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Recent Filings: Aug 1997 (Qtrly Rpt) | Nov 1997 (Qtrly Rpt) | Mar 1998 (Annual Rpt) | May 1998 (Qtrly Rpt)
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May 20, 1998 BIOLASE TECHNOLOGY INC (BLTI)
Quarterly Report (SEC form 10-Q) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated condensed financial statements and notes thereto.
RESULTS OF OPERATIONS
Sales were $263,000 during the first quarter of 1998, compared to $134,000 for the same period in 1997, an increase of $129,000, or 96%. The increase was related solely to the sales of Millennium(TM) systems in the first quarter of 1998 while the first quarter of 1997 reflected sales related to the phase-out of the Company's Nylad laser product line. Sales of endodontic products during the first quarter of 1998 were comparable to those reported for the same quarter in 1997.
The German distributor of the Company's Millennium(TM) system has requested a partial redesign of the handpiece, which forms a portion of the delivery subsystem of the Millennium(TM), in order to address more effectively the requirements of its marketplace. While in the process of effecting this redesign, the Company has delayed shipment of additional Millennium(TM) systems to its German distributor. The Company believes that it is making substantial progress in the redesign of the handpiece and anticipates completion of the redesign during the second half of 1998, at which point, recommencement of Millennium(TM) shipments in conjunction with the distribution agreement should occur. (The preceding sentence constitutes a forward looking statement [hereinafter identified as "FLS"]. Each of the forward looking statements in this Quarterly Report on Form 10-Q is subject to various factors that could cause actual results to differ materially from the results anticipated in such forward looking statement, as more fully discussed in this Item 2 under "Forward Looking Statements".) None of the sales reported during the first quarter of 1998 were to the Company's German distributor.
In July, 1997, the Company received clearance from the Food and Drug Administration ("FDA") to market a laser-based surgical tissue cutting system in the United States that utilizes a variation of the Millennium(TM) technology for a broad range of dermatological and general surgical soft tissue applications. In response to this clearance, the Company intends to introduce to the domestic market a laser-based system in a configuration that is designed for lower power settings than those of the Millennium(TM) system, under the name DermaLase(TM). (FLS) The Company is presently developing its marketing plan for the DermaLase(TM) system and anticipates commencement of production of DermaLase(TM) in the last half of 1998. (FLS)
Gross profit for the first quarter of 1998 was comparable to the first quarter of 1997; however, the gross margin declined to 9% compared to the same period in 1997 due principally to the under absorption of fixed overhead costs incurred as a result of ramping up for higher production levels. These costs included the design and manufacturing of various test and production fixtures to improve manufacturing efficiencies and increased indirect costs to support higher levels of manufacturing. The gross profit from the sale of endodontic products during the first quarter of 1998 was comparable to that reported for the first quarter of 1997.
Sales and marketing expenses increased $31,000 to $305,000 during the first quarter of 1998 compared to $274,000 reported for the comparable period in 1997. The increase is due principally to costs associated with the Company's establishment of a domestic dental sales force.
General and administrative expenses were $254,000 during the first quarter of 1998, an increase of $18,000, or 8% as compared to $236,000 reported during the comparable period in 1997. The increase was due principally to greater costs related to advertising and promotion of the Company through various publications and investor forums combined with a slight increase
in employee related expenses; the increase was partially offset by reductions in the Company's legal fees from the same period in 1997.
Engineering and development expenses reported during the first quarter of 1998 were comparable to those reported during the same period in 1997. The Company anticipates an increase of approximately 35% in such costs during the second quarter of 1998 as a result of the redesign of the Millennium(TM) handpiece and the finalization of the soon-to-be-released LaserBrush(TM) design.
(FLS)
Interest expense, net, increased $24,000 to $21,000 during the first quarter of 1998 compared to interest income, net of $3,000 reported during the comparable period in 1997. The increase in interest expense was due to the Company's utilization of its line of credit established for the financing of inventories while the reduction in interest income was due to the liquidation of certain invested funds to meet the Company's working capital needs.
