BIOLASE Inc (BIOL) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the BioLase Technology, Incorporated 2009 First Quarter Results Conference Call.

During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions).

I would now like to turn the conference over to Rene Caron of Allen and Caron. Please go ahead, sir.

Thank you, Mitch, and good afternoon, everyone, and thank you for joining us for the BioLase 2009 First Quarter Results Conference Call.

You should have all received a copy by e-mail this afternoon of the release announcing the Company's results for its first quarter ended March 31, 2009. If any of you did not receive a copy of the news release, please call our office after the conference call at 949-474-4300, and we'll be happy to e-mail you a copy of the release

Before we get underway, I have been asked to make the following statement. The words or phrases can be, expects, may affect, may depend, believes, estimates, projects, and similar words and phrases are intended to identify forward-looking statements.

Forward-looking statements are subject to various known and unknown risks and uncertainties, and BioLase cautions you that any forward-looking information provided is not a guarantee of future performance. Actual results could differ materially from those anticipated in these forward-looking statements due to a number of factors, some of which are beyond BioLase's control, and may be discussed in BioLase's filings with the Securities and Exchange Commission.

All such forward-looking statements are current only as of the date on which the statements are made.

BioLase does not undertake any obligation to publicly update any forward-looking statements to reflect events or circumstances after the date on which any such statement was made or reflect the occurrence of unanticipated events.

Also, as a quick reminder, a replay of the conference call will be available on BioLase's website at www.BioLase.com. The Company's 2009 first quarter results can also be found in the Company's quarterly report on Form 10-Q, which the Company plans to file on May 8 with the Securities and Exchange Commission.

With me on the call today from BioLase are Dave Mulder, the Company's Chief Executive Officer, and Fred Capallo, Interim Chief Financial Officer. Dave and Fred will review some prepared remarks, including an update on the business operational performance and outlook. They will then conduct a question-and-answer session and end the call with a few closing remarks.

During today's conference call, we will also be taking questions by e-mail, which, time permitting, will be asked at the end of the telephone question-and-answer session.

For those participating on the call over the Internet and who wish to submit a question by e-mail to be considered for the Q&A period, please send your question to Jill Bertotti at Jill@allencaron.com. Please submit your questions as early in the call as possible. If questions sent in by e-mail have not been previously answered during management's opening remarks or in response to an earlier question, they will be asked of management as time permits.

With that said, I'd now like to turn the call over to Dave. Good afternoon, Dave.

Thank you, Rene.

Welcome to all of you to our first quarter results conference call, and thank you for participating. Today, we will review the progress we have made here at BioLase since our last call, including some of the key strategic initiatives underway, Fred Capallo will summarize the financial results for the quarter, and then we will open up for your questions at the end of the program.

Difficult economic conditions hampered our closing rates for laser systems during the first quarter. In fact, January and February were two of our weakest end-user selling months in recent history. Those economic conditions have not dissipated, but the recent launch of the Waterlase MD Turbo helped improve March sales, and early end-user sales from the second quarter give us cautious optimism that the market is returning slowly.

April end-user sales were better than January and February combined. Part of that upswing is also due to aggressive new sales and marketing programs we have recently designed and have only just begun to launch with our partner, Henry Schein.

I've been in the CE office now for a little over two months. I've spent a significant amount of that time talking directly with our sales leadership, on the road with sales reps, visiting doctors' offices, working with the senior management of Henry Schein, and visiting doctors' offices and talking to our other international distributors around the globe.

I did this call at 5 AM in Korea this morning and will be helping to launch the Turbo at a major trade show here later today. I feel the need for a CEO to be hands on and in the field is critical to our business.

A few of the highlights of the last quarter and some recent events are in a press release this morning. I would like to discuss a little more about a couple of those points.

The global launch of our new Waterlase MD turbo hard and soft tissue dental laser system, which offers a cutting speed that rivals the old technology of the conventional metal drill has been going very well.

