BIOLASE Inc (BIOL) 2003 Q2 法說會逐字稿

Welcome to the BioLase Technology Incorporated teleconference. (CALLER INSTRUCTIONS). It is now my pleasure to turn the floor over to your host, Mr. Michael Porter of Porter Lavay (ph) Rose.

Thank you operator. Good morning ladies and gentlemen. I would like to welcome you all to the BioLase Technology second quarter six months conference call. As you know, at the beginning of the call, all rules and regulations as far as future looking statements, all comply under the Act of '33 and '34 of the SEC rules.

Without further ado, I would like to introduce Jeff Jones, who will make some opening statements. Jeff, the floor is yours.

Thank you Michael and good morning from all of us here at BioLase. It's been another good quarter. We are on track and on plan. We are pleased to present to you the results of the quarter and the activities to you this morning from the BioLase team. Our CFO, Ed Rood, will do a more detailed review of the financials. Keith Bateman will provide an update on sales and marketing and activities in general and I will first, cover some of the fundamentals of the quarter.

For the quarter ended June 30, 2003 sales were 11.1 million. This represents a 55 percent increase from 7.2 million in the prior year same quarter. The net income increased to $1.7 million for the quarter, up from 669,000 in the same year prior. This equates to 8 cents per share on a fully diluted basis compared to 3 cents for the second quarter of the prior year.

For the gross margins, 61.8 percent compared to 60.6 percent. I think just as important to the rest of these fundamentals, cash on hand increased to 6.6 million as of June 30 compared to 3.94 as of the end of the year and this is net cash after paying the 1.8 million for the American Dental Laser assets.

I need to cover another matter briefly before Ed and Keith speak. As most of you are aware, the Company has filed a registration statement with the SEC. You may review that registration statement and amendments on the SEC web site. Because we are in the process of a public offering and our registration statement is going through the standard review process, we are in the quiet period. Therefore, what we can say about the Company or the public offering is limited to what is disclosed in the registration statement and therefore, we apologize in advance that there will be certain things that perhaps you ask or would like to go over that it is not appropriate for us to discuss at this time in this call.

With that said, Ed Rood?

Thank you Jeff. Good morning everyone. As Jeff mentioned, sales for the quarter increased 55 percent over the second quarter sales of last year, for that quarter. Year-to-date for the six months the sales increase was 59 percent over the first six months of 2002. Gross profit for the quarter increased based on a gross margin of 61.8 percent compared to 60.6 percent for the second quarter of last year. For six months, the gross margin was 62.7 percent compared to 60.2 percent for the first six months of last year.

Operating expenses as a percent of sales for the quarter ended June 30, 2003 was 46.8 percent, an 11 percent decline from 52.8 percent from the second quarter of last year. Operating margin for the quarter just ended was 15.2 percent compared to 8.1 percent for the 3 months ended June 30, 2002. For the six months ended June 30, 03, the operating margin increased to 11.7 percent from 5.9 percent for the same period last year. This resulted in net income for the quarter of 1.7 million and 2.4 million for the first six months of this year. And 8 cents per share for the quarter fully diluted compared to 3 cents for the second quarter last year, 11 cents for the first six months of this year compared to 4 cents for the first six months of last year.

Jeff mentioned that cash had increased 2.7 million from the beginning of the year. Looking at Accounts Receivable and inventories, as you can make the calculations, the days and receivable and inventory turnover were 46 days and 4.5 respectively, which has been in line with prior quarters.

Net working capital did increase substantially for the quarter-- excuse me for the six months, having increased to $7.2 million from $3.5 million dollars at the beginning of the year.

One other note on the balance sheet is the large increase in intangible assets to 5.5 million, which resulted from the acquisition of the American Dental Laser assets. In that acquisition in May, 2003, we acquired the American Dental Laser product line and the other dental laser assets of American Medical Technologies for approximately $5.8 million. We paid $1.8 million in cash and we issued 307,500 shares of our common stock and we also incurred about $134,000 in costs directly attributable to the acquisition.

