BIOLASE Inc (BIOL) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the BioLase Technology Incorporated 2009 fourth quarter and year end results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Thursday, March 18, 2010.

I would now like to turn the conference over to our host, Mr. Matt Clawson of Allen & Caron. Please go ahead, sir.

Good morning, Alyssa, and good morning everyone else, and thanks for joining us today for the BioLase Technology fourth quarter and year end results conference call. You should have all received a copy by e-mail this morning of the release announcing the Company's results for the fourth quarter and year ended December 31, 2009. If any of you did not receive a copy of the news release, please call our office after the call at 949-474-4300, and we'll be happy to e-mail you a copy.

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 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 & Exchange Commission. All such forward-looking statements are current only as of the date on which 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 that statement was made or reflect the occurrence of unanticipated events.

Also as a quick reminder the replay of the conference call will be available on BioLase's website at www.BioLase.com. The Company's 2009 fourth quarter and year end results can also be found on the Company's quarterly reports on form 10-K which the Company plans to file tomorrow, March 19th with the Securities & Exchange Commission. With me on the call today from BioLase are Dave Mulder, the Company's Chief Executive Officer, and Brett Scott, Chief Financial Officer. Dave and Brett will review some prepared remarks, including an update on the business operational performance and outlook. They will then conduct a question and answer session at the end of the call, and will close with a few closing remarks.

During today's conference call, we'll be taking questions by e-mail, which time permitting, may be asked at the end of the telephone Q&A session. For those participating on the call over the internet 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 as possible in the call.

With that said, I would like to now turn the call over to Dave. Good morning, Dave.

Good morning, Matt. Thank you. We want to welcome all of you to our fourth quarter and year end results conference call, and thank you for participating. Today we'll review the progress we made here at BioLase for 2009 and since our last call, including some of the key strategic initiatives under ay. Brett will summarize the financial results for the quarter. I will make a few closing comments, and we will open up for your questions at the end of the program.

During the fourth quarter we were successful in stabilizing sales compared to last year, and holding down our year-over-year operating expenses, while expanding the use of our technology for additional dental procedures and new markets, as well as preparing for major product launch. As we discussed last year, the agreement with Henry Schein drives much our revenues. The first quarter sales guidance we issued this morning is more about a transition in that agreement than end-user sales. We like it when our products are innovative enough for us to be paid in advance.

Our latest break through, innovation and dialed lasers has a very similar feel for the breakthrough we had with the Waterlase Turbo hand piece in 2009. That hand piece broke down one of the last barriers to our revolutionary and patented Waterlase technology. Clinically, the Waterlase has shown its large superiority compared to the additional drill but the cutting speed was a barrier four some dentists. Overall time and satisfaction is high for patients and doctors with multi-quadrant procedures generally without the time delay of anesthetics.

Actual hard tissue cutting speed was about one third to half as fast as a high speed drill. Now we have broken the barrier of speed. We are now comparably fast with the Waterlase as the high speed drill on hard tissue but still with all the deep clinical advantages that the Waterlase brings, no heat, no vibrations, and no micro fractures, and in most of the time time no anesthetics.

As part of our new strategy to formalize more applications for specialists and general practitioners, we announced during the fourth quarter our deep pocket therapy with new attachment, using the Waterlase MD and patented radio firing periotips for a nonsurgical treatment for moderate to advanced gum disease. This new treatment in most cases provided deep pocket treatments in a single visit without a scalpel, stitches or cutting of the gums. FDA clearance for marketing for removing calculus in patients with periodontal disease was achieved in early September and feedback has been very positive. We expect papers to be published for the periodontal community very soon.

We also announced the first targeted commercialization of our intellectual property outside of core dental, with the launch of the Diolase 10 for therapeutic applications, including temporary pain relief, following our FDA clearance. While we are initially focusing on the sizable US chiropractic market, this product is part of a strategic expansion into the medical specialty markets which also includes sports medicine, orthopedics and physical therapy. During the year, we also prepared for the global launch of our newest product, the iLase dialed laser for the dental market. This revolutionary product is the world's first personal laser for dentists or hygienists to perform a full range of minimally invasive soft tissue and hygiene procedures, and takes advanced portability to a whole new level.

