,367 997,287
Accrued expenses related to the reacquisition of foreign
distribution rights - 480,300
Customer deposits 200,000 -
Mortgage note payable, current portion 20,486 -
------------ ------------
Total current liabilities 4,367,651 3,611,585
Mortgage note payable 1,174,578 -
------------ ------------
Total liabilities 5,542,229 3,611,585
------------ ------------
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock, par value $.001, 1,000,000 shares authorized,
no shares issued and outstanding in 2000 and 1999 - -
Common stock, par value $.001, 50,000,000 shares authorized,
issued and outstanding 19,366,522 in 2000 and 17,583,305 in 1999
(after deducting 182,880 of escrow shares in 1999) 19,367 17,583
Additional paid-in capital 47,532,026 41,809,690
Accumulated deficit (46,494,522) (42,766,545)
------------ ------------
Total stockholders' equity (deficit) 1,056,871 (939,272)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 6,599,100 $ 2,672,313
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
BioLase Technology, Inc. and Subsidiary
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
Years Ended
December 31,
----------------------------------------------------------
2000 1999 1998
Net sales $ 9,657,389 $ 7,004,272 $ 1,465,191
Cost of sales 4,829,028 4,151,746 1,418,560
-------------- -------------- --------------
Gross profit 4,828,361 2,852,526 46,631
-------------- -------------- --------------
Operating expenses
Sales and marketing 4,333,346 2,700,628 1,628,821
General and administrative 1,840,950 2,472,544 1,780,015
Engineering and development 2,287,503 2,427,510 1,824,901
In-process research and development - - 5,134,920
-------------- -------------- --------------
Total operating expenses 8,461,799 7,600,682 10,368,657
-------------- -------------- --------------
Loss from operations (3,633,438) (4,748,156) (10,322,026)
Interest income 68,854 44,666 57,591
Interest expense (163,393) (93,647) (81,634)
-------------- -------------- --------------
Net loss $ (3,727,977) $ (4,797,137) $ (10,346,069)
-------------- -------------- --------------
Loss per share - basic and diluted $ (0.19) $ (0.28) $ (0.69)
-------------- -------------- --------------
Weighted average shares outstanding - basic and diluted 19,170,863 17,254,005 15,061,814
============== ============== ==============
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
BioLase Technology, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 2000, 1999 and 1998
- -------------------------------------------------------------------------------------------------------------------------------
Additional
Preferred Stock Common Stock Paid-In
Shares Amount Shares Amount Capital
------ ------ ----------- --------- -----------
Balances at January 1, 1998 - $ - 13,462,636 $ 13,463 $29,755,652
Private placement of common stock, net 1,320,000 1,320 3,591,480
Issuance of stock for Laser Skin Toner purchase 1,467,120 1,467 5,133,453
Issuance of stock and warrants for earned services 23,300 23 75,976
Exercise of stock options 38,950 39 58,387
Earned escrow shares
Issuance of shares for fractional interest on reverse split 1
Net loss
------ ------ ----------- --------- -----------
Balances at December 31, 1998 - - 16,312,007 16,312 38,614,948
Private placement of common stock, net 1,116,000 1,116 2,746,884
Issuance of stock and warrants for earned services 98,400 98 268,871
Exercise of stock options 56,875 57 85,256
Extension of stock options 93,731
Issuance of shares for fractional interest on reverse split 23
Net loss
------ ------ ----------- --------- -----------
Balances at December 31, 1999 - - 17,583,305 17,583 41,809,690
Private placement of common stock, net 1,250,000 1,250 2,449,266
Issuance of stock and warrants for earned services 36,600 37 72,943
Cancellation of stock (525,000) (525) 525
Exercise of stock options 202,466 203 321,360
Exercise of warrants 819,150 819 2,878,242
Issuance of shares for fractional interest on reverse split 1
Net loss
------ ------ ----------- --------- -----------
Balances at December 31, 2000 - $ - 19,366,522 $ 19,367 $47,532,026
====== ====== =========== ========= ===========
Receivable From
Stockholders
And Unearned Accumulated
Services Deficit Total
---------------- ------------- -----------
Balances at January 1, 1998 $ (50,766) $ (27,623,339) $ 2,095,010
Private placement of common stock, net 3,592,800
Issuance of stock for Laser Skin Toner purchase 5,134,920
Issuance of stock and warrants for earned services 75,999
Exercise of stock options 58,426
Earned escrow shares 50,766 50,766
Issuance of shares for fractional interest on reverse split -
Net loss (10,346,069) (10,346,069)
------------- ------------- -----------
Balances at December 31, 1998 - (37,969,408) 661,852
Private placement of common stock, net 2,748,000
Issuance of stock and warrants for earned services 268,969
Exercise of stock options 85,313
Extension of stock options 93,731
Issuance of shares for fractional interest on reverse split -
Net loss (4,797,137) (4,797,137)
------------- ------------- -----------
Balances at December 31, 1999 - (42,766,545) (939,272)
Private placement of common stock, net 2,450,516
Issuance of stock and warrants for earned services 72,980
Cancellation of stock -
Exercise of stock options 321,563
Exercise of warrants 2,879,061
Issuance of shares for fractional interest on reverse split -
Net loss (3,727,977) (3,727,977)
------------- ------------- -----------
Balances at December 31, 2000 $ - $ (46,494,522) $ 1,056,871
============= ============= ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
BioLase Technology, Inc. and Subsidiary
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
Years Ended
December 31,
---------------------------------------------------
2000 1999 1998
Cash flows from operating activities
Net loss $(3,727,977) $(4,797,137) $(10,346,069)
Adjustments to reconcile net loss to net cash
used by operating activities
Issuance of common stock and warrants for earned services 72,980 268,969 126,765
Extension of stock options - 93,731 -
In-process research and development - - 5,134,920
Depreciation and amortization 165,896 112,392 94,156
Loss on disposal of assets - 179,380 -
Provision for bad debts 102,157 16,709 551