The part of the transaction we and American Medical Technologies agreed to dismiss was with prejudice the lawsuit we had filed in October of 2002 against American Medical Technologies which alleged infringement of certain of our patents. In the dismissal, American Medical Technologies acknowledged it had infringed on our intellectual property rights, as identified in our complaint and recognized the patents we had asserted in the legal action are valid and enforceable.

Also in May 2003, we entered into a $5 million credit facility with Bank of the West (ph) to replace our older credit facility we have had for several years. The new credit facility is for a term of one year. It bears interest at LIBOR plus 2.25 percent and is secured by all of our assets and is payable on demand at any time after the expiration of the stated term. Approximately $1.8 million was drawn immediately to pay off our previous bank line of credit.

Under the terms of our credit line with Bank of the West, we are subject to certain covenants which include among other things covenants to maintain the specified minimum tangible net worth and specified ratio of current assets to current liabilities. And a covenant to maintain profitability and we are currently in compliance with all of these covenants.

That completes my report and at this time, I would like to turn it over to Keith Bateman.

Good morning. This is Keith Bateman. I want to do a brief review of the Q2 activities as far as sales and marketing. We continued our normal activities of marketing mainly to the general dental population -- participating in several tradeshows including the California Dental Association meeting, American Academy of Cosmetic Dentistry and several other smaller meetings during the second quarter.

Our activities -- one of the things we started to implement in the second quarter are some marketing activities where we are focusing on marketing to patients where we are involved in some plant and radio ads, mostly in cooperation with our users throughout the country.

The sales force, domestic sales force is doing well, is currently at about 25 salespeople. They are being managed by myself and also by two regional managers, one in the Northeast and one in the Southeast.

Internationally, we are continuing our activities through our international distributors in Canada -- Canada is considered part of our direct sales force. In Germany we are selling through independent reps are paid on a commission basis. Everywhere else we're selling worldwide is through international (technical difficulty) and distributors who purchased the equipment at a discount and then are responsible for selling, marketing and servicing the lasers in those respective countries.

We started to integrate the American Dental Laser products into our sales activities. Our salespeople are now actively selling those products and those are also being talked about and marketed through the trade shows that we are distributing or that we are participating in, both domestically and internationally.

I'm going to turn the time back over to Jeff now and that's about all I have right now for the sales and marketing activities for the second quarter.

Thank you Keith and thank you Ed. To the extent that its appropriate I would like to cover a few more issues. The acquisition which Keith did talk on, I want to go over a little more of the corporate and strategic basis.

We acquired the American Dental Laser assets and in this asset purchase, we acquired very important and strategic portfolio of dental laser patents. These are fundamental dental laser patents that complement the portfolio of dental laser patents which we already had very nicely.

We also acquired the very well-recognized brand names of American Dental Laser, DioLase (ph), Pulse Master and any and all other laser related brand names of American Dental Laser. This of course, included a worldwide customer list, a user base and the product line. The dental product line is primarily the DioLase and it also includes the Pulse Master and some of the sundry (ph) other things.

As expressed in earlier press releases, this acquisition provided us with a differentiated brand name and marketing platform. The marketing platform is important to us because it gives us an entry-level and mid-level product offering and that is how we are using it. This is part of the broader plan of the Company to increase market penetration by offering a broad line of laser systems with a range of features and very importantly as well, a range of price points. It allows us to do that in a way that fits together very well.

For those who are interested in the status of the DioDim (ph) litigation, it's in its early stages. At this point, there are no significant developments. Management believes the Company is in a very strong position and its our opinion that it is a nuisance suit.

And finally, I would like to cover the pending public offering. This is a step in our growth plan and the use of the proceeds will be future possible capital expenditures, working capital for growth, overall strength, general corporate purposes, potential acquisitions, potential repayment of debt, and possibly investment in complementary businesses and product lines.

I will now open the floor for questions and remind you that we do have to abide by the quiet period guidelines. The floor is now opened.

(CALLER INSTRUCTIONS). Dalton Chandler of Needham & Company.

Good morning and congratulations on a nice quarter.

Thank you Dalton.