We believe the iLase is the best basic personal laser in the world. The iLase is being presold in selected approved countries and FDA approval in the United States was granted just earlier this week, and we're currently literally drafting up the order forms now and getting them out as quickly as possible to our Henry Schein partners. Shipments are expected to begin in the second quarter of this year. Early feedback from the debut of the iLase at the Chicago Dental Society midwinter show last month was very favorable. 2009 was a very challenging year for the medical capital equipment companies. While we were able to bring the Company to a near break even status on a non-GAAP basis, and have the best bottom line performance in six years.

More significantly, during the year, we did not wait for a turn around in the economy, but invested in growth for the future. We made several other significant changes earlier in the year, most notable was the renewal and expansion of our multi-year licensing and distribution agreement with Henry Schein, the largest provider of healthcare products and services in the world. In addition to an operational restructuring and changes to our debt structure earlier in the year, we implemented cost reductions designed to better match or cost structure profitability with those minimums offered by that agreement, and that resulted in two profitable quarters during the first and second quarter following that agreement.

With the period for the initial minimum purchase commitments for Schein ending March 31 of this year, we successfully amended this agreement last week. The new agreement provides monthly guaranteed minimum payments and upside opportunity to expand beyond those minimums. With strong incremental sales and margin incentives for us to expand into more nontraditional Schein accounts. To ensure we continue to support Henry Schein and capture that additional potential, we have already started expanding our North American salesforce, and it will approximately be double to where it was at the end of 2009.

Also today, we appointed Dr. Wayne Harrison as our new Vice President North American Dental Sales and Marketing. Before joining BioLase, Dr. Harrison had a career as a dentist, an educator and a top global luminary for noble biocare. Within BioLase, Dr. Harrison was a top performing sales representative and then served as our best performing regional sales director, while concurrently assisting us with new product development and marketing. As a team we are establishing a strong sales and marketing infrastructure, with internal management talent for the future and doing it with dental experience that cannot be matched.

Late in 2009, we did some sample lead generation work outside of traditional Schein accounts, which was very promising. The new deal gives us opportunity to pursue those accounts with a flexibility approaching the flexibility we held in our earlier years, when we were experiencing 30 to 70% growth. But we also have the ongoing support of Henry Schein with their core accounts, and with them we also have their infrastructure for consumables on all accounts, and in our opinion a fantastic win-win for the two companies. Prior to partnering with Henry Schein, approximately over 80% of our sales were to nontraditional Schein accounts. After that switch, it was just the opposite, with most of our sales going to Schein accounts. As a side note, we have been fishing that pond for a long time, very successfully, it is going well, but this enables us to expand out a little bit. So we see strong upside in this deal.

In addition, we focused on improving our international sales and made progress on several fronts. Schein joined our international efforts, taking over sales in Germany, Spain, Australia and New Zealand very early in 2009. After many years of hard work, rigorous testing and analysis of our Waterlase systems, we entered into the rapidly expanding Chinese markets and finalized three regional distribution agreements, right after getting our clearance. We have trained the teams of those distributors and they have now started putting in tender offers to the leading hospitals in China, hospitals are currently where most of the opportunity for our products exist today in China, with their infrastructure. After we have secured some of the top locations and luminaries, we will have built strong support for going after the vastly broader market from a position of real strength.

We also expanded our relationships into Benelux, Austria, Italy, France, South Africa and several other countries. In short, with the help of our partners we are doing what we said we were going to do during this economic downturn. We have held onto the gains we made throughout the year in the face of tough capital equipment markets, stabilized the Company through cost efficiencies, positioned BioLase to grow our market share when the economic recovery begins, and positioned the Company with opportunities to grow long-term, even if the economic recovery takes longer than expected.

Now I would like to turn the call over to Brett Scott, our Chief Financial Officer, who will review some of the financial results. Brett?

Thanks, Dave.

Let's start with revenues. Total 2009 fourth quarter sales were $10.4 million compared to $11.6 million in the same period last year. The change in revenue was driven primarily by lower licensing fees and reduced purchases by distributors. Total sales for the full year were $43.3 million, down 33% from the $64.6 million reported in 2008. Sales for 2009 were impacted by the adverse worldwide economic environment, the restructuring and closure of four of our direct international sales subsidiaries, and the ramp up of new distributors in those countries. Also impacting revenues were lower domestic purchases for the purchase agreement with Henry Schein, and again lower licensing fees and royalty income.