Provision for inventory excess and obsolescence 326,261 81,726 49,247
Accrued expenses related to the reacquisition of foreign
distribution rights - 480,300 -
Changes in assets and liabilities
Accounts receivable (529,536) 215,687 496,465
Inventories (889,394) 1,189,929 (970,587)
Prepaid expenses and other assets (12,397) 16,112 21,106
Accounts payable and accrued expenses 513,580 244,865 544,746
Customer deposits 200,000 - -
----------- ----------- ------------
Net cash used by operating activities (3,778,430) (1,897,337) (4,848,700)
----------- ----------- ------------
Cash flows from investing activities
Purchase of marketable securities - - (2,522,563)
Sale of marketable securities - 251,485 2,898,895
Additions to property, plant and equipment (1,068,872) (66,193) (299,925)
Additions to patents, trademarks and licenses - (1,725) (71,260)
----------- ----------- ------------
Net cash (used) provided by investing activities (1,068,872) 183,567 5,147
----------- ----------- ------------
Cash flows from financing activities
Borrowings (payments) under the line of credit, net 450,000 (363,100) 1,403,792
Payments on mortgage note payable (4,936) - -
Payment of note payable (428,000) - -
Proceeds from issuance of common stock, net 2,450,516 2,748,000 3,592,800
Proceeds from exercise of stock options and warrants 3,200,624 85,313 58,426
----------- ----------- ------------
Net cash provided by financing activities 5,668,204 2,470,213 5,055,018
----------- ----------- ------------
Increase in cash and cash equivalents 820,902 756,443 211,465
Cash and cash equivalents at beginning of year 1,180,982 424,539 213,074
----------- ----------- ------------
Cash and cash equivalents at end of year $ 2,001,884 $ 1,180,982 $ 424,539
----------- ----------- ------------
Supplemental cash flow disclosure
Cash paid during the year for interest $ 147,767 $ 96,547 $ 74,370
----------- ----------- ------------
Cash paid during the year for taxes $ 1,600 $ 1,600 $ 1,600
----------- ----------- ------------
Noncash financing activities
Conversion of accrued expenses to a note payable $ 428,000 $ - $ -
Issuance of a mortgage note in connection with purchase
of manufacturing facility 1,200,000 - -
----------- ----------- ------------
$ 1,628,000 $ - $ -
=========== =========== ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
BioLase Technology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- -------------------------------------------------------------------------------
1. Summary Of Significant Accounting Policies
BioLase Technology, Inc. (the "Company") is primarily in the business of
developing, manufacturing and marketing advanced laser products for dental
and other surgical applications.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, after eliminating intercompany accounts and
transactions.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less at the time of purchase to be cash equivalents. Cash
equivalents are carried at cost, which approximates market.
At December 31, 2000 and 1999, the Company had approximately $1,633,000 and
$1,074,000 respectively, of cash balances that were in excess of the
federally insured limit of $100,000 per bank.
Marketable Securities
Marketable securities consist of United States government treasury notes
having maturities greater than three months, but less than one year at the
time of acquisition. Marketable securities are classified as available-for-
sale securities and are reported at fair value. Gross unrealized gains and
losses on marketable securities at December 31, 1999 and 1998 are not
material.
Accounts Receivable
The Company periodically evaluates the collectibility of its receivables
based upon various factors including the financial condition and payment
history of major customers, an overall review of collection experience on
other accounts and economic factors or events expected to affect the
Company's future collection experience.
Inventories
Inventories are valued at the lower of cost or market (determined by the
first-in, first-out method). The Company periodically evaluates the carrying
value of its inventories, taking into account such factors as historical and
anticipated future sales compared with quantities on hand and the price the
Company expects to obtain for its product compared with the historical cost.
Property, Plant and Equipment
Property, plant and equipment, including property under capital lease
agreements, are carried at cost less accumulated depreciation and
amortization. Maintenance and repairs are expensed as incurred. Upon sale
or disposition of assets, any gain or loss is included in the consolidated
statements of operations.
The cost of property, plant and equipment is generally depreciated using the
straight-line method over the estimated useful lives of the respective
assets, which are generally not greater than five years, except for the
recently acquired manufacturing facility, which has an estimated useful life
of
F-7
BioLase Technology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
twenty years. Leasehold improvements are amortized over the lesser of the
estimated useful lives of the respective assets or the related lease terms.
The Company continually monitors events and changes in circumstances that
could indicate the carrying balances of its property, plant and equipment may
not be recoverable in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
When such events or changes in circumstances are present, the Company
assesses the recoverability of long-lived assets by determining whether the
carrying value of such assets will be recovered through undiscounted expected
future cash flows. If the total of the future cash flows is less than the
carrying amount of those assets, the Company recognizes an impairment loss
based on the excess of the carrying amount over the fair value of the assets.
Based on available information, management believes no such impairment
exists.
Patents, Trademarks and Licenses
Costs incurred to establish and successfully defend patents, trademarks and
licenses and to acquire product and process technology are capitalized. All
amounts assigned to these patents, trademarks and licenses are amortized on a
straight-line basis over an estimated eight-year useful life.
