Basis of Presentation
|6 Months Ended|
Jun. 30, 2011
|Basis of Presentation [Abstract]|
|BASIS OF PRESENTATION||
NOTE 1 — BASIS OF PRESENTATION
BIOLASE Technology Inc., (the “Company”) incorporated in Delaware in 1987, is a medical technology company operating in one business segment that develops, manufactures and markets lasers and also markets and distributes dental imaging equipment; products that are focused on technologies for improved applications and procedures in dentistry and medicine.
Basis of Presentation
The unaudited consolidated financial statements include the accounts of BIOLASE Technology, Inc. and its consolidated subsidiaries and have been prepared on a basis consistent with the December 31, 2010 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments and the elimination of all material intercompany transactions and balances, necessary to fairly present the information set forth therein. These unaudited, interim, consolidated financial statements do not include all the footnotes, presentations and disclosures normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements. Certain amounts have been reclassified to conform to current period presentation.
Use of Estimates
The preparation of these consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements and the accompanying notes. Significant estimates in these consolidated financial statements include allowances on accounts receivable, inventory and deferred taxes, as well as estimates for accrued warranty expenses, the ability of goodwill and indefinite-lived intangible assets to be realized, effects of stock-based compensation and warrants, contingent liabilities and the provision or benefit for income taxes. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ materially from those estimates.
Critical Accounting Policies
Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained on pages 41 to 43 in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10K (the “2010 Form 10-K). Management believes that there have been no significant changes during the six months ended June 30, 2011 in our critical accounting policies from those disclosed in Item 7 of on the 2010 Form 10-K, except as noted below.
Revenue Recognition. Through August 2010, the Company sold its products in North America through an exclusive distribution relationship with Henry Schein, Inc. (“HSIC”). Effective August 30, 2010, the Company began selling its products in North America directly to customers through its direct sales force and through non-exclusive distributors, including HSIC. The Company sells its products internationally through exclusive and non-exclusive distributors as well as to direct customers in certain countries. Sales are recorded upon shipment from the Company’s facility and payment of the Company’s invoices is generally due within 30 days or less. Internationally, the Company sells products through independent distributors, including HSIC in certain countries. The Company records revenue based on four basic criteria that must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and title and the risks and rewards of ownership have been transferred to our customer, or services have been rendered; (iii) the price is fixed or determinable; and (iv) collectability is reasonably assured.
Sales of the Company’s laser systems include separate deliverables consisting of the product, disposables used with the laser systems, installation, and training. For these sales, effective January 1, 2011, the Company applies the relative selling price method, which requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. This requires the Company to use (estimated) selling prices of each of the deliverables in the total arrangement. The sum of those prices is then compared to the arrangement, and any difference is applied to the separate deliverable ratably. This method also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (1) vendor-specific objective evidence (“VSOE”) if available, (2) third-party evidence if vendor-specific objective evidence is not available, and (3) estimated selling price if neither vendor-specific nor third-party evidence is available. VSOE is determined based on the value the Company sells the undelivered element to a customer as a stand-alone product. Revenue attributable to the undelivered elements is included in deferred revenue when the product is shipped and is recognized when the related service is performed. Disposables not shipped at time of sale and installation services are typically shipped or installed within 30 days. Training is included in deferred revenue when the product is shipped and is recognized when the related service is performed or upon expiration of time offered under the agreement, typically within six months from date of sale. The adoption of the relative selling price method does not significantly change the value of revenue recognized.
The key judgments related to revenue recognition include the collectability of payment from the customer, the satisfaction of all elements of the arrangement having been delivered, and that no additional customer credits and discounts are needed. The Company evaluates a customer’s credit worthiness prior to the shipment of the product. Based on the Company’s assessment of the available credit information, the Company may determine the credit risk is higher than normally acceptable, and will either decline the purchase or defer the revenue until payment is reasonably assured. Future obligations required at the time of sale may also cause the Company to defer the revenue until the obligation is satisfied.
Although all sales are final, the Company accepts returns of products in certain, limited circumstances and record a provision for sales returns based on historical experience concurrent with the recognition of revenue. The sales returns allowance is recorded as a reduction of accounts receivable and revenue.
Extended warranty contracts, which are sold to non-distributor customers, are recorded as revenue on a straight-line basis over the period of the contracts, which is typically one year.
For sales transactions involving used laser trade-ins, the Company recognizes revenue for the entire transaction when the cash consideration is in excess of 25% of the total transaction. The Company values used lasers received at their estimated fair market value at the date of receipt.
The Company recognizes revenue for royalties under licensing agreements for our patented technology when the product using our technology is sold. The Company estimates and recognizes the amount earned based on historical performance and current knowledge about the business operations of our licensees. The Company’s estimates have been consistent with amounts historically reported by the licensees. Licensing revenue related to exclusive licensing arrangements is recognized concurrent with the related exclusivity period.