Total laser system net revenue for this year's fourth quarter and year was $7.8 million and $31.8 million respectively. Compared to $8.9 million and $52.4 million in the prior year periods, non-laser system net revenue, which includes consumable products, advanced training programs, extended service contracts, and shipping revenue, benefited from a 67% increase in consumable sales, and a 7% increase in global service revenues, driven by our initiatives to expand offerings in upgrades, accessories, and services to our existing customer base. For 2009, non-laser net revenue increased 20% to $10.4 million from $8.6 million in the prior year. This increase was due primarily to higher consumable sales, attributed largely to the release of the Waterlase MD turbo hand piece upgrade kit.

License fees and royalty income for the 2009 fourth quarter and year decreased to $17,000 and $1.2 million respectively compared to $875,000 and $3.6 million in the prior year's respective periods. The 2008 period included $1.5 million of amortization of the license fee from the Proctor & Gamble company, which was fully amortized as of December 31, 2008, and 1.7 of the Schein license fee recognized as compared to $1.1 million in 2009.

Now I would like to provide a breakout of sales by region. For this year's fourth quarter domestic sales were $6.8 million or 65% of net revenue compared to $8.2 million or 71% of net revenue for the prior year comparable period. For the year ended December 31, 2009, domestic revenues were $31.1 million or 72% of net revenue compared to $48.5 million or 75% of net revenue in 2008. International revenues for the 2009 fourth quarter were $3.6 million or 35% of net revenues compared to $3.4 million or 29% of net revenue in the fourth quarter of 2008. For the full year 2009, international revenues were $12.2 million, or 28% of net revenues, compared to $16.1 million, or 25% of net revenues in prior year.

Our gross profit for the fourth quarter of 2009 was $4.4 million or 42% of net revenue compared to the gross profit of $5.4 million or 47% of net revenue for the prior year period. This decrease was primarily due to lower licensing fees and a higher mix of international sales in the quarter, which have lower sales prices. For 2009, gross profit was $20.1 million or 46% of net revenue compared to the year earlier gross profit of $32.7 million or 51% of net revenue. The decrease was due largely to a one-time writedown of inventories in the first quarter of 2009, related to the international subsidiary closures, a decrease in licensing and royalty revenues, and lower volumes.

Operating expenses for the 2009 fourth quarter and year were $5.8 million and $23 million respectively, compared to $10.3 million and $41.4 million in the prior year's comparable period. This represented a 44% year-over-year decline for both periods. In late 2008, and continuing into 2009, we implemented significant cost reductions to help offset the negative impact of the current economic conditions. GAAP net loss for the fourth quarter of 2009 was $1.5 million or $0.06 per share compared with a loss of $5.3 million or $0.22 loss per share for the same period in 2008. Non-GAAP net loss was $888,000 or $0.04 per share on a non-GAAP basis for the fourth quarter of 2009, compared with non-GAAP net loss of $4.3 million or $0.18 loss per share on a non-GAAP basis for the similar quarter in 2008.

GAAP net loss for 2009 was $3 million or $0.12 loss per share compared to a net loss of $9.1 million or $0.38 loss per share in the prior year period. Non-GAAP net loss was $97,000 or $0.00 loss per share on a non-GAAP basis for 2009 compared with non-GAAP net loss of $5.3 million or $0.22 loss per share on a non-GAAP basis for 2008.

Turning to the balance sheet, as of December 31, 2009, we had cash and cash equivalents of $3 million, total assets of $22.2 million, and total stockholders' equity of $7.9 million. Before we open the call for questions, I would like to turn it back to Dave for some additional comments on the year, and an overview of the economic market and operational factors that we see influencing our business in 2010. Dave?

Thanks, Brett.

2009 was a year of hange in terms of financial structure, distribution focus, and market expansion. While many capital equipment companies were merely slashing costs in order to weather the storm, our team was actually accelerating its pace of product development, introducing not only new laser products in new markets, such as pain management but also preparing to launch the iLase, perhaps the most exciting dental laser introduction in years.

I cannot tell you how fantastic it has been to walk into an office and offer to show the new iLase. When I say that I am going to show them our new laser, people first look at my luggage, my brief case, they look around the room, and then they think I am going to show them a picture. Then I pull a small case out of my pocket. They think, maybe Dave needs glasses now.