Cutting speed has been a key factor mentioned by many dentists that have not yet gotten into laser dentistry. For example, sometimes when we are showing the value of a laser at a tradeshow, when a dentist saw it and it did not cut as fast as his drill, you could lose him right away. So besides the renewed interest this is generating and the additional benefits that our doctors will get from this, it's also a great, strong door opener right upfront.

We want to take care of our doctors before and after they buy a Waterlase laser. The global launch of our new Waterlase MD Turbo upgrade kit for the Waterlase MD is a strong example of that. We have shipped a couple of hundred of these upgrades already, and it is in a very strong backorder status around the globe. We'll begin shipping in larger quantities in late May and through June, but with the growing demand, may not fully catch up until July.

In today's environment, we recently shifted our marketing strategy to a much harder focus on the additional revenues and return on investment that a fully trained Waterlase dentist can earn. In my travels out into the field and in talking to the sales reps of ourselves, Schein, and our other distributors, I think one major issue we have is that our product is seen as a luxury item. We have set out to prove that that perception is wrong and to change it.

This is a critical everyday tool in many doctors' offices today that generates more revenues and a stronger turn on investment. With additional procedures, enhanced efficiencies, and more patients, we generally see a fully trained Waterlase dentist making an extra $70,000 to $150,000 per year. Some start slower and then build rapidly; others have greatly exceeded those numbers.

We need to get that message out, especially today. The doctors' real estate and retirement funds might return one day, but the doctors they are missing now are gone forever, and we plan to help them.

Another learning from the field is our need to work more with specialists, as well as generalists. Some of our best groundbreaking procedures are established through specialists, and the faster cutting speed of the Turbo is something that will provide even more benefit.

To move forward with specialists, we recently launched weekly Webinars to review key areas of dentistry where BioLase products can be used, complete with demonstration, which can be reviewed at www.BioLase.com. Currently announced Webinars cover procedures and benefits for orthodontists, endodontists, pediatric dentists, periodontists, and oral surgeons. With over 250 doctors signing in for the early Webinars, we will be doing more on pain management and other areas in the future. This has been a great low-cost way for us to show what can be done with the laser and in approaching our market.

On international fronts, during the first quarter, we made the decision to begin the transition of sales in countries served by our foreign subsidiaries located in Germany, Spain, Australia, and New Zealand from direct to distributor. As part of our revised agreement with Henry Schein, Henry Schein will become our distributor in each of these countries and more countries around the world where we do not already have a presence.

As a result of these developments, we have nearly completed the process of reducing the operations of those foreign subsidiaries. Those direct subsidiaries have been recording significant losses ever since being established to sell direct in those countries year ago -- years ago. However, it is very important to us that we do not abandon any of our customers or our doctors in any country, and we will -- and we held those businesses open until we could work out a smooth transition to take care of them all.

On the product development and regulatory side of the shop, we were very pleased to receive FDA 510(K) clearance to market our ezLase diodes laser system for therapeutic applications, including temporary pain relief. This clearance allows us to make new claims regarding dental applications for pain relief, increasing the utilization of the device for our dentist customers and improving further their patient care and return on investment.

We now have the only dental diode laser system that is cleared for soft tissue procedures, teeth whitening, and pain relief. This is yet another milestone towards our goal of increasing patient satisfaction, improved outcomes, and enhanced practice profitability, positioning our laser system as the instruments of choice among practitioners and patients.

In addition, the clearance opens the door for non-dental applications with orthopedics, chiropractic practices, and other specialties. We will continue to explore the opportunities to partner with distributors to sell the technology in those areas.

As we indicated in the release, we continue to implement substantial cost-reduction measures in the first quarter that began in the fourth quarter of last year, including the reduction of employees and expenses throughout all functional areas of the business. We have reduced our headcount from approximately 234 this September 30 to approximately 140 as of March 31.

It's very important to note that despite these necessary cuts, we intend to maintain our position as the leader in top-notch customer service and laser dentistry training, as well as to continue our tradition of leading innovation and product development in the dental and medical laser field.