From time to time, the Company may offer sales incentives and promotions on its products. The cost of sales incentives are recorded at the date at which the related revenue is recognized as a reduction in revenue, increase in cost of revenue or as a selling expense, as applicable, or later, in the case of incentives offered after the initial sale has occurred.
Fair Value of Financial Instruments
The Company’s financial instruments, consisting of cash, accounts receivable, accounts payable and other accrued expenses, approximate fair value because of the short maturity of these items. Financial instruments consisting of short term debt approximate fair value since the interest rate approximates the market rate for debt securities with similar terms and risk characteristics.
Liquidity and Management’s Plans
The Company has suffered recurring losses from operations and had declining revenues during the three years ended December 31, 2010. As of December 31, 2010, the Company had a working capital deficit. Although the Company’s revenues increased for the three and six months ended June 30, 2011, compared to the comparable periods in 2010, the Company still incurred a loss from operations and a net loss.
The Company’s need for additional capital and the uncertainties surrounding its ability to obtain such funding at December 31, 2010, raised substantial doubt about its ability to continue as a going concern, which contemplates that the Company will realize its assets and satisfy its liabilities and commitments in the ordinary course of business. The Company’s financial statements do not include adjustments relating to the recoverability of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. In order for the Company to discharge its liabilities and commitments in the normal course of business, the Company must sell its products directly to end-users and through distributors; establish profitable operations through increased sales and a reduction of operating expenses; and potentially raise additional funds, principally through the additional sales of securities or debt financings to meet its working capital needs.
The Company intends to increase sales by increasing its product offerings, expanding its direct sales force and expanding its distributor relationships both domestically and internationally. However, the Company cannot guarantee that it will be able to increase sales, reduce expenses or obtain additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. If the Company is unable to increase sales, reduce expenses or raise sufficient additional funds it may be unable to continue to fund its operations, develop its products or realize value from its assets and discharge its liabilities in the normal course of business.
At June 30, 2011, the Company had approximately $11.8 million in working capital. The Company’s principal sources of liquidity at June 30, 2011 consisted of $10.1 million in cash and cash equivalents and $6.4 million of net accounts receivable.
On April 16, 2010, the Company filed a shelf registration statement (the “2010 Shelf Registration Statement”) with the Securities and Exchange Commission (the “SEC”) to enable the Company to offer for sale, from time to time, in one or more offerings, an unspecified amount of common stock, preferred stock or warrants up to an aggregate public offering price of $9.5 million. The 2010 Shelf Registration Statement (File No. 333-166145) was declared effective by the SEC on April 29, 2010.
In accordance with the terms of a Controlled Equity Offering Agreement (the “Offering Agreement”) entered into with Ascendiant Securities, LLC (“Ascendiant”), as sales agent, on December 23, 2010, the Company may issue and sell up to 3,000,000 shares of Common Stock pursuant to the 2010 Shelf Registration Statement. Sales of shares of the Company’s common stock, may be made in a series of transactions over time as the Company may direct Ascendiant in privately negotiated transactions and/or any other method permitted by law, including sales deemed to be an “at the market” offering as defined in Rule 415 under the Securities Act of 1993, as amended (the “1933 Act”). “At the market” sales include sales made directly on the NASDAQ Capital Market, the existing trading market for our common stock, or sales made to or through a market maker other than on an exchange.
Pursuant to the Offering Agreement, Ascendiant agreed to make all sales using its commercially reasonable best efforts consistent with its normal trading and sales practices, and on terms on which we and Ascendiant mutually agree. Unless the Company and Ascendiant agree to a lesser amount with respect to certain persons or classes of persons, the compensation to Ascendiant for sales of common stock sold pursuant to the Offering Agreement will be 3.75% of the gross proceeds of the sales price per share.
During the first three months of 2011, the Company sold approximately 2.2 million shares of common stock with net proceeds of approximately $7.1 million, net of commission and direct costs, through the Offering Agreement with Ascendiant. No additional sales were made under the Offering Agreement.
On April 7, 2011, the Company entered into an agreement with Rodman & Renshaw, LLC (“Rodman & Renshaw”), pursuant to which Rodman & Renshaw agreed to arrange for the sale of shares of the Company’s common stock in a registered direct public offering (the “April 2011 Registered Direct Offering”) pursuant to the 2010 Shelf Registration Statement with a fee of 4.5% of the aggregate gross proceeds. In addition, on April 7, 2011, the Company and certain institutional investors entered into a securities purchase agreement arranged by Rodman & Renshaw, pursuant to which the Company agreed to sell in the April 2011 Registered Direct Offering an aggregate of 320,000 shares of its common stock with a purchase price of $5.60 per share for gross proceeds of approximately $1.8 million. The net proceeds to the Company from the April 2011 Registered Direct Offering totaled approximately $1.7 million. The costs associated with the April 2011 Registered Direct Offering totaled approximately $124,000 and were paid in April 2011 upon the closing of the transaction. The shares of common stock sold in connection with the April 2011 Registered Direct Offering were issued pursuant to a prospectus supplement dated April 11, 2011 to the 2010 Shelf Registration Statement, which was filed with the SEC.