FINANCIAL CONDITION
Cash, cash equivalents and marketable securities decreased an aggregate of $618,000 during the first three months of 1998 due principally to (i) cash used by operations of $1,565,000, and (ii) expenditures related to capital equipment and patent and trademark applications, aggregating $47,000, offset by (a) proceeds of $720,000 received from utilization of the Company's credit facility established for the financing of inventories, (b) proceeds of $250,000 received from a note which was subsequently converted to equity in connection with a private placement (see Note 7 to Consolidated Condensed Financial Statements), and (c) proceeds received from the exercise of employee stock options, aggregating $24,000.
Working capital declined $817,000 to $902,000 at March 31, 1998, compared to the $1,719,000 reported at December 31, 1997. The decline was due principally to: (i) decreases in cash, cash equivalents and marketable securities aggregating $618,000, offset by increases in (a) accounts receivable of $77,000 as a result of extended terms offered to the Company's German distributor and shipments of Millennium(TM) in March 1998, and (b) inventories of $386,000 resulting from increased purchases of long-lead item material; and (ii) increases of $720,000 and $250,000 related to the Company's line of credit and note payable, respectively, partially offset principally by reductions in (a) accounts payable of $258,000 and (b) accrued expenses of $61,000.
Cash used by operations for the first three months of 1998 increased by $727,000 from cash used during the first three months of 1997 due principally to (i) an additional $61,000 in net loss reported and (ii) increased levels in accounts receivable and inventories associated with Millennium(TM) sales and production coupled with decreases principally in accounts payable and accrued expenses. Net cash provided by investing activities increased by $322,000 during the first three months of 1998 as compared to the same period in 1997 due to an increase of $269,000 in sales of U. S. Treasury Notes and a reduction in cash used for capital equipment expenditures and additions to patents, licenses and trademarks, aggregating $53,000. Net cash provided by financing activities increased by $195,000 during the first quarter of 1998 from the comparable period in 1997 due to proceeds received from borrowings under the Company's line of credit and a note payable of $720,000 and $250,000, respectively, offset by reductions of $720,000 and $55,000 in proceeds received from issuance of common stock and exercises of stock options, respectively.
The Company recorded revenue from its shipments of Millennium(TM) units during the second half of 1997, which amount was reflected as an account receivable in the Company's audited consolidated balance sheet at December 31, 1997 with anticipated payment in the first quarter of 1998. (FLS) In order to promote the introduction of the Millennium(TM) system in Germany, the Company provided its distributor introducing that system in Germany, the first market to be approached, with extended payment terms on its receivable of $885,000.
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 product improvement through engineering and cost containment. (FLS) The Company's focus has been realigned to emphasize the marketing of its laser-based HydroKinetic(TM) tissue cutting system, the Millennium(TM), its yet-to-be-released LaserBrush(TM) and a new reduced-power variation of the Millennium(TM), called DermaLase(TM), which is being configured to accommodate applications in dermatology and general soft-tissue surgery.