The continuing carrying value of patents is assessed based upon the Company's
operating experience, expected cash flows from related products and other
factors as deemed appropriate.
Revenue Recognition
Sales and related cost of sales are recognized upon the shipment of product
to customers provided the Company has received a purchase order, the price is
fixed, collection of the resulting receivable is probable, product returns
are reasonably estimable and there are no remaining obligations. The
Company's products are generally under warranty against defects in material
and workmanship for a period of one year. The Company provides for the
estimated future returns of inventory and the estimated costs of warranty at
the time of sale based on historical experience. Actual results have been
within management's expectations.
Shipping and Handling Costs
All shipping and handling costs are expensed as incurred and are recorded as
a component of cost of sales.
Advertising Costs
All advertising costs are expensed as incurred. Advertising costs incurred
for the years ended December 31, 2000, 1999 and 1998, were approximately
$420,000, $204,000 and $42,000, respectively.
Engineering and Development
Company-sponsored engineering and development costs related to both present
and future products are expensed as incurred.
Income Taxes
F-8
BioLase Technology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
The Company follows SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at each year-end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized. The
provision for income taxes represents the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
Stock-Based Compensation
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," related to employee stock options.
SFAS No. 123 defines a fair value based method of accounting for both
employee and non-employee stock options and warrants. Fair value of the
stock option and warrant is determined considering factors such as the
exercise price, the expected life, the current price of the underlying stock
and its volatility, expected dividends on the stock, and the risk-free
interest rate for the expected term. Under the fair value based method,
compensation cost is measured at the grant date based on the fair value of
the award and is recognized over the service period. Pro forma disclosures
for entities that elect to continue to measure compensation cost under the
intrinsic method provided by Accounting Principles Board ("APB") No. 25 for
employee stock options must include the effects of all awards granted in
fiscal years that begin after December 15, 1994. The fair value of options
and warrants issued to non-employees is recorded as expense over the service
period.
Loss Per Share - Basic and Diluted
The Company follows SFAS No. 128, "Earnings Per Share," which establishes
standards for the computation, presentation and disclosure requirements for
basic and diluted earnings per share for entities with publicly held common
stock and potential common stock. Under SFAS No. 128, basic earnings per
shares is computed by dividing income available to common stockholders by the
weighted average number of shares outstanding. In computing diluted earnings
per share, the weighted average number of shares outstanding is adjusted to
reflect the effect of potentially dilutive securities including options,
warrants, preferred stock or contingently issuable (or escrowed) stock, and
income available to common stockholders is adjusted to reflect any changes in
income or loss that would result from the issuance of the dilutive common
shares.
There were no potential common shares included in the calculation of diluted
loss per share for the years ended December 31, 2000, 1999, and 1998, because
the effect would have decreased the loss per share amount and therefore, been
antidilutive. See Note 10 for a description of those securities that could
potentially dilute earnings per share in the future, should the Company
report net income.
Comprehensive Income
The Company has adopted SFAS No. 130 "Reporting Comprehensive Income." The
standard establishes guidelines for the reporting and display of
comprehensive income and its components in financial statements.
Comprehensive income generally represents the change in equity from
transactions and other events and circumstances from non-owner sources. It
includes all changes in stockholders' equity, except those resulting from
investments by and distributions to stockholders.
F-9
BioLase Technology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- -------------------------------------------------------------------------------
The Company has no items of other comprehensive income for the years ended
December 31, 2000, 1999, and 1998.
Segment Reporting
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes standards for the way
the Company reports information about operating segments and related
disclosures about products and services, geographic areas and major
customers. Under SFAS No. 131, the determination of segments to be reported
in the financial statements is to be consistent with the manner in which
management organizes and evaluates the internal organization to make
operating decisions and assess performance. The adoption of this statement
did not have an impact upon the Company's operating results or financial
position, as this statement's provisions affect only the disclosure of
certain segment information in the notes to consolidated financial statement.
Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior period consolidated financial statements have
been reclassified to conform to the current year's presentation.
F-10
BioLase Technology, Inc. and Subsidiary
Notes To Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2. Basis of Presentation
The Company's consolidated financial statements have been presented on the
basis that it 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 $3,727,977,
$4,797,137 and $10,346,069 for the years ended December 31, 2000, 1999 and
1998, respectively, and has an accumulated deficit of $46,494,522 at
December 31, 2000. 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 remains dependent upon its ability to obtain outside financing
either through the issuance of additional shares of its common or preferred
stock or through borrowings until it achieves sustained profitability
through increased sales and improved product margins. The Company's business
continues to focus on the manufacturing and marketing of its laser-based
HydroKinetic tissue cutting system, the Waterlase and its new diode laser
product, the Twilite.
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, though the Company has experienced
significant increased sales of its laser-based products over the last two
years. During the three years ended December 31, 2000, the Company raised
$12,135,679 of net equity funds in this manner.
Management believes that sales will continue to increase and that the
Company should have sufficient capital resources to sustain it during 2001
based on its 2001 business plan. Should the Company require further capital
resources during 2001, it would most likely address such requirement through
a combination of sales of its products, sales of equity securities through
private placements, and/or debt financings. If circumstances changed, and
additional capital was needed, no assurance can be given that the Company
would be able to obtain such additional capital resources.