But no, I am holding off until our cure for presbyopia is on the market, and then I open the case and put together the best basic diode in the marketplace, and show them the ten simple presets, how to use it, and the fact that the small screen that gives you the display of what it is working on flips upside down for left handed dentists and hygienists. We haven't forgotten you guys. Everyone wants to use it and have it. It is very exciting.

In addition, we are continuing our efforts in the opthalmology space and working with Proctor & Gamble. All of these efforts are part of our strategy not only to build sales and revenues today, and work towards achieving sustained profitability, but to also position BioLase for the future when the economy improves and when the overall market turns around. While we remain confident in the long-term outlook and the new deal structure, we expect some volatility in revenues for the first half of the year.

We have agreed to accept a substantial portion of the remaining balance of the initial 14-month commitment from Henry Schein in orders placed and paid for, basically prepaid orders, but with delivery later in the year. This may guarantee cash flow, but will result in sales being recognized in future quarters. As a result, we believe revenues for the first quarter of 2010 will be lower than the same period in 2009. We expect the second quarter to be an improvement over the first quarter, a significant improvement, but prepaid orders may continue to delay some revenue recognition. For various reasons this is a win-win for our Schein relationship. Despite this, we believe we're looking at 2010 and beyond from a position of increasing strength.

All over the world, dentistry is becoming more high tech, diodes are becoming the standard of care, more and more dentists are asking for a first look at BioLase products, and more and more dentists are being trained in the use of our laser products. As doctors look at the new iLase, we're very pleased they're also looking at the total diode solution with the ezlase which adds whitening and pain management, and we have claimed positive ezlase sales indications as doctors have started looking at both of those lasers. Beyond those two diodes for soft tissue, we're ensuring doctors also take a look at the best soft tissue laser in the world, the Waterlase, which has the added benefits of being able to work near painlessly on tooth and bone, performing endodontic and periodontal functions, and much more. The suite of product strategy we adopted is working well.

The iLase and early positive signs for our product step up plan is great news for BioLase, as we continue to develop new approaches to making lasers a solid day-to-day dentistry tool. Then there is the increasingly valuable use of our lasers outside of the dental industry for pain management and opthalmology. The results of these efforts made not only by ourselves but with our partners are generating a momentum that inspired us all. We saw 2009 as a year for bottom line improvements, building a foundation for growth, and creating a set of opportunities for the future. In short, in 2009, we started with some bottom line restructuring improvements which proved very successful. This year, in 2010, we start the year with top line restructuring efforts on our deal, our people, and our products that we expect to be just as successful.

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

(Operator Instructions). Our first question comes from the line of Dalton Chandler with Needham & Company. Please go ahead.

Good morning, and congratulations on the new distribution agreement.

Thank you.

Let me start I guess by asking about the growth in disposables on a year-over-year basis. You mentioned the MD turbo upgrade kit, but were there other drivers? Was there some volume or utilization drivers also underlying that?

I think the utilization was fairly stable. We worked last year on retraining some doctors that, as we improved our training efforts over the course of the last two years, we found some doctors that could use some additional training, and we did see some of the them starting to step up their usage. We were very pleased that consumables were grown by the upgrades, and we like to take care of our doctors and we have more upgrades in the future. The curtain ad that we showed for Diolase, there is more behind that curtain. Also, on the consumable front, we believe that with the new iLase that we're producing, we're doing so much, though. With the iLase coming out, that uses that same disposable kit as the ezlase, very easy to use, very fast. The iLase will be a lower price point and capturing a much greater share of the market and the iLase will drive considerably more consumables in the future and we're very excited about that.

Okay. Are you seeing meaningfully higher utilization with the dentists who have purchased the turbo upgrade?

What we're seeing is we find a lot of the dentists who already have the Waterlase are using it very, very successfully already. They like their gold hand pieces. A lot of them are very excited by the turbo when they're working on pure soft tissue procedures, or excuse me, pure hard tissue procedures, and we're seeing a lot of new dentists taking a look at it, because of the additional speed factor for hard tissue procedures.

Okay. And what was the percentage of disposables, the percentage of revenue for the quarter?

For the quarter on the consumables and disposables it was 25%.

Okay. And then on the decline in the licensing revenue, was that all due to the P&G deal or is there some other --

There was a combination. There was royalty that we were amortizing from Henry Schein that was fully amortized, and the bulk of it was from Proctor & Gamble.

I will add to that you can rest assured I am working on getting those back up again.