Our R&D budget for 2009 is expected to be around $4 million and includes new product development projects and enhancements designed to widen our product family of innovative lasers, contributing to our penetration and expansion in the marketplace.

On the legal front, one of my first priorities as CEO was to clean up certain legal matters that were both distracting and a waste of resources. I am pleased to have reached the final settlement agreement with National Laser Technology resolving the claims and counterclaims between the parties concerning NLT sale of used BioLase dental lasers. Both parties' claims will be dismissed with prejudice.

Moving past the transitions in the first quarter, we are looking to the rest of the coming year from a position of growing strength despite the challenges that exist. We fully intend to maintain our worldwide market share in laser dentistry, as well as to continue our tradition of leading innovation and product developments in the dental and medical laser field. We expect the lower cost structure we have largely implemented in the first quarter to help drive the positive cash flow in the coming quarters and to better position BioLase to prosper as the economy improves and revenues begin to rise again.

Before I turn over the call to Fred, I wanted to discuss our working capital model. As I have shared in past calls and presentations, the old working model, capital model of BioLase, focused on high quarter-end stocking purchases that provided large quarter-end cash balances that basically declined throughout the quarter and then the process was repeated at quarter end again. Our new process consists of steady distributor orders throughout the quarter, providing much more predictability in production and working capital needs.

In April, cash balances improved from $1.8 million to $2.6 million. We survived one of the most difficult quarters in the Company's history and rapidly emerged with a model that we believe can generate cash.

With that, I will now hand the call over to Fred Capallo, our interim CFO, to go through the highlights of our financial results for the quarter.

Thank you, Dave.

Total 2009 first quarter sales were $6.6 million compared to $19 million in the same period last year, a decline of 65%.

Revenues in the first quarter continued to be impacted by the economy and credit markets, resulting in delayed decisions by dentists to purchase higher-priced capital equipment, while the full impact of our revised distribution agreement with Henry Schein was not felt because the agreement was signed late in the quarter.

Sales were also impacted by the closure of unprofitable foreign subsidiaries and the start-up timing of new international distributor agreements.

Total laser system net revenue was $3.8 million in the quarter, compared to $15.2 million in last year's first quarter.

Non-laser system net revenue, which includes consumable products, advanced training programs, extended service contracts, and shipping revenue, decreased 17%, or about $468,000 during the quarter to $2.3 million from $2.8 million from the first quarter of 2008.

License fees and royalty income decreased to $475,000 in this year's first quarter, compared to $1 million in the last year's first quarter.

Now, I would like to provide a breakout of sales by region.

For this year's first quarter, domestic revenues were $4.6 million, or 70% of net revenue, compared to $14 million, or 74% of net revenue for the prior-year period.

International revenues for the 2009 first quarter were $2 million, or 30% of net revenue, compared to $5 million, or 26% of net revenue in the first quarter of last year.

Gross profit for the first quarter of this year was $1.8 million, or 27% of net revenue, and this compares to gross profit of $9.6 million, or 50% of net revenue for the prior-year period. The decrease was due primarily to a one-time write-down of inventories related to the international subsidiary closures and the excess inventory created by a sales mix shift towards new Waterlase MD Turbos and the ezLase diode laser.

Gross margins were also impacted by lower volume, lower average net pricing, and promotion costs being spread over fewer units and a decrease in license and royalty revenues.

The impact of fixed departmental cost reductions that were completed during the quarter were not fully realized because some of these reductions were implemented at the end of the quarter.

Operating expenses for the first quarter of 2009 were $6.7 million, which included $602,000 in severance and related costs associated with the departure of our former CEO and also the workforce reduction at our international operations. However, they were still down by $3.4 million from the first quarter of 2008.

The net loss for the 2009 first quarter was $4.7 million, or $0.19 loss per share, compared to a net income of $26,000 for the prior-year period.

Turning to the balance sheet, as of March 31, 2009, we showed cash and cash equivalents of $1.8 million, total assets of $21.9 million, and total stockholders' equity of $4.9 million.

The line of credit with Comerica Bank was repaid during the quarter with cash on hand and closed, and the Company remains bank debt-free at this time.