Let me start by just asking about the gross margins, although it is still very nice gross margins, they were down a little bit sequentially. Could you talk about the reason for that and what we might expect there going forward?

We think right now that the variation you are seeing over the last several quarters is just normal variation and we will of course, watch that for any trends but right now, we don't think there is a trend.

So just a little bit of fluctuation within the low 60's, low to to mid 60s is a reasonable expectation?

That's our assessment.

Okay. Let me also ask about the American Dental Laser products. Given that their capabilities are more limited than your own products, is it purely a price point issue or who is buying those lasers and why versus going with a Waterlase (ph)?

I am going to let Keith answer that but there are two things I am going to throw in to begin with. One is it's a draw. They are viable products but they are viable for many purposes. One is to sell the product itself but another is with a price point substantially lower than our products that we already had, it is an entry-level, mid-level ticket that will bring somebody to the booth that perhaps would not have come to the booth otherwise because they hadn't been educated to the point of processing what the revenue is that the laser will produce versus the cost so it is a very nice draw in addition to being a product.

With that, Keith do you want to add everything?

The only thing I would add Jeff is that there are also, as you can see as outlined in the S3, there are 30 states that allow hygienists to use the lasers. And the DioLase at a price of $14,000 is much more appealing to a dental practice than the LaserSmile system, which is $23,000 so it is something that would be -- something that people would add to their practice, either before they purchase a Waterlase or after they purchase Waterlase for their hygiene departments.

Okay. A final question, assuming successful secondary, how might having the additional financial resources impact your thinking on sales and marketing spending or ramping up the sales force at a faster rate?

That development unfortunately, is going to fall into the category that's beyond the scope we can get into.

Okay. Thanks very much.

Thank you Dalton.

Stewart Sera of UBS.

Thank you. What's the best guess as to your timing for the secondary?

The first thing we have to do is complete the review process with the Securities and Exchange Commission. Following that, we will be able to assess the best time to go to the market but that's about as much as we can say right now.

Thank you.

Michael Harris of UBS.

Hi gentlemen, great quarter.

Hi.

As BioLase continues to ramp up and I am presuming has gained market share, are you seeing any increased competition or response from any of your competitors, perhaps Luminous or any of the others?

From my viewpoint, this is Jeff, the playing field there is pretty much the same as it has been. There are underlying differences, things I should say, detail differences that is overall in the picture, I do not think there is any significant change. You have any other answer to that Keith?

No. I think it's about the same.

No ramp ups in additional marketing or any ways that competition is trying to different shade themselves? They don't seem to have been doing such a good job so far -- they haven't been doing such a great job so far. You don't hear -- they are not making the tape (ph) as quite as often.

One competitor at one show may have a little higher visibility and another show may be another one, a different one does, but all in all, I don't detect any significant changes.

Any commentary on pricing trends with your product?

There's really nothing there that's changing that I am aware of, in my view.

Okay, all right. Thank you both very much.

John Emery of (indiscernible) Capital.

Thanks. Three unrelated question so I will ask them separately. Gross margins you already talked about. Sales and marketing as a percentage of sales was down significantly. What happened there?

You are going to see changes there as normal fluctuation and of course, we gain the economies of sales as the Company grows and our market penetration increases, the marketing dollars is more efficient but you also see that have some normal variation from quarter to quarter, as well.

What causes that? I'm guessing a big chunk of that is commissions, no, which are kind of fixed?

A significant portion is commission but you also have seasonality of shows. You have one show in one quarter may have more significant big events. We may have two or three more bigger events for the World Clinical (indiscernible) Institute, so the calendar also impacts that.

So this quarter had mostly less of those type of big-ticket non commission items?

Correct. If you notice the first quarter was up. We had some heavy marketing in the first quarter. So I think it's two things. One is just the calendar and two is as we grow, the marketing dollar becomes more efficient.

Okay. The second question is speaking to the S3, which I think is in the scope of this call -- per your introduction, what's going on with the European acquisition, the negotiated purchase price coming down recently and still in negotiations to come down further?

I think you just stated it. We are negotiating with the seller and continue to negotiate with the seller to finalize that transaction.