Okay. And on the gross margins, I assume in the first half of the year, if the sales are going to be a bit lower, they will stay around this level, but where do you think we could get to in the back half of the year?

I think as we mentioned before, I think we feel we should be at least around that 50% level, Dalton.

Our traditional margin should be very good indicators. The new deal that we have with Henry Schein as we mentioned, actually has us getting some very strong incentives for not only additional sales but also additional margins on sales to the non-traditional non-Schein accounts, so there is opportunity to take our margins up beyond our more traditional levels.

Okay. And I think you gave some of these numbers. I didn't quite catch all of them. Could you give us the breakout of revenue for the quarter in the way you do it in your regulatory filings, Waterlase, diode, non-laser, services, and licensing?

Sure. Happy to do that. For the quarter, Dalton, Waterlase systems, and I am just going to round it, was $4.9 million, diode systems were $2.8 million, consumables and service revenue was $2.5 million, and we had a small amount of license fees and royalties of $16,000 or $17,000.

Okay. And you have a non-laser product category?

That's the consumables and service revenue of $2.5 million.

Okay. And then I guess just finally under the new distribution agreement, how do you expect the sales territories to be divided up domestically and how many territories do you expect to ultimately to get to?

In the US market, we're not really dividing it specifically by geographical territory. The purpose of our agreement with Henry Schein was to focus on two different areas. Before we did the Schein agreement, probably about 80% of our sales were to non-Schein accounts. When we went into the agreement with Schein and started working closely with them, our consumables since 2005 are up, and diodes are up more than way over 200% from 2005, so we have done very well on that front with them. We have also done very well in with Schein accounts on the Waterlase, but I think what we have done is haven't gotten enough, as much penetration as we would like into the nontraditional Schein accounts, and so we see some real opportunity there for upside as we build our sales force and go after those accounts.

Okay. Thanks a lot.

Thanks, Dalton.

Our next question comes from the line of Paul Bornstein with Black Diamond. Please go ahead, sir.

Hi.

Good morning, Paul.

Just continuing on the sales question, you're going to be building your own sales force in a bigger way, I guess, and you also quoted on the call that everybody wants the new laser product, and I am just trying to understand how you are going to drive the sales because you have a lot of products out there, I think you introduced a number of products in the last couple years, but you still don't have any critical mass on those products, really. So I am just kind of wondering with the new product, with the new salesforce that you're putting together, expanding, with the new agreement with Henry Schein, is this the year when you said your restructuring the top line that we can really start seeing critical mass come into the sales aspect of the company? As you did on the cost side last year?

Yeah. Last year was focusing on the costs and the bottom line. This year is focusing on the top line. When we started outlast year, our costs were very high, and we worked very hard on pulling those down. Over the last year, we have been gearing ourselves for growth. Our mandate from our Board, from myself, from management, we are after growth, whether the economy improves or not. The economy would certainly help us with that effort, but we're looking to grow this company again and as we go, probably as we go into the second half I believe a lot of these efforts are really going to start digging in. We are very much about pursuing growth at this time.

Okay. And you don't need that much help from the economy, because that's still a question mark at this stage of the game, so you will have to convince more dentists to use your product versus what they're using now, so that's the whole thing at this stage?

We're going after it. We're going after growth with or without the economy. It is obviously will be a lot more helpful with the economy. On our salesforce to follow up on your question there, last year, our salesforce has traditionally been around between 20 and 25 specialists, and we were down to around 20 at the end of last year, and a lot of our specialists have been trained more over the last few years to work productively with their Henry Schein counterparts.

In our high growth years before this agreement, we had growth -- we had one strip of three years where our growth rates were 70%. During that time our sales guys were very aggressively pursuing the market with a great deal of flexibility. We recognize that there is tremendous opportunity and working with Henry Schein on the MD accounts. We want to ensure that we continue those relationships very, very strongly, but we want to go back to the growth period that we had with Waterlase, when our reps had very close relationships to their doctors and to luminaries they worked closely with to help train doctors and show them the benefits.

We want to go back to in part to some of those flexible days and we are giving incentives to do that because as we pull in traditional non-Schein accounts with a broader and stronger salesforce those accounts will be buying the consumables from Henry Schein. We think this is a fantastic win-win situation. The gentlemen at Henry Schein that we work with to develop this, I believe were incredibly creative as were we, in trying to make the agreement that we have fine tune it to something where we get the best of all worlds for both parties. We're very excited to do that, and we are very excited about the salesforce that we have been recruiting. In chaos there is opportunity and we have found the availability of some fantastic sales reps to add to our team.