If unexpected events occur requiring the Company to obtain additional
capital and it is unable to do so, it then might attempt to preserve its
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 its operations. If the Company
were unable to raise such additional capital or defer certain costs as
described above, such inability would have an adverse effect on the
financial position, results of operations, cash flows and prospects of the
Company and ultimately on its ability to continue as a going-concern. The
Company's consolidated financial statements have been prepared under the
assumption of a going-concern. Failure to arrange adequate financing on
acceptable terms and to achieve profitability would have an adverse effect
on the financial position, results of operations, cash flows and prospects
of the Company and ultimately its ability to continue as a going-concern.
The consolidated 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.
F-11
BioLase Technology, Inc. and Subsidiary
Notes To Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
3. Acquisition of Laser Skin Toner, Inc.
On July 2, 1998, the Company acquired substantially all of the assets of
Laser Skin Toner, Inc. ("LSTI"), a development stage company. The assets
acquired relate primarily to the proprietary 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.
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. As
consideration for the assets acquired, the Company issued to LSTI an
aggregate 1,600,000 shares of the Company's common stock (the "Shares"),
including 182,880 shares of common stock retained by the Company pending the
achievement by the business of specified performance objectives. Pursuant to
a separate agreement, the Company also issued 50,000 shares of its common
stock to O'Donnell Eye Centers, Inc. ("OECI"), a Missouri corporation, in
consideration for the license of technology that is the subject of a pending
patent application.
A valuation of LSTI's in-process research and development effort as of the
date of acquisition assigned a value of $5,134,920, the full amount of the
consideration paid by the Company in its acquisition of LSTI's assets, to
the in-process research and development. The Company's management had the
primary responsibility for estimating the value of the in-process research
and development. In accordance with Financial Accounting Standards Boards
("FASB") Interpretation No. 4, "Application of FASB No. 2 to Business
Combinations Accounted for by the Purchase Method," the $5,134,920 assigned
to the in-process research and development effort, for which only the single
use existed, was charged to expense on the date of the acquisition.
In December 1999, the Company transferred the LSTI technology and all
associated assets in exchange for a royalty based upon future sale of
product covered by patents on the LSTI technology. However, there can be no
assurance the LSTI technology will be successfully developed and
commercialized or that the Company will receive any significant royalty
payments relating to the LSTI technology.
In March 2000, the Company entered into an agreement with the former
shareholders of LSTI whereby the former shareholders agreed to return to the
Company for cancellation, 525,000 of the 1,417,120 shares of the Company's
common stock held by them. The agreement also called for the cancellation of
the 182,880 shares of the Company's common stock previously issued and
placed in escrow for possible delivery based upon the future performance of
the business to be based on the LSTI technology. In addition, the Company
and the former shareholders of LSTI exchanged general releases, including
the release of all claims, if any, relating to the Company's acquisition of
the assets of LSTI.
4. Inventories
Inventories consist of the following at December 31:
F-12
BioLase Technology, Inc. and Subsidiary
Notes To Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2000 1999
Raw materials $ 801,050 $434,315
Work-in-process 318,795 151,203
Finished goods 101,750 72,944
---------- --------
$1,221,595 $658,462
========== ========
5. Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31:
2000 1999
Building $2,004,148 $ -
Leasehold improvements - 171,445
Equipment and computers 359,186 884,841
Furniture and fixtures 215,058 200,806
Demonstration units - 247,354
---------- -----------
2,578,392 1,504,446
Less, accumulated depreciation and
amortization (249,087) (1,300,917)
---------- -----------
$2,329,305 $ 203,529
========== ===========
6. Line of Credit and Mortgage Note Payable
2000 1999
Mortgage note payable bearing interest at prime rate
plus 0.25% (9.75% at December 31, 2000), twenty-year
amortization with minimum monthly principal and interest
installments of $11,382 and a final payment of $550,205 due
September 1, 2015, collateralized by a first trust deed on land
and building $1,195,064 $ -
---------- ----------
Less, current portion (20,486) -
---------- ----------
$1,174,578 $ -
---------- ----------
Future scheduled principal payments on the mortgage note payable are as
follows for each of the years ending December 31:
F-13
BioLase Technology, Inc. and Subsidiary
Notes To Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2001 $ 20,486
2002 23,632
2003 25,490
2004 28,086
2005 30,953
Thereafter 1,066,417
----------
$1,195,064
==========
At December 31, 2000, the Company had $1,791,925 outstanding under a
revolving credit agreement with a bank. The revolving credit agreement
provides for borrowings of up to $2,500,000 for financing inventories and is
collateralized by substantially all of the Company's accounts receivable and
inventories. The interest rate is fixed throughout the term of the credit
agreement and is computed based upon LIBOR plus 0.5% at the time of any
borrowings. At December 31, 2000, the weighted average interest rate on the
outstanding balance was 7.22%. The revolving credit agreement expires on
December 1, 2001.
7. Accrued Expenses
Accrued expenses consist of the following at December 31:
2000 1999
Accrued professional fees $ 90,000 $100,742
Accrued legal and settlement costs 90,750 132,261
Accrued warranty 391,398 163,175
Accrued payroll and vacation 372,964 245,930
Other 464,255 355,179
---------- --------
$1,409,367 $997,287
---------- --------
F-14
BioLase Technology, Inc. and Subsidiary
Notes To Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
8. Accrued Expenses Related To The Reacquisition Of Foreign Distribution
Rights
On February 25, 2000, the Company finalized an agreement with its sole
German distributor to reacquire its distribution rights in Germany. The
Company began negotiating with the distributor in 1999 and agreed to pay an
amount equal to $435,500 as consideration to reacquire such distribution
rights. Other ancillary charges and expenses in connection with this
transaction were approximately $44,800, which, along with the distributor
rights settlement fee of $435,500, were included in general and
administrative expense in the accompanying consolidated statement of
operations for the year ended December 31, 1999.