The transactions described above exhausted the securities available for sale under the Company’s 2010 Shelf Registration Statement.
On June 24, 2011, the Company entered into a securities purchase agreement (the “June 2011 Securities Purchase Agreement”) with certain institutional investors (the “June 2011 Purchasers”) whereby the Company agreed to sell, and on June 29, 2011 the Company sold, an aggregate of 1,625,947 shares of the Company’s common stock at a price of $5.55 per share, together with five-year warrants to purchase 812,974 shares of the Company’s common stock having an exercise price of $6.50 per share (the “June 2011 Warrants”). The June 2011 Warrants are not exercisable for six months following their issuance. Gross proceeds from the offering totaled approximately $9 million, and net proceeds to the Company, after commissions and other offering expenses of approximately $520,000, totaled approximately $8.5 million. The Company will use the proceeds for working capital and general corporate purposes. In connection with the June 2011 Securities Purchase Agreement, the Company entered into an agreement on June 22, 2011 with Rodman & Renshaw in which Rodman & Renshaw agreed to act as the Company’s exclusive placement agent for the offering and the Company agreed to pay Rodman & Renshaw commissions in the amount of 5.0% of the gross proceeds of the offering, or approximately $451,000, and reimburse Rodman & Renshaw’s expenses up to a maximum amount of $50,000. Commissions and expenses paid to Rodman and Renshaw are included in the $520,000 of offering expenses noted above.
The common stock and the June 2011 Warrants were offered and sold, and the common stock issuable upon exercise of the June 2011 Warrants were offered, pursuant to exemptions from registration set forth in section 4(2) of the 1933 Act and Rule 506 of Regulation D promulgated under the 1933 Act. The common stock, the June 2011 Warrants and the common stock issuable upon exercise of the June 2011 Warrants may not be re-offered or resold absent either registration under the 1933 Act or the availability of an exemption from the registration requirements.
In connection with the June 2011 Securities Purchase Agreement, the Company entered into a registration rights agreement with the June 2011 Purchasers pursuant to which the Company undertook to file a resale registration statement, on behalf of the June 2011 Purchasers with respect to the resale of the common stock and the common stock issuable upon the exercise of the June 2011 Warrants (collectively, the “Registerable Securities”), no later than July 19, 2011 and to use its reasonable best efforts to cause such registration statement to be declared effective by the SEC not later than September 7, 2011 (or October 7, 2011, if the SEC comments upon the registration statement). If the Company is unable to timely satisfy such deadlines, it could incur penalties of up to 3.0% of the offering proceeds for such non-compliance.
On July 19, 2011, the Company filed a registration statement on Form S-3 (the “Selling Stockholders Registration Statement”) with the SEC to register the Registerable Securities. As of August 11, 2011, the Company has not received notice from the SEC whether the Selling Stockholders Registration Statement had been declared effective.
On August 2, 2011, the Company repurchased 90,000 of the June 2011 Warrants for $99,900 or $1.11 per underlying share, plus expenses of $30,000.
On February 8, 2011, the Company repaid all outstanding balances under a Loan and Security Agreement dated May 27, 2010, as amended, (the “Loan and Security Agreement”) with MidCap Financial, LLC (whose interests were later assigned to its affiliate MidCap Funding III, LLC) and Silicon Valley Bank, which included $2.6 million in principal, $30,000 of accrued interest and $169,000 of loan related expenses. In connection with the repayment, MidCap Funding III, LLC and Silicon Valley Bank released their security interest in the Company’s assets. Unamortized costs totaling approximately $225,000, excluding interest, associated with the term loan payable were expensed in February 2011. MidCap Financial, LLC and Silicon Valley Bank also exercised all of their warrants on a cashless basis during February 2011 for 78,172 shares of common stock.
On September 23, 2010, the Company entered into a Distribution and Supply Agreement (the “D&S Agreement”) with HSIC, effective August 30, 2010. In connection with the D&S Agreement, as amended, HSIC placed two irrevocable purchase orders for the Company’s products totaling $9 million. The first purchase order, totaling $6 million, was for the iLase system and was required to be fulfilled by June 30, 2011. The first purchase order was fully satisfied during the first quarter of 2011. The second purchase order, totaling $3 million, requires that the products ordered thereunder be delivered by August 25, 2011, and was also for the iLase system, but could be modified without charge and applied to other laser products. During April 2011, HSIC modified the type of laser systems ordered on the second purchase order. As of June 30, 2011, approximately $900,000 remained from the second purchase order as a customer deposit.
The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.
Reference 1: http://www.xbrl.org/2003/role/presentationRef