What changed in the business condition that has caused it to come down so far and gives you leverage to get it down further? Is that what it's all about?

First of all, built into the original agreement was a discount. Beyond that I do not think we can comment.

Okay. The last question in the S3, it said in 2002, 36 percent of revenues were falling through National Technology Leasing. I was under the impression that that run rate today is closer to 80 percent. Is the difference because more of the sales are being financed this year than last year?

Well, the 36 percent is correct as you stated, that's a percentage of total revenues. Obviously, National Technology Leasing does not get involved with our international sales. That may be part of the difference that you've --

Oh, okay. What percentage of sales are financed right now? Third party financed?

We do not track things of that nature because all financing and leasing are totally independent of BioLase. They are their own entities and because of their independence, we don't have tracking on a lot of it. When a customer gives us -- pays for their laser at the end of that transaction and if they are making payments to their own bank or a lease company of their own choice, that's between the customer and that third party because there is no recourse or ongoing relationship with BioLase on that transaction. So in numerous instances, we have no idea and no reason to track it.

I understand that. I guess my thought is if 80 percent of sales are being financed, say in the U.S. and 100 percent of them are going through National Technology Leasing, even though there is no recourse, you would still -- it's highly critical to your business.

The reason it's not critical is first of all, the numbers you are putting out there are not correct. They are nowhere near correct. But secondly, we have lease companies all over the U.S. that are eager for the business. It's like any -- whether you are a car dealer or anybody selling equipment or something with a sizable ticket, it is a business that all the financing and lease companies want and they are eager to get it so it's not an issue. We could have one lease company come and go a day and it would have no impact on our business.

okay. Last question and I will get off, the National Technology Leasing was a part of your last business, Jeff, HTM (ph). Is that right?

That's not correct. They have never been affiliated or a part of the business. We may or may not have -- I do not even know if they financed part of that business, whether they financed deals for customers.

Okay. The question remains, I'm just wondering if -- why -- it looked like an opportunity to me -- I'm wondering why we let that business go. I know you don't want the recourse. I'm sure that investors are happy for that but kind of the placement -- you -- the dentist signs a lease for 10 percent and we it to a community bank somewhere at 8 percent and there is a nice spread being made. Does the Company benefit at all from that or not really?

Not at all. In fact we do not sell them in the way you are describing it. We have a purchase order with the dentist who purchases the equipment which he signs for a price and that price is the price that whoever the dentist wants to use for that transaction pays to us.

Yes, I know. I understand that. I was referring to the selling of the paper if you will, the loan being made?

We do not sell the paper.

You don't, I understand that. Okay, thank you.

Austin Hopper of HWH (ph) Capital.

Good morning. A couple of questions. First of all, could you tell us what finished goods were as a percentage of total inventory, or just the number for finished goods?

Yes. I'm sorry I do not have that right in front of me. That will be in our 10-Q coming out shortly.

Okay. Secondly, in the past, I know at least one time, you disclosed sales levels you achieved at CDA and I was hoping you might be able to talk about CDA this year in terms of units or dollars and if it was in line with expectations?

We have not been disclosing sales on a show by show basis for a very longtime. Early on in the stages of the Company it was a much more significant event than it is at this point and consequently, that type of reporting was not continued.

Okay. I think you last said on April 25 of 01 so it was a couple of years ago.

Finally, after a dentist buys the laser if the dentist for some reason in a short period of time decides he or she does not like it or want to keep it, is there any way for the dentist to give the laser back and somehow get out of the lease?

We sell -- the transactions are final. When they buy it, it's just like when you purchase a car or something of that nature. When you sign the documents when you purchase it, you have bought it.

So there is no sort of short trial period, 30 day, 60 day period or anything like that?

We do not do rights of return. If a customer wants to see how the product functions, what they do is they line them up to go to another dentist's office who has the equipment and they can observe how it works and how to use it in this other dentist's office and there are installed bases and such that that is a luxury bit that we have. Early on, we still did that. It's just much easier to do now because of the large increase in the installed base.

Okay, thank you.

Justin Hughes of Blackbird.