9. Commitments and Contingencies
Litigation
The Company is party to pending lawsuits or subject to a number of
threatened lawsuits. While the ultimate outcome of pending and threatened
lawsuits cannot be predicted with certainty, and an unfavorable outcome
could have a negative impact on the Company, at this time in the opinion of
management, the ultimate resolution of these matters will not have a
material effect on the Company's consolidated financial position, results of
operations or liquidity.
Lease Commitments
The Company leases certain office equipment under operating lease
arrangements. Future minimum rental commitments under operating lease for
each of the years ending December 31 are as follows:
2001 $13,619
2002 14,448
2003 14,448
2004 14,448
2005 8,428
-------
$65,391
=======
Rent expense was $97,127, $153,167 and $156,178 for the years ended December
31, 2000, 1999 and 1998, respectively.
The Company has a 401(k) defined contribution retirement plan, covering
substantially all full-time employees. The Company is not obligated to match
employee contributions or make other annual contributions to the plan. The
Company made no contributions to the 401(k) plan other than administrative
expenses paid on behalf of the plan, which were nominal for the years ended
December 31, 2000, 1999 and 1998.
F-15
BioLase Technology, Inc. and Subsidiary
Notes To Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
10. Stockholders' Equity
Equity Financing
The Company has raised equity capital through several private offerings in
the three years ended December 31, 2000, as follows:
Number
of Shares
Years Ended of Common Net Cash
December 31, Stock Consideration
------------ --------- -------------
2000 1,250,000 $2,450,516
1999 1,116,000 2,748,000
1998 1,320,000 3,592,800
Preferred Stock
On December 18, 1998, the Board of Directors adopted a stockholder rights
plan under which one preferred stock purchase right was distributed on
January 11, 1999 with respect to each share of the Company's common stock
outstanding at the close of business on December 31, 1998. The rights provide
among other things that, in the event any person becomes the beneficial owner
of 15% or more of the Company's common stock while the rights are
outstanding, each right will be exercisable to purchase shares of the common
stock of the Company having a market value equal to two times the then
current exercise price of a right (initially $30.00). The rights will also
provide that, if on or after the occurrence of such event the Company is
merged into any other corporation or 50% or more of the Company's assets or
earning power is sold, each right will be exercisable to purchase common
shares of the acquiring corporation having a market value equal to two times
the then current exercise price. The rights will expire on December 31, 2008,
unless previously triggered, and are subject to redemption by the Company at
$.001 per right at any time prior to the first date upon which they become
exercisable to purchase common shares.
F-16
BioLase Technology, Inc. and Subsidiary
Notes To Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
Common Stock and Warrants
In February 2000, the Company offered 125 units to accredited investors in a
private placement. Each unit consisted of 10,000 shares of the Company's
common stock and 5,000 redeemable stock purchase warrants (the "2000
Warrants"). Gross proceeds from the private placement were $2,721,875 before
direct expenses of $271,359. The shares of common stock issued in connection
with the private placement were "restricted securities" as defined in Rule
144 promulgated under the Securities Act of 1933, as amended (the "Act").
Accordingly, such shares may be resold only pursuant to a registration
statement under the Act or in accordance with an exemption from such
registration requirement. Each 2000 Warrant entitles the holder to purchase
a share of common stock at $3.00 and expires on March 31, 2002. An
additional 62,500 redeemable warrants were issued in connection with the
placement, which are exercisable at $3.00 per share and expire on March 31,
2002. At the sole option of the Company, it may call for redemption 625,000
and 62,500 of the then outstanding 2000 warrants provided the closing price
of the Company's common stock has equaled or exceeded $6.00 per share for the
10 days preceding the call for redemption. The notice of redemption shall
specify a redemption date no less than 30 days after the date of such notice
on which all of the then remaining unexercised 2000 warrants shall be
redeemed by the Company at a cash price of $.01 per warrant. In February
2001, the Company reduced the exercise price and the call price to $2.50 and
$5.00, respectively, for the 2000 Warrants and the additional 62,500
redeemable warrants.
In February 1999, the Company offered a private placement in which it issued
and sold 110 units to accredited investors. Each unit consisted of 10,000
shares of the Company's common stock and 5,000 redeemable stock purchase
warrants (the "1999 Warrants"). Gross proceeds from the private placement
were $3,025,000 before direct expenses of $277,000. The Company also issued
an additional 16,000 shares for commissions related to this private
placement. The shares of common stock issued in connection with the private
placement were "restricted securities" as defined in Rule 144 promulgated
under the Act. Accordingly, such shares may be resold only pursuant to a
registration statement under the Act or in accordance with an exemption from
such registration requirement. All such shares and warrants were registered
pursuant to a registration statement on Form S-3 dated September 3, 1999, and
filed with the Securities and Exchange Commission. Each 1999 Warrant
entitles the holder to purchase a share of common stock at $3.50 and were
scheduled to expire on March 31, 2001. An additional 99,000 redeemable
warrants were issued in connection with the placement, which were exercisable
at $2.75 per share and were scheduled to expire on March 31, 2001. At the
sole option of the Company, it may call for redemption 550,000 and 99,000 of
the then outstanding 1999 warrants provided the closing price of the
Company's common stock has equaled or exceeded $4.97 and $3.91 per share for
the 10 days preceding the call for redemption. The notice of redemption
shall specify a redemption date no less than 30 days after the date of such
notice on which all of the then remaining unexercised 1999 warrants shall be
redeemed by the Company at a cash price of $.01 per warrant. In February
2001, the Company extended the expiration date of the 1999 Warrants to June
30, 2001 and reduced the exercise price and the call price to $2.50 and
$3.55, respectively.
