NOTE 11—SUBSEQUENT EVENTS

Termination Agreement

In February 2012, the Company entered into the 2012 Termination Agreement with HSIC, a leading U.S. dental products and equipment distributor, to purchase the remaining inventory of Waterlase MD Turbo laser systems held by HSIC. This agreement terminated and superseded all prior agreements with HSIC. Further, HSIC will release all liens on the Company’s assets on the closing date, as all obligations of repayment of the prepaid purchases have been entirely fulfilled.

HSIC will continue selling the iLase handheld laser system currently in their inventory and will retain the non-exclusive right to be a dealer of the Company’s products on the same prevailing terms and conditions of other strictly selected dealers.

Stock Dividend

In March 2012, the Board of Directors adopted a 2% annual stock dividend policy for 2012 and declared a one-half percent stock dividend (the “March Stock Dividend”) payable March 30, 2012 to stockholders of record on March 15, 2012.

Stock Options

On March 2, 2012, the Board of Directors accelerated the vesting period for 95,833 common stock options held by the Company’s CEO. The options were originally granted in December 2011 at $2.58 per share with monthly vesting over four years. The Board of Directors accelerated the vesting period to March 2, 2012, in part due to the CEO’s commitment to maintain his annual salary of one dollar for the year ending December 31, 2012. Accelerating the vesting period of the common stock options resulted in the Company recognizing unamortized compensation cost of approximately $183,000 during March 2012. The transaction did not result in any additional compensation cost as the stock price was below the option price on the date the common stock options were modified.