Hi, yes. Good morning. A couple of questions, just real quick bookkeeping. Can you give us what the breakdown as far as what percentage of accounts receivable is due for National Technology Leasing?

No, I cannot give that to you at the moment.

Okay. A quick question then, do you know if NTL retains any other leases of brokers, is that something you guys know about? I know they broker them but do they retain any of the paper?

We wouldn't even now.

Okay, let me move on here. Given the success in selling Waterlase systems this quarter, I was wondering if you could touch on what you consider to be the key differentiating feature of the system that really makes it so attractive to dentists. you guys are really doing a great job of selling them and I am just curious, is it is a feature that really sets out or differentiates the Waterlase? Is the water cutting (ph) the teeth?

Keith, do you want to answer that?

Sure. If you read through the literature and see, the basic thing that is kind of the thing that sticks out is the fact that they can do procedures without anesthesia in most cases. That is one of the things that is very appealing to the dentist. It's very appealing to the patients. There are a lot of other things that are appealing to the dentist that lets them expand the types of procedures that they are doing, going from just doing hard tissue to soft tissue. The marketing appeal, lots of things that appeal to the dentist and also to the patients.

Okay but as far as water cutting the teeth, that would a differentiating technology feature, I guess, right?

Absolutely yes.

As I understand it, for water to cut a hard surface like a tooth, requires it to be pressurized about 40,000 psi and be traveling about Mach 2. Can you give a little insight --

Totally different technology.

Okay. How --

We are not cutting through high-pressure like they would for example to cut rock or something like that.

The fundamental of how our product works is a combination of laser with water and the two work together in the cutting process and that's the essence of it. If you go beyond that, you are welcome to research the web site and read the literature but that is how our product is presented and how it works (inaudible) the water work.

I was confused. Just so I can understand it, is it the water then, cutting the teeth or not?

It's a combination of the two.

Okay. So if I turned the laser off, I could not cut the tooth?

Correct.

Last question. Does BioLase or any of it's officers have any business relationships with Stewart Goddard (ph) or any leasing entity with which he is affiliated such as Highland Capital (ph) or Great America?

I don't even know who he is.

He is the person doing most of the business with National Technology.

Okay. Well, I personally do not know the gentlemen, sir.

Okay. I've never heard him, never met him and don't even --

BioLase does not have any relationship with him?

No.

Okay, thank you all.

Alex Arrow of Lazard.

Thank you. First Jeff, your rapidly declining sales and marketing expense SG&A was down a few hundred basis points quarter over quarter, which speaks to sales efficiency and also raises the question is what are you cutting back on any other advertising initiatives that you had (inaudible) on? You said there was potentially some select geographic areas direct to consumer advertising that you had been doing on an experimental basis and thought you might roll out more throughout the year. Should we look at that declining SG&A line and think that you scaled back on your plans for some of that otherwise more aggressive advertising spend that you might have done?

No, we have not scaled back in advertising and we have no intention of doing it. That is a calendar fluctuation, as well as getting more efficiency because of the size of the Company. You will see some variation both up and down of the sales and marketing because of the different events throughout the year. We have not scaled back Alex.

Okay. It's just when the events fall in a given quarter, that's responsible for that?

That's a big part of it and just the growth, those things combined.

Okay, second I have a question that is maybe best directed to Keith, sort of a selling question. We had been picking up that recently part of the sales pitch that some of your reps were using involved the Section 179 of the June Bush Tax Law in which small businesses, meaning solo practitioner dentists, can write off the cost of equipment that they purchase in the first year as long as it is a capitalized lease. To us it looks -- First of all, I guess part A of my question is are your sales reps in any way promoting this or using this and part B is is it an operating lease because it looked to us like it did not qualify as an operating lease if (ph) at the end of the lease you don't get to keep the laser. Can you comment on whether that's a factor?

Actually, our salespeople typically -- we do not even need to do that because it is something the dentists are aware of that there's an increase in the Section 179 for the year and they actually typically will ask us. As far as the type of lease, that totally depends on the doctor and what they do with the leasing company, whether it's a capital or whether it's just a lease finance or a true lease.