In May 1998, the Company completed a private placement in which it issued and
sold 132 units to accredited investors. Each unit consisted of 10,000 shares
of the Company's common stock and 5,000 redeemable stock purchase warrants
(the "1998 Warrants"). Gross proceeds from the private placement were
$3,960,000 before direct expenses of $367,200. The shares of common stock
issued
F-17
BioLase Technology, Inc. and Subsidiary
Notes To Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
in connection with the private placement were "restricted securities"
as defined in Rule 144 promulgated under the Act. Accordingly, such shares
may be resold only pursuant to a registration statement under the Act or in
accordance with an exemption from such registration requirement. All such
shares and warrants were registered pursuant to a registration statement on
Form S-3 dated September 3, 1999, and filed with the Securities and Exchange
Commission. Each 1998 Warrant entitled the holder to purchase a share of
common stock at $3.75 and were scheduled to expire on April 30, 2000. An
additional 64,000 warrants were issued in connection with the placement,
which were exercisable at $3.75 per share and were scheduled to expire on
April 30, 2000. At the sole option of the Company, it may call for
redemption the 1998 Warrants provided the closing price of the Company's
common stock has equaled or exceeded $6.00 per share for the 10 days
preceding the call for redemption. The notice of redemption shall specify a
redemption date no less than 30 days after the date of such notice on which
all of the then remaining unexercised 1998 warrants shall be redeemed by the
Company at a cash price of $.01 per warrant. In March 2000, the Company
extended the expiration date of the 1998 Warrants to April 30, 2001,
increased the exercise price to $4.00 and increased the call price to $6.40.
In February 2001, the Company reduced the exercise price of the 1998 Warrants
and the additional 64,000 warrants to $3.00 and reduced the call price of the
1998 Warrants to $4.80.
Additionally, the Company has issued shares of its common stock to non-
employee individuals for services rendered. The estimated fair value of such
common stock is charged to earnings as compensation for these services. For
the years ended December 31, 2000, 1999 and 1998, the Company has issued
36,600, 98,400 and 23,300 shares for services valued at $42,090, $213,417 and
$64,185, respectively.
The Company has also issued warrants in connection with the exercise of
multiple options to extend the terms of its credit facility with a bank.
Each warrant entitles the holder to purchase one share of common stock and
vested fully at the date of issuance. Although considered immaterial for
separate disclosure, the estimated fair value of such warrants is charged to
earnings as compensation in the year issued. For the years ended December
31, 2000, 1999 and 1998, respectively, the Company issued 100,000 warrants,
expiring on December 1, 2003, with a per share exercise price of $2.00, an
aggregate 75,000 warrants, of which, 25,000 expire June 1, 2002 and 50,000
expire December 1, 2002, with a per share exercise price of $5.00 and $3.00,
respectively, and 25,000 warrants, expiring on December 1, 2001, with a per
share exercise price of $5.00.
F-18
BioLase Technology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- -------------------------------------------------------------------------------
The following table summarizes warrant activity:
Exercise
Shares Per Share
Warrants outstanding, December 31, 1997 772,576 $3.61
Issuance of warrants 749,000 3.79
--------- -----
Warrants outstanding, December 31, 1998 1,521,576 3.70
Issuance of warrants 724,000 3.41
Cancellation of warrants (697,576) 3.50
--------- -----
Warrants outstanding, December 31, 1999 1,548,000 3.66
Issuance of warrants 787,500 2.87
Exercise of warrants (819,150) 3.51
Cancellation of warrants (75,000) 4.67
--------- -----
Warrants outstanding, December 31, 2000 1,441,350 $3.32
--------- -----
Common Stock Options
The Company has adopted the 1990 Stock Option Plan (the "1990 Plan"), the
1992 Stock Option Plan (the "1992 Plan"), the 1993 Stock Option Plan (the
"1993 Plan") and the 1998 Stock Option Plan (the "1998 Plan" and collectively
with the 1990 Plan, 1992 Plan and 1993 Plan, the "Plans"). Each of the Plans
enables the Company to offer equity participation to employees, officers,
directors and consultants of the Company through stock options and, with
respect to the 1990 and 1992 Plans, stock appreciation rights.
A total of 375,000 shares of common stock were authorized for issuance under
the 1990 Plan, of which, at December 31, 2000, 236,250 had been issued upon
option exercise, 138,000 were reserved for issuance upon exercise of
outstanding options and 750 were available for the granting of additional
options. A total of 150,000 shares of common stock were authorized for
issuance under the 1992 Plan, of which, at December 31, 2000, 67,391 had been
issued upon option exercise, 82,500 were reserved for issuance upon exercise
of outstanding options and 109 were available for the granting of additional
options. A total of 1,500,000 shares of common stock were authorized for
issuance under the 1993 Plan, of which, at December 31, 2000, 284,066 had
been issued upon option exercise, 1,192,785 were reserved for issuance upon
exercise of outstanding options, and 23,149 were available for the granting
of additional options. A total of 1,000,000 shares of common stock were
authorized for issuance under the 1998 Plan, of which, at December 31, 2000,
722,000 were reserved for issuance upon exercise of outstanding options, and
278,000 were available for the granting of additional options. Any shares
which are reserved for issuance under an outstanding option which expires or
terminates unexercised, or any shares which are used by participants to pay
all or part of the purchase price of any option exercised, may again be
reserved for issuance upon exercise of newly granted options under the
respective Plans. However, shares with respect to which stock appreciation
rights have been exercised may not again be made subject to an award.