We also paid down $3.2 million in accounts payable over the quarter and are in good standing with our vendors. We believe that with the minimum purchase agreement cash flows twice a month and our lower cost structure, we will have sufficient resources to meet our obligations and sustain operations.

That concludes our formal prepared remarks. We would like to now open up the call for questions. Operator?

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator instructions)

And our first question comes from the line of [Carlton Savoy] with Princeton Capital Management. Go ahead, please.

Hey, guys. Just a question. In talking to dentists and also the reps, I've just a feeling through the quarter, is it a trade credit problem, just fear, or actual traffic that is declining, or a combination of all three, that's keeping dentists from spending money on your products?

What we've seen is because of all the economic crisis and all the concerns that were happening, we saw a lot of people kind of freezing up, a lot of doctors just kind of freezing up, walking to the edge, and then just stopping on the decision.

Also in my travels, I've been to some trade associations, and I've actually been talking to some of our competitors in the industry who tell me the same thing. In January/February, they saw doctors coming right to the edge who'd normally be making the purchase decision who were just holding off. I think a big part of that is everybody was just wondering what the new world was going to look like.

I think as we got into March and we're coming into April, I think everyone has started getting a feel of it. They've started getting a lot more comfortable with what the new world looks like. People are still coming into their offices. They have a regular pattern of folks coming in. With a lot of them, it's not as many as they had before, and some of them are actually looking for something to enhance our revenue. But people are now, I think, in general, starting to get a better idea of what the world looks like and getting more comfortable with it, and I think they're moving back to make more purchase decisions, but I think especially on high-end products, the ezLase, which is our lower-end offering, was still moving very nicely in diodes, but I think on higher-end purchases, we saw a lot of hesitation, but some of that is now, I think -- I think doctors are now getting past that hesitation.

Are you hearing -- thank you for that. Are you hearing that patient traffic has slowed dramatically during those two months, or was it literally just the dentists holding off?

What I heard was in the fourth quarter we saw a lot of patients dropping off in October. I hear things went back to a slightly more normal level in November/December. In January and February, I heard some mixed results. I heard some dentists had had more coming in than the prior quarter, but a lot of that starts with new dental programs starting up at the beginning of the year. A lot of patients like to wait until their insurance gets some coverage, so we saw a few more coming in getting comfortable.

I still think -- and from what I've heard, some traffic is still down. We're talking to some doctors who've had -- in general, traffic is still down a little bit in the dental industry, but unfortunately, there's not a lot of published data right now, so a lot of what you get is word of mouth.

Okay. One last question, and then I'll get off. Is the guaranteed or agreed-to sales by Schein, you said that -- did that kick in in March at all? When did that officially kick in? And is it roughly equivalent through the quarters? In other words, it's going to be roughly $7 million per quarter, and it's going to be roughly equal across all the months in the quarter. So did it start in March, or did it start in April, the guaranteed sales to Schein?

The purchases started in March in a small way, and they didn't really kick in in our shipments, our bigger shipments until April.

Okay.

A lot of the sales throughout the quarter is actually sold through our distributors, and a lot of the restocking is done later in the quarter anyway.

All right.

But most of our shipments on those minimums really started going on a steadier basis in April.

Okay, very good. Thank you.

Thank you. And our next question comes from the line of Dalton Chandler with Needham and Company. Go ahead, please.

Hi. Good afternoon.

Hi, Dalton.

I apologize. We're getting a boarding call here since my question came up, but your comments about the Schein deal being signed late in the quarter and not giving you any help, were you referring specifically to the international piece of that?

The international piece -- yes, there's two components to it. The Schein deal is a global deal with global minimums, and the real help starting -- the sales to them -- domestically and internationally, they started placing orders, steady orders, like I said, towards the end of the quarter, and we started shipping them, and some of those orders that they placed weren't even shipped until April.

Internationally, while we went through a transition period, we were taking down our sales force and taking up Schein's, and that transition definitely cost us some sales in the quarter internationally.