All of these lease companies have various programs and they give them different names but there are various operating leases, various capital leases. There are some with higher and lower buyouts. There's such a wide variety there that we couldn't even begin to cover it in this call but we know that different companies that provide leasing to our customers have different programs or different buyouts or no buyout etc..

Okay thanks and last, are you willing to make any comments, even if it sort of a vague comment on the breakout between consumables, what portion of these robust revenues you just reported are coming from your disposable laser techs versus the boxes (ph) themselves?

At this point in time because of the scope of the registration, it would not be appropriate for us.

Okay, thanks a lot.

Thank you.

Terry Casternack of Conseco.

Hi. I wanted to understand for your domestic sales force, how much of their time do they spend visiting individual dentist offices if any, versus attending tradeshows and things like that?

The large majority of their time is spent in meetings with individual dentists. All of the reps typically will have state shows that they attend, seminars that we put on that on any given day, the majority of their time is spent with individual dentists which is the most effective way for them to be closing.

Okay and how many dentists would they typically visit in a day? I'm just trying to get an idea.

It really just depends on the activities. What they like to do is they like to have meetings set up where they are meeting one-on-one with a specific dentist during a lunch hour, after hours, whatever it might be appropriate for them to do that. It would be impossible to really determine how many they would see in a day. Obviously, if they have a seminar that they have 20 doctors at, they are going to see more doctors that day than they would on a day when they did not have a seminar.

Do you have an idea of what their success rate is when they visit individual dentists?

You know, I --

First of all Keith, none of that is in the scope of our filings (inaudible).

But just historically, you can't comment because of the filing on historical --

I don't think we should.

Okay. And then just on the compensation structure for the salespeople, how much of their earnings comes from commission versus salary?

That isn't public information either.

Okay, all right. Thanks.

Thank you.

Ryan Sorritero of Integrated Investments.

Yes, hello. I've got a couple of different questions for you. First of all, on share count, the basic shares went up 800,000 shares, diluted shares, a million shares, (inaudible) 5.5 million. 300,000 shares went to ADT (ph), where did the rest of the shares come from?

The shares issued in exercise of options and warrants. Various options and warrants, none of it was from management or insiders. They were all just outstanding options and warrants from other parties.

Okay. On the sales and marketing side, you've been adding salespeople and expanding the sales force. Does that -- have you pretty much reached a point where your (indiscernible) on that expansion at this time, is that one of the reasons why (indiscernible) was down so much?

The expansion will have phases where we may add three or four people and then there may be a little pause for assimilating those people and for preparing the next territory, so it's not exactly how you are looking at it, but there are different phases of expansion that could impact that percentage. So you are partially correct in your assumption.

Okay thanks. And last on the revenues, I know you are not going to break this out for us, but were there any revenues from ADT (ph) this quarter? Just to get an idea whether those are (indiscernible) actually ready and able to go out the door.

We are limited to what we disclose but I think we have already publicly disclosed in press releases that we put those products into production and beyond that, we can't comment.

Okay. So you have them in production, meaning that if the dentists ordered one, it could be delivered?

That's correct and I can say very quickly and confidently, we are more than on schedule and on plan with the integration.

Part of the purchase price included a significant amount of inventory, at least from what I could read had been written off by ADT as basically moving out the door too slowly to be counted as current inventory. Is all that inventory part of your goodwill from the purchase and is there a chance the inventory will be sold and become -- and reduce goodwill as a result?

Most of the valuation on the balance sheet as a result of that transaction is in the form of intangible assets. We did acquire some inventory and when our valuation report is finalized, that will be made public in our filing reports.

Okay thanks. That's it for me.

Thank you.

Juan Noble of Fahnestock.

Good morning everybody, congratulations on the quarter.

Thank you.

My questions have all been answered, thank you.

Thanks Juan.

Neil Sadler of (indiscernible) Securities.

(No response)

Your line is live, sir.

(No response)

Dana Phelps of Wedbush Morgan Securities.