Okay. That's hopefully as successful as you were on the cost side.

Thank you. I think we will be.

(Operator Instructions). Our next question is from Kent Holden with HAM Funds. Please go ahead.

Good morning. Congratulations on cutting the costs this year. I was curious first of all in hiring the new salesforce, what did that look like for costs in 2010?

Well, I will tell you the same thing that I tell a doctor looking at my laser. Let's not talk about the cost. Let's talk about how soon you want to retire. You just lost a huge amount of your baseline retirement fund, and how fast do you want to get that back? Do you want to work an extra eight years, or do you want to shave that off and get it back again.

I feel the same way about our sales force. Our sales force are going to be bringing in a lot of incremental sales and the good news is, this agreement, this isn't a huge minimum, but it is not a cap either, which sometimes a minimum can turn into. We have basically unbounded ability to grow beyond it, so while, yes, I will be spending more money on the base salaries of some additional sales people, however, most of their income comes from commissions. Our sales reps can make a very good commission on the sale, and they're very aggressive. Last year, we also at the end of the year, took out some of our sales reps who may have had great talents but they weren't making sales. We replaced them with guys who make sales. We see this as a huge opportunity. Yes, there will be a little additional base cost, but we think the incremental sales that they will be pulling in as they get going are going to more than take care of that.

The new Henry Schein deal I believe is for $1.5 million a month. What level of sales did they do last year, and do you have an idea of how much inventory they have in in-house?

We don't usually comment on inventory. It is their inventory and we have distributors around the world who do carry some inventory. On our --

The level of sales from what Schein did, again, that's their information. What we can say, Kent, is that this $1.5 million a month or $18 million annually is just for purchases of our lasers only, the MD turbo, the iLase, the ezlase. Incremental to that $18 million will be purchases of all consumables, service, training, et cetera, and I think that total for 2009 was close to $12 million, so you add that onto the 18 and then there is the third opportunity, as David just mentioned previously, all the other sales of lasers and products out into the rest of the market which we're not selling to before.

We were selling, but that's probably, you can look up Schein, go to their website and see the section of the market that they say they have good control of in North America, and then you look at another portion that they don't indicate, that isn't their primary segment, and that's a fairly large segment out there. I think they service basically almost everybody in North America, but they have some traditional very strong accounts, and this enables us to go into a much broader portion of that market.

Those are the three components of that deal. There is a fourth component also. We also have sales to international countries outside of Schein. There is a lot of countries outside of the agreement, in China, Asia Pacific, and in other spot locations. We have a fantastic distributor in Greece, and despite the economic downturn there, they've got currently 90 MD tender offers out there. All of those won't close, but a small percentage of them definitely will.

We have distributors around the world that also add to us outside of this agreement in its entirety, so as Brett already spelled out, there is $18 million on equipment only for the Schein countries we're working with, and the portion of the US market where they're strongest, and then there is another $12 million of the consumables, service and other we did last year that will probably continue into some way, shape or form this year, and we're hoping to expand that with the iLase, so there is the $30 million base and everything else we can sell over and above that, for a large portion of the US domestic market and internationally, so we're looking forward to this. We think this has real legs. It gives us the so lid at this of some minimums behind us in exchange for exclusivity in the US which is fair, and it gives us the opportunity to grow.

Okay. My last question has to do with the plans to raise capital.

Yes, I think we get this question every quarter and we answer it the same way, and I think when the conditions are favorable for raising money and management and the Board think that it will certainly add to the shareholder value of the company, then we will initiate plans to go out and raise capital.

You're at $3 million cash now prior to the March quarter which will certainly be a cash drain.

No. That's kind of an assumption.

Okay. I am sorry.

I don't necessarily see that.

Well, I wasn't anticipating $6 million in revenue either, so I guess, how low can you take cash before you do a deal?

I think it is important to note on your comment there that just because our revenues are going to be lower, that does not mean our cash flows are lower, and we work together with Henry Schein on the remaining amount that they have committed. They committed $42.7 million for 14-month period. There was some remaining balances to be purchased this quarter, and they requested, and we like the idea. I don't know how you feel, but if anybody approached you and they said I would like to give you that money up front and you don't have to ship me product right now, I think most of us would want to accept that. So it seemed like a smart move for us.