F-19
BioLase Technology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
At the discretion of the Board of Directors or a committee comprised of non-
employee directors or other nonemployees appointed by the Board of Directors
(the "Committee"), employees, officers, directors and consultants of the
Company and its subsidiary may become participants in the Plans upon
receiving grants in the form of stock options or, in the case of the 1990 and
1992 Plans, stock appreciation rights.
Stock options may be granted as nonqualified stock options or incentive stock
options, but incentive stock options may not be granted at a price less than
100% of the fair market value of the stock as of the date of grant (110% as
to any 10% or greater stockholder at the time of grant); nonqualified stock
options may not be granted at a price less than 85% of the fair market value
of the stock as of the date of grant. Stock options may be exercised no more
than ten years after the date of grant and no more than three years after
death or disability, whichever occurs earlier. In the case of options
granted under the 1993 Plan, payment of the purchase price for shares of
stock acquired through the exercise of stock options must be paid in cash.
At the discretion of the Committee, the purchase price for shares of stock
acquired through the exercise of stock options under the 1998, 1992 and 1990
Plans may be paid by cash, shares of common stock valued at their fair market
value at the date of exercise or by delivery of recourse promissory notes or
a combination thereof. No incentive stock options have been awarded under
the Plans.
F-20
BioLase Technology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- -------------------------------------------------------------------------------
The following table summarizes option activity under the Plans:
Weighted Average
Exercise Price
Shares Per Share
Options outstanding, December 31, 1997 1,342,410 $2.43
Granted 834,500 2.58
Exercised (38,950) 1.50
Canceled (62,000) 6.02
---------- -----
Options outstanding, December 31, 1998 2,075,960 2.40
Granted at fair market value 254,500 2.34
Granted above fair market value 275,000 2.14
Exercised (56,875) 1.50
Canceled (412,500) 2.59
---------- -----
Options outstanding, December 31, 1999 2,136,085 2.35
Granted at fair market value 270,500 2.26
Granted above fair market value 280,500 2.23
Exercised (202,466) 1.59
Canceled (349,334) 2.55
---------- -----
Options outstanding, December 31, 2000 2,135,285 $2.19
---------- -----
Options exercisable, December 31, 1998 1,284,751 $2.27
---------- -----
Options exercisable, December 31, 1999 1,524,583 $2.40
---------- -----
Options exercisable, December 31, 2000 1,674,578 $2.40
---------- -----
F-21
BioLase Technology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
The following table summarizes additional information for those options under
the Plans, which are outstanding and exercisable:
Options Outstanding Exercisable
------------------------------------------------------- -------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Exercise Remaining Number Exercise
Prices of Shares Price Life (Years) of Shares Price
--------------- -------------- -------------- --------------- ------------ ------------
$0.75 to 2.34 1,340,950 $1.72 7.72 963,325 $1.92
$2.50 to 4.13 794,335 $2.98 6.91 711,252 $3.05
Stock options granted under the 1990 Plan may include the right to acquire an
Accelerated Ownership Nonqualified Stock Option ("AO"). If an option grant
contains the AO feature and if the participant pays all or part of the
purchase price of the option with shares of the Company's common stock held
by the participant for at least six months, then upon exercise of the option,
the participant is granted an AO to purchase at the fair market value as of
the date of the AO grant the number of shares of common stock of the Company
equal to the sum of the number of whole shares used by the participant in
payment of the purchase price and the number of whole shares, if any,
withheld by the Company as payment for withholding taxes. An AO may be
exercised between the date of grant and the date of expiration, which will be
the same as the date of expiration of the option to which the AO is related.
At December 31, 2000, there were no options outstanding under the 1990 Plan
that included the AO feature.
In addition to the Plans discussed above, the Company has agreements with
vendors and other persons under which options, not under any of the Plans, to
purchase shares of the Company's common stock have been granted. The shares
issuable upon exercise of such options have not been registered under the
Act.
F-22
BioLase Technology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
The following table summarizes option transactions outside the Plans:
Weighted Average
Shares Under Exercise Price
Option Per Share
---------------- ------------------
Options outstanding and exercisable, December 31, 1997 272,500 $6.50
Granted - -
Canceled - -
---------------- -----------------
Options outstanding and exercisable, December 31, 1998 272,500 6.50
Granted - -
Canceled (182,500) 4.88
---------------- -----------------
Options outstanding and exercisable, December 31, 1999 90,000 9.78
Granted - -
Canceled - -
---------------- -----------------
Options outstanding and exercisable, December 31, 2000 90,000 $9.78
================ =================
There were no options issued to non-employees during the year ended December
31, 2000 and the fair value of options issued to non-employees during the
years ended December 31, 1999 and 1998 was not considered material.
Pro Forma Effect of Stock-Based Compensation
The Company has adopted the disclosure only provisions of SFAS No. 123 for
options issued to employees. Accordingly, no compensation cost has been
recognized for options granted under the Plans. Had compensation cost for
the Company's Plans been determined based on the fair value at the grant date
for awards in 2000, 1999, and 1998 consistent with the provisions of SFAS No.