Thank you. Good morning gentlemen and another congratulations. You are doing a terrific job. I just have two questions, one regarding market penetration. Last quarter, you had spoke that one of the most difficult part of the markets to get into was with the older, more established dentists. I wondered if that had changed and if you are making any marketing efforts to change that?

My second question and I will hang up is regarding total units sold year-to-date at this point. I know there is a tremendous market out there but you did have a total units number last quarter. Do you have one this quarter?

I can address the units question, no, we don't have an update for this quarter.

In terms of the marketing question, I will ask Keith to respond to that one.

As far as I am concerned, I do not think that was an accurate statement that anybody at BioLase ever said as far as selling to established dentists. That's obviously one of our key markets.

Hello?

(No response)

We lost him. Hello?

(No Response)

Scott Bailey of Grandview Partners.

Hi Jeff and Ed. Congratulations again on another good quarter. I was looking at your overall sales number and it occurred to me that last quarter, you at least in general terms, broke out international versus domestic sales and if I recall correctly, it was roughly 60/40 domestic versus international. Is that percentage about the same here in the second quarter?

I don't believe that percentage breakout was correct for the first quarter but we have not disclosed the second quarter breakdown of sales. We will do that in our 10-Q to come out shortly.

It wasn't 60/40. It was the prior percentage breakout was quite different from that, I think it was --

I can't remember Scott, exactly. It was 23 percent international for 2002. That number I do recall, and unfortunately I cannot recall what it was for last year.

Okay. Where I was going here is about 18 months or two years ago, you were actively working on the FDA equivalent of approval in Japan. I believe it's the Showme (ph) approval and I know it's a long process in Japan, it's a very sizable market. I'm wondering if you could refresh my memory on the size of the Japanese market and given the fact that you've acquired ADT, whether their products, I know some of those have been selling in Japan, whether that will help you with the Showme approval or where you stand there?

Firstly, you are correct in that the Japanese market is always considered to be the largest in Asia and now there are some people who think China is a rival to it but it is a very large potential market and I can't give you another update on the approval other than it is in process and it is public knowledge that there is an approval owned by a dealer in Japan for the Pulse Master and given the circumstances, I cannot comment more on that.

Can you at least tell me or refresh my memory as to the number of dentists in Japan?

About 60,000 dentists.

Okay. Again, great quarter and thank you.

Thanks.

Jeff Myer of Porter Lavay (ph) and Rose.

(inaudible)

Justin Hughes of Blackbird.

Just to clarify, you had mentioned there's no relationship between HGN (ph) and National Tech. Was there a relationship between HGn and Michael Covelt (ph) ever? It seems like I read about that in some trade journal or something, it's been a while but I am not sure.

Michael Covelt has worked, as with many of these leasing companies, with various leasing companies and -- so I couldn't give you a real precise history of who Michael has worked for and who hasn't.

But did -- did HGN (ph), when you guys were over at HGN, did you do anything with Mike Covelt at all? I know he was running Federal Leasing too I believe.

Whether it was Federal Leasing or GE Capital -- my memory is GE Capital was one of the lease companies leasing equipment there and if my memory serves me correctly, he was with GE Capital at that time but I am not certain.

That is when HGN was working with them? Not sure?

Correct. I believe it was GE Capital.

All right, thank you all.

Nelson Kohl of (indiscernible) Partners.

Good morning. I was wondering if you guys can give a breakdown of sales between the LaserSmile and Waterlase? Also for the future now that you have acquired some lower-priced point products, will you be bridging down future sales in turn of the different product types?

We did break out the sales in our filing of the S3 and I would refer you to that. We will update that in our 10-Q report to come out here shortly.

Between the LaserSmile and the Waterlase?

Yes.

Okay, thank you.

Chris Fox, Kramer Rosenthal.

(No response)

Mr. Fox, your line is live.

(No response)

John Surresy of Gilford (ph) Securities.

(No response)

Sir, your line is live.

(No response)

It appears there are no further questions at this time.

Thank you. We want to thank all of the shareholders and those interested in BioLase for joining us on the call today and we look forward to talking to you again at the end of the next quarter. Goodbye.

(CALLER INSTRUCTIONS).

(CONFERENCE CALL CONCLUDED)