For Henry Schein, it was also a smart move. It worked very well for both of us, wrapped up the commitment, and so I think you should recognize that. Our cash flow is not suffering in the first quarter. We are simply taking some orders in advance in the quarter, and we therefore cannot recognize those revenues in this quarter. I am sorry to be confusing about that, but I think it is very important that everybody note that this is not necessarily a cash drain quarter.

Okay. Thank you.

Our next question is from the line of Robert Hoffman with Princeton Capital Markets. Please go ahead, sir.

Good morning. I just wanted to clarify when you're talking about sales to nontraditional Schein accounts, let me put it in different language and tell me if I am correct. If in the past, a laser was sold to somebody whose primary distributor was let's say Patterson, a commission nevertheless would go to a Schein rep whose territory that was, so is it now changed if that sale goes through, the commission doesn't go to the Schein rep but all of the consumables go through the Schein rep, is that a good way saying how the situation changed?

That is -- yeah, I think that's close. Maybe I can clarify on that. We try not to get too deep into our agreements with Schein or anyone else for competitive reasons, but I think that's pretty close. They will continue to get the consumable from this new account, but again what this is going to do, this is an improvement for the Schein reps position and for Henry Schein overall because this will be increasing their business.

On the other hand, it gives, as we go after these non-Schein accounts, we don't have the assistance, we don't necessarily get a lot of assistance from a Schein rep, because they're focused and doing a fantastic job on the larger accounts they're serving. There we work extremely well together. When we get into a traditional non-Schein account it is going to take more efforts on our part. We tested this out a little bit at the end of the last year as we went out to see if we could generate more leads, and we could. We could generate for leads very well and very rapidly to these non-accounts, but pursuing those accounts was a little more expensive, because with the Schein accounts we're relying more on the relationships that they have.

With these other accounts, we developed the relationship ourselves. We advertise. We do direct marketing to them. And we sell in a more engaged sales force that doesn't have the assist of a Schein account. We're prepared to do that.

When we did that we had our greatest growth years ever, and that's what we're going to do again, and the agreement allows for us to get more of the incremental sales, and more of the margin for that, in order to pay for those efforts. I apologize for this being a little complex, but we think this is a tremendous win-win for both parties, grabbing the most powerful engine that we have ever had in our growth years, and combining it with the strength of Henry Schein.

Doesn't it all come down to the incentives to the salesperson? Isn't is that what it was is that in the past they would get paid the same amount if they sold to a Schein account versus a non-Schein account, and the sales effort was a lot harder in the non-Schein account? Is that what it is really coming down to for both the the Company and the sales person?

There are two sales people, our sales people and the Henry Schein sales people. Our sales people are going to get basically paid the same on whether there is a Schein account or our account. We want our guys and we want the Schein guys seamlessly going out to the world and selling lasers and pulling people into the business. We want them to do it. For our guys, it will be seamless.

For the Henry Schein reps, when they're selling into one of their accounts, this agreement allows for a much greater incentive for that individual sales rep within the Schein organization and plus several others within that organization. I can't comment much more on that right now because the Schein organization is going over that with their people now ahead of April 1st when all of this begins, and we have disclosed something to that effect already. This increases the incentive of the Schein people to sell to their accounts, and we're very pleased with that.

Okay. Can you give us any sense of the comparative price of the iLase versus a competitively featured foot driven laser, whether it is yours, I guess the your easy Lase is more fully featured, correct.

Our ezlase is more fully featured. The iLase, the price point and we haven't gotten it out to everybody in the marketplace yet, and we couldn't talk about it earlier because the FDA approval was still pending, but that price point will be around the world somewhere between about one half to two-thirds of the price of an ezlase, and right now this is a great opening price point. We were just seeing such excitement over it.

One more important thing I have seen with this, we particularly wanted to do a product segmentation step up strategy, so even when we were actually introducing the iLase at the Chicago show, one thing that we noticed was the success of that strategy. As doctors came in en masse to look at the iLase, we're very excited about it, we see a lot of these sales going to come and take place. A lot of them were thinking the iLase will be great for my hygienist and I would like an ezlase for myself because I have the added advantage of whitening and pain management, and so our ezlase sales at that show were greater than our ezlase sales at the prior greater New York sale two months before.