Right. Well, I guess the question is you already had a domestic relationship with them, but internationally, this is new. So how long do you expect that to take to normalize in the international market?

I think it will probably take -- our sales may go down just a little bit as we transition internationally in those markets as we transition to the new sales force of Schein. They're very good. Some of them have actually worked with us. In Australia, they were already carrying the diodes, and in some cases, in Germany and Spain and in other locations, the people that we have actually running the countries were hired by Schein. So they've actually picked up a lot of our people.

So I think the transition will be -- the transition is going very smoothly, but I don't think our sales will match what we were doing before immediately. I think it will ramp up. I think the biggest benefit to our business is now those sales are going to be -- any and all of those sales are going to be incrementally profitable to the Company, whereas before, the high infrastructure costs that we were maintaining internationally, despite a little more on the top line, the bottom line was being dragged down by those [inaudible - technical difficulty]. So we've relieved ourselves of that [inaudible - technical difficulty].

Okay. [Inaudible - technical difficulties] infrastructure costs not completely gone, or are you still going to have to carry some of that through the transition period?

Our infrastructure costs are pretty much completely gone at the end of the first quarter. What we are carrying is we do intend to support these markets.

We have kept the leadership of the Asia-Pacific region, who is also running our Australian business. He is still in place. We've kept our top-selling rep, who is managing Spain. We have kept him in place. So in both regions, we have somebody that can work with Schein and our other distributors to help them sell and to be a point person.

And in Europe, what we decided to do was rather than completely shut down our facility there, we've kept a small facility with three key great employees there just to help make sure we manage the flow to all of our distributors. But most of the other people have all been let go and transitioned out.

Okay. And then just a final question on the Waterlase. What was the mix like in the quarter between the C100, the [DMV], and the MD Turbo?

Well, Fred, do you want to help out on the ezLase mix and the Turbo -- or the MD mix?

Sure.

Right now, a lot of turbos were not shipped at the end of the quarter. Fred, can you help with the mix on that?

Sure.

I realize it's probably not the best quarter to be looking at the numbers. Maybe you could also talk about what you see in the pipeline.

So I can answer at least the first part of that question. With regard to the Waterlase sales, we're approximately $2.8 million in total worldwide, or about 41% of our revenues, and the ezLase product accounted for approximately 16%, or $1 million.

Okay. I was asking about within the Waterlase family, so you get the C100 and the MD and then the MD Turbo.

The majority of the revenue currently is through the MD Turbo.

Okay. Okay, thanks a lot.

That was a big pick-up for us at the end of the quarter. As I said before, January and February were just incredibly light months, and March, things started coming back again, and April is looking a lot stronger than the front end of the prior.

Okay. Thanks.

Thank you. And we have no further audio questions at this time. I would now like to turn the conference back over to Rene Caron.

Thank you, Mitch.

We do have a few e-mail questions that I would like to go over, Dave, so the first of those questions deals with the Schein agreement. Now, can you describe the primary differences between the old Schein agreement and the one that you're currently operating on, the new one?

Yes. We formed a relationship with Henry Schein three years ago, and I think in that initial agreement, there were no minimums at all. When we formed that agreement, we basically split the margin with them. I think we had a price increase at the time. But we kept all of the company's internal sales and marketing infrastructure, and I think that was because management at the time knew -- management and the board knew at the time they didn't have solid minimums, and so it was difficult to make moves to reduce some of those expenses.

Over the years, we've moved towards some minimums, but the terms in the agreement, things like needing to miss two quarters in a row and some of the high-growth built into minimums made them something that got into much more of a negotiating position towards the end of the quarter. They weren't very hard minimums. There's loopholes, etcetera.

And obviously, the way the fourth quarter looked and the way the beginning of the first quarter was looking, those minimums weren't going to take place.

