NOTE 13 – SUBSEQUENT EVENTS

2012 Termination Agreement

On April 12, 2012, the Company completed the 2012 Termination Agreement with HSIC whereby the Company purchased HSIC’s inventory of Waterlase MD Turbo laser systems and HSIC released its liens on the Company’s assets. Pursuant to the terms of the 2012 Termination Agreement, the Company paid the entire purchase price by offsetting accounts receivable currently due from HSIC from sales made in the normal course of business. None of the funds used to offset the purchase price were related to the original sales of the MD Turbo laser systems that were purchased. As a result of the transaction, the Company is no longer required to fulfill certain future service obligations and, accordingly, derecognized approximately $155,000 of accounts receivable due from HSIC related to support services previously provided and approximately $142,000 of accrued warranties as of March 31, 2012. The Company expects to record the remaining effects of the 2012 Termination Agreement in the second quarter ending June 30, 2012.

Non-Qualified Stock Option Award

On May 7, 2012, the Board of Directors granted a non-qualified stock option to purchase 65,000 shares of the Company’s common stock to a consultant, at a price per share of $2.55, the closing market price of the Company’s common stock on the grant date. The shares fully vest and become exercisable upon achieving certain performance conditions, as defined in the consulting agreement, and expire five years from the grant date. The Company is unable to currently estimate the probability of achieving the required performance conditions and, accordingly, no stock-based compensation has been recognized. The Company will reassess whether achievement of the performance conditions is probable on a quarterly basis and recognize stock-based compensation when it is probable that the performance conditions will be achieved.