123, the Company's net loss and loss per share would have been the pro forma
amounts indicated below:
2000 1999 1998
Net loss - basic and diluted $(4,189,606) $(5,410,273) $(10,645,045)
Loss per share - basic and diluted (.22) (.31) (.71)
F-23
BioLase Technology, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
The pro forma amounts were estimated using the Black-Scholes option-pricing
model with the following assumptions:
2000 1999 1998
Expected term 3.50 3.50 3.50%
Volatility 83% 56% 75%
Annual dividend per share $0.00 $0.00 $0.00
Risk free interest rate 6.21% 5.81% 4.93%
Weighted-average fair value of options granted $1.34 $1.24 $1.03
11. Income Taxes
The following table presents the current and deferred provision for federal and
state income taxes for the years ended December 31:
2000 1999 1998
Current
Federal $ - $ - $ -
State 1,600 1,600 1,600
---------- ---------- ----------
1,600 1,600 1,600
Deferred
Federal - - -
State - - -
---------- ---------- ----------
$1,600 $1,600 $1,600
========== ========== ==========
The foregoing tax provisions are included in general and administrative expense
in the accompanying consolidated statements of operations.
F-24
BioLase Technology, Inc. and Subsidiary
Notes To Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
The effects of temporary differences that give rise to the deferred tax
provision consist of the following for the years ended December 31:
2000 1999 1998
Property and equipment $ (5,089) $ (106,690) $ (41,135)
Research and development 227,291 594,008 47,883
Reserves not currently deductible 131,275 95,444 (175,348)
Inventories 78,826 (33,585) 15,155
Capital loss carryforward (274,550) (2,948) -
Net operating losses 1,285,544 928,251 2,172,161
----------- ----------- -----------
1,443,297 1,474,480 2,018,716
Change in valuation allowance (1,443,297) (1,474,480) (2,018,716)
----------- ----------- -----------
Total $ - $ - $ -
=========== =========== ===========
The provision for income taxes differs from the amount that would result from
applying the federal statutory rate as follows for the years ended December
31:
2000 1999 1998
Statutory regular federal income tax rate (34.0%) (34.0%) (34.0%)
In-process research and development - - 16.9
Stock options (4.5) (0.4) (0.2)
Change in valuation allowance 38.1 37.5 18.5
Other 0.4 (3.1) (1.2)
----- ----- -----
Total 0.0% 0.0% 0.0%
===== ===== =====
F-25
BioLase Technology, Inc. and Subsidiary
Notes To Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
The components of the deferred income tax assets are as follows at
December 31:
2000 1999
Property and equipment $ 163,121 $ 168,210
Research and development 1,092,160 864,869
Reserves not currently deductible 461,513 330,238
Inventories 101,531 22,705
Capital loss carryforward - 274,550
State taxes 544 544
Net operating losses 14,030,272 12,744,728
------------ ------------
15,849,141 14,405,844
Valuation allowance (15,849,141) (14,405,844)
------------ ------------
Total $ - $ -
============ ============
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management periodically evaluates the recoverability of the deferred tax
assets and at such time as it is determined that such assets are
realizable, the valuation allowance will be reduced.
As of December 31, 2000, the Company had net operating loss carryforwards
for federal and state purposes of approximately $38,113,000 and
$12,126,000, respectively, which begin expiring in 2002 and 2001,
respectively. The utilization of net operating loss carryforwards may be
limited under the provisions of Internal Revenue Code Section 382 and
similar state provisions.
12. Business Segment and Sales Concentrations
The Company operates in a single operating segment and is engaged in the
development, manufacturing and marketing of advanced laser products for
dental and other surgical applications, and also markets and distributes
related endodontic products manufactured by third parties.
Significant customers consisted primarily of domestic and international
distributors. The Company has distributorship agreements for dental lasers
in Canada, Mexico, Europe, the Middle East, Australia and the Far East. For
the years ended December 31, 2000, 1999 and 1998, export sales were
$4,189,000, $2,356,000 and $598,000, respectively, of which 54%, 72% and
66%, respectively, were sales to Europe and 15%, 15% and 27%, respectively,
were sales to Canada. Sales concentration to a major distributor(s) were
approximately $1,299,000 and $456,000, respectively, for the years ended
December 31, 1999 and 1998. No other customer accounted for more than 10%
of consolidated sales in 2000, 1999 or 1998.
F-26
BioLase Technology, Inc. and Subsidiary
Notes To Consolidated Financial Statements
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
Financial instruments that subject the Company to concentrations of credit
risk consist principally of accounts receivable. Accounts receivable
concentrations have resulted from sales activity to primary distributors.
Accounts receivable for such distributors totaled approximately $529,000,
$262,000 and $332,000, respectively, at December 31, 2000, 1999 and 1998.
No other customer accounted for more than 10% of accounts receivable at
December 31, 2000, 1999 or 1998.
F-27
BioLase Technology, Inc.
Schedule II - Consolidated Valuation and Qualifying Accounts and Reserves
For The Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
Reserve for Valuation
Allowance for Excess and Allowance
Doubtful Obsolete for Deferred
Accounts Inventory Tax Asset
------------- ----------- ------------
Balances at December 31, 1997 $117,464 $ 620,949 $10,912,648
Charged to operations 551 49,247 2,018,716
Write-offs - (442,502) -
------------- ----------- ------------
Balances at December 31, 1998 118,015 227,694 12,931,364
Charged to operations 16,709 81,726 1,474,480
Write-offs (16,979) - -
------------- ----------- ------------
Balances at December 31, 1999 117,745 309,420 14,405,844
Charged to operations 102,157 326,261 1,443,297
Write-offs (98,914) (186,084) -
------------- ----------- ------------
Balances at December 31, 2000 $120,988 $ 449,597 $15,849,141
============= =========== ============
S-1