So in order to get comfortable taking our cost structure down, doing what the Company needed to do, it was very important for us to secure solid minimums that we could rely on. We went to Schein. We discussed this with them. They fully agreed. They're huge supporters of the business. We've sat down with them recently, and we went over every single competitors in the marketplace and what the key -- what key opportunities are, and they agreed that we'd probably have the best -- they've agreed we've got the best technology out there, loved it, and wanted to re-up and go forward with us. So we got the solid minimums that we need. So these are rock-solid minimums that we need to survive. These aren't focused on high-level targets; they're focused on making sure that we've got a cash flow and top line and that we can support everything that we need to support from around the world and carry out laser dentistry throughout the world as we've been doing.

Okay, another question that's related to the Schein agreement, what exclusives does Schein have now that they did not have before under the old agreement?

Well, we wanted solid minimums with Henry Schein, and we wanted more international growth. We have a lot of dealers in many countries, but we have a lot of countries where we don't have a presence at all.

And as we're faced on improving the sales of our current international dealers with Henry Schein, who has a very, very broad reach, we wanted to work with him to expand out into new territories and that -- so that goes beyond the countries where we've already announced with -- and as a matter of fact, beyond the countries who have already announced with Henry Schein. We're already looking at quite a few other ones where we haven't had a presence in quite some time or we don't have a presence.

Italy is a top target for us. Right now, I think that's moving along very, very rapidly, and the way the agreement works is they have exclusives to sell in any country where we do not have an existing distributor agreement. If we go into a new country, they have a right of first refusal, and basically through the end of this year, they have a right to launch and go into any country they want to go in where we don't have an existing presence.

I just want to point out to my other valued international distributors out there who may be listening to the call and who I've been talking to out here, I just had a big position -- a meeting with all our international distributors here that they're very important to us and those relationships are also key to the business, which is why I've been out here spending time with them now.

Okay, under the -- with the new Schein agreement, has there been any change in the way your sales forces are working together? And how are they working together during this new -- under this new relationship?

The agreement itself didn't necessarily change the way we're working together. However, rock-solid minimums that says you're going to be purchasing something pretty much no matter what, definitely puts skin in the game and gets everybody interested in working together even better. I mean Schein's been a huge -- had a huge commitment to us, they've had a big investment in this, and the solid minimums just proves that out even stronger.

Our sales forces are working together well. The leads have generally been generated by the Schein reps, a lot of them have, and generally closed by our reps. We've taken steps over the last year to try to improve the process to help their reps better understand our products and to build better relationships with those reps.

We took a lot of solid steps, but one thing that I've noticed was some of these efforts took away some of our direct selling time. In some cases, 30 to 40% of the time of one of our guys was spent working with the Schein reps, and we want some of that direct time back.

Also, what we've noticed with -- and with so many economic and other factors going on, it's sometimes difficult to say what did and didn't work. But one thing that -- we want some of our reps to spend more time on direct selling again, and another point is I think we've -- as we went out and tried to sell over 1,000 reps at Schein on the benefits of our product, one thing we've noticed is that usually it's a few of the passionate ones that said, "Hey, I really get this. I really understand this. I really want this for my dentist."

Some of those have really stepped up and done great, and others are very busy with a lot of products to sell. And so we are working on some changes with Schein to allow our guys to have more direct selling time and to focus more on some real champions in their business and get them going. They will be -- we will be rolling out some changes there, and I think they will be, but I don't think we're ready to talk about that in detail right now, but I feel very, very good about some of the programs and some of the adjustments that we're going to make.

We've made some great steps in working closely together over the last year. We both took a step back and looked at what's working, what's not working, where can we improve, and what can we do better, and in a meeting we had basically together in mid-March, we set aside some plans that I think are going to be very, very positive. Some of those have started, and some of that has actually started helping to actually boost where we are today.

Good. Another question not having to do with the Schein agreement, is you've been CEO for a while, and could you just share with us the differences in your point of view, Dave, about the business and what's going on in the world and the former CEOs?

Oh, okay. You know, as far as the most recent former CEO, Jake, he and I agreed very much on the need to improve processes of the business, particularly related to the training and servicing of our doctors.