(FLS)
Financing the development of laser-based medical and dental devices and instruments and the operations of the Company has been achieved principally through the private placements of preferred and common stock and the exercise of stock options and warrants. During the three years ended December 31, 1997, the Company has raised approximately $6,414,000 of equity funds. More recently, the Company raised an additional $3,593,000 in equity funds (see Note 7 to Consolidated Condensed Financial Statements). Management believes that significant additional resources will be required, commencing in the first half of 1999, to complete the processes designed to lead to FDA clearance to market the Company's laser-based technologies for various dental and medical applications in the United States and foreign countries, and to fund the Company's working capital needs. (FLS) The Company expects to generate the necessary capital resources through the sale of its products, the issuance of equity securities in either public or private placements, or debt financing. No assurance can be given, however, that the Company will be able to obtain such capital resources. (FLS)
Based on the Company's current business plan, the Company anticipates that it will need additional financing during the first half of 1999 to support additional working capital requirements should its existing and soon-to-be- released products meet with resistance of acceptance by the market. (FLS) There are no assurances that the Company will be successful in obtaining such financing. (FLS) If unsuccessful in arranging such financing, the Company may be able to extend the period before additional financing is required by deferring the creation or satisfaction of various commitments and deferring the introduction of various products or entry into various markets. (FLS) If the Company were unable to obtain such financing, its ability to meet its obligations and to continue its operations would be adversely affected. (FLS) The Company's financial statements have been prepared under the assumption of a going concern. Failure to arrange such 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. (FLS)
The Company is presently analyzing various computer software and hardware to meet its operational needs and anticipates capital expenditures to increase significantly during 1998 in connection with the acquisition of such software and hardware. (FLS) The Company's present software and hardware is personal computer based and is unaltered from its original purchased state except for those upgrades offered by the manufacturer of such software. The Company believes that its present software and hardware is Year 2000 compliant and intends to obtain certification of such for any future purchases of computer software and hardware. Additionally, the ability of third parties with whom the Company transacts business to adequately address their Year 2000 issues is outside the control of the Company. There can be no assurance that the failure of the Company or such third parties to adequately address their respective Year 2000 issues will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. (FLS)
FORWARD LOOKING STATEMENTS
The forward looking statements contained in this Quarterly Report on Form 10-Q are subject to various risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated in such forward looking statements. Included among the important risks, uncertainties and other factors are those hereinafter discussed.
Few of the forward looking statements in this Quarterly Report on Form 10-Q deal with matters that are within the unilateral control of the Company. There is substantial government regulation of the manufacture and sale of medical products, including many of the Company's products, by governmental agencies in both the United States and foreign countries. These governmental agencies often have considerable discretion in determining whether and when to approve the marketing of the Company's products that have not yet received such approval.
The availability of equity and debt financing to the Company is affected by, among other things, domestic and world economic conditions and the competition for funds. Rising interest rates might affect the feasibility of debt financing that is offered. Potential investors and lenders will be influenced by their evaluations of the Company and its products and comparisons with alternative investment opportunities.
The Company's products do not provide the exclusive means for accomplishing an objective, and customers may choose alternative means. Many of the Company's competitors have much greater financial resources and technical capabilities than does the Company, which may enable such competitors to design and produce superior products or to market their products in a manner that achieves commercial success even in the face of technical superiority on the part of the Company's products.
The Company's patents may not offer effective protection against competitors. Competitors may be able to design around the Company's patents or employ technologies not covered by such patents. In addition, the Company's patents may be challenged, and even if such patents are upheld, the diversion of financial and human resources associated with patent litigation could adversely affect the Company. The Company may be found to be violating the patents of others and forced to obtain a license under such patents or modify the design of its products.
Rapid technological developments are expected to continue in the industries in which the Company competes. The Company may not be able to develop, manufacture and market products which meet changing user requirements or which successfully anticipate or respond to technological changes on a cost-effective and timely manner.
While the Company believes that its technology incorporated into its Millennium(TM) surgical tissue cutting system should be effective in a broad range of medical and dental applications, this belief (except with respect to dental hard tissue and certain dermatological 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 Millennium(TM) technology will prove to be applicable to, or will find market acceptance in, any medical or dental fields or that the Company will receive clearance from the FDA or other regulatory agencies to market the Millennium(TM) system or other products embodying its HydroKinetic(TM) technology or variations thereof for any additional applications or in any additional jurisdictions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
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Recent Filings: Aug 1997 (Qtrly Rpt) | Nov 1997 (Qtrly Rpt) | Mar 1998 (Annual Rpt) | May 1998 (Qtrly Rpt)
More filings for BLTI available from EDGAR Online
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