In comparison to some of the CEOs of the past, I think one of the biggest differences between myself and them is that I feel we really need to live within our means and generate cash as a business. I think that's very important. And I think that comes clear in everything I'm doing right now. While we haven't been improving the sales line over where we were from January/February, it's very important that we're in a position where we can generate cash for the business and have an ongoing strong business.

My goal right now -- people have asked me, "What's your goals right now? How are you going to going to grow the company?" And I said, right now, there's an economic crisis. My feeling right now is we need -- my goal right now is to make sure this company and everything it represents survives because with that survival, with the products that we have in the pipeline, with the new things that we have going on, we're confident that we can get growing again after we get through this economic time. But right now, when you're in a situation like this, you must survive; you must do what you need to do.

My wife is Chinese. She was a professor in China, a very well-educated woman with a lot of wisdom, and one thing she tells me is that "a man needs to know when to shrink and when to grow." Last quarter, it was our time to shrink. Soon it will be our time to grow.

Another difference I guess -- I embrace getting into the field, traveling with reps, getting their input into marketing and sales directly, visiting our international dealers and getting into their markets, understanding their opportunities and how we can better work together. I don't like to go through consultants, and I think this company is too small to have an infrastructure where the CEO isn't directly out in the field.

And one thing I've noticed as I've gone out into the field, in Hong Kong, they said, "A CEO from BioLase has never visited us here before." I've heard that quite a bit, and I haven't seen a lot -- I've heard that not a lot of CEOs have spent a lot of time traveling, traveling with reps and actually getting in touch with the market, so I think that's kind of a big difference.

Good. The next question has to do with cash flow, and do you feel that you're on track to achieve a positive cash flow status sometime in the second quarter?

Yes, we generate cash in April, yes.

Can you give us some additional insight on the pain relief clearance? And what additional markets do you plan to go into now that you've got the FDA clearance for pain relief?

Thanks. A big one is chiropractic. As a matter of fact, we've already been working with chiropractors. We've got about half a dozen units. We're waiting to get -- we're making an enhancement in -- right now, we're using our whitening hand paste, which works very, very well for pain management, but it'll work a little better if we focus it, so we're going to do a new hand piece for that, which will be available soon, and we're going to put that in the hands of about five chiropractors, get them working on it, try to develop some specific applications that they can use it for. We see some real opportunities in that market, and we think we've got a product right now because we're producing [en masse] that can really hit that market hard and well.

We're talking to Henry Schein. We'll be having some more discussions with them about whether they would like to pick it up and what markets they might like to try it out in.

We've also been approached by other distributors and other people with ideas, so right now, we're sorting through all those. But we do think that probably chiropractic is an area that we'll go into early on. There's others that we're also studying right now, and I would like to devote -- once I think we get through getting the sales back and running in our core, I'd like to start devoting a little more time to that, but we are already looking at alternatives there.

Okay, and we have one more question, Dave, and it has to do with gross margins. What do you expect the gross margins to be for the rest of the year, and do you have a target that you're shooting for?

Our gross margins historically have been in the low 50% range. I anticipate going forward they will continue to be in the high 40% to low 50% range. But right now, I'm thinking to be conservative, I'm thinking the high 40s. I believe that we haven't made a whole lot of changes. Some of our pricing has been moved, but if we look historically at some of the negotiations that we've done on a constant basis, one thing that we've -- a lot of that is now gone. We have fixed prices. And some of those net prices aren't too bad right now, and we're focusing on -- we're adjusting some of our programs, too, to be a little more focused. So I believe our margins will hold up fairly well.

And a big part of that, too, is the reduction in the fixed infrastructure costs. We've had a lot of fixed infrastructure costs that's included in cost of goods, and we've reduced that quite a bit. So that will help hold those margins around the 50% plus or minus range.

Okay, good. Thank you. That was our last e-mail question for today's call, so I'd now like to turn the call back over to you, Dave, for your closing remarks.

Okay. Thanks very much.

Thank you. And ladies and gentlemen, this concludes the BioLase Technology, Incorporated 2009 First Quarter Results Conference Call. Thank you for your participation, and you may now disconnect.