And in terms of feature set versus competitor, what is this or price point/feature set, I am just trying to get a sense of the -- I know the convenience factor is something, but I also know the dentists are pretty dollar oriented, so if you think it is more features for less money, the same features for the same price, more features for the same price, you know what I am saying? Can you describe it in those terms?

The iLase actually has a 940 wave length with pulse, and what that means is, in between rather than a continuous wave, it sends out pulses. It allows the tissue to cool a little bit in between, so it is not -- it is much more comfortable to use than other lasers. The ease of use is fantastic. It doesn't take up space. You can put it right on the tray, there is a certain huge amount of cool factor the patients really love, and right now, when you compare it, there are some low cost lasers out there.

I will tell you that some of the respected competitors in that market when they came over and took one look at the iLase they went straight back to their booth and started lowering their price that minute. I will tell you I wish them the best. I believe the more dentists that come in and buy diodes in the market the better, because they're starting to use lasers. They're starting to understand the benefits. The patients are starting to understand the benefits, and the diodes still cuts with heat. It is important to remember that.

That diode still cuts with heat. You still need a lot of anesthetic for that and it still has some damage. It is so superior to the scalpel or any other method. It allows dentists to do so much more that they used to have to -- that they couldn't do, and they could do it so much quicker. The diode is rapidly becoming the standard of care, and as that's happening, there are certain dentists who want to differentiate themselves and step up to the best soft tissue laser in the world.

The Waterlase basically can cut without any pain on your gums. We can cut back your gums without pain. That is huge. A lot of doctors want that, and then as patients start getting used to having light in their mouths, and that's one of the things that excites me about the toothbrush. As they get used to having that light in their mouths, and working on soft tissue they'll say why can't you do that on my teeth? I believe that this is the first wave that will help buoy up the Waterlase, and we are very anxious to capture everyone we can buying a Diolase now and move them up to the best dentistry laser in the world.

Agreed. Can you give us a little sense of the P&G -- what you're trying to accomplish there?

What I am trying to accomplish there is I am looking for two new products that I can launch out into the professional market. With those two products, cross license back and forth with Proctor and Gamble and some of their formulas and some of the things they developed based on our core patents, my goal is to get that out there into the market place. I think it could be a substantial future revenue stream, a very substantial future revenue stream, and with that going, we also get our brand out there into many, many more offices.

We'll be branding this. People will be seeing the name BioLase. People will be putting light in their mouth to improve their overall dental and overall physical health. They will be getting more comfortable with light in their mouth, and they will want more.

It will also raise the question, I believe that this, along with some of the other efforts we're doing, will increase huge viral marketing for the Waterlase and also create revenue streams in their own stead, and I believe if that, if it takes off, I believe one of the two products that we have slated will do very well and continue in the professional market channels for quite some time to come, and serve as a foundation for additional products into the professional market, and then I believe that eventually, as this success would grow as it did with the electric toothbrush, I believe Proctor & Gamble will then have the option of taking that product and introducing it into the consumer market, at which point in time on that particular product, we will start enjoying some of the licensing and royalty streams, and those will start coming in, and plus we will use those things as more light is used in people's mouth we have a lot more advanced applications that we can also apply to the toothbrush and these devices with ourselves and basically our partners at Proctor and Gamble. That's what we're hoping to accomplish.

Thank you. And one final question on, can you give us a bit of an update on the pain management, the chiropractic or how that's going there?

We started out into the marketplace a little bit in the fourth quarter. We are building our clinical. We have actually put together now about five people around the country that are purely commission only that are starting to go after the market.

We're adding a new hand piece which goes beyond the hand piece we currently have, and it is being well accepted, and we are slowly starting to grow that market. We're also starting to see some interest coming in, interestingly enough, from the vet market. We have had some vets approach us. They love the fact that the Diolase has the same battery pack as the ezlase, they can take it out and they can work on horses very easily. We're starting to see interest come in from areas we weren't pursuing very hard ourselves. But we are starting to see more interest coming in from additional channels as we started out into that market.

Great. Thank you.

Thanks, Rob.

My pleasure.

This concludes the audio portion of the question and answer session. I would now like to turn the conference back to Mr. Matt Clawson for e-mail questions.

Okay. Thank you very much. It turns out that all of the e-mail questions that came in were covered by the audio questioners, so at that point, I am going to hand it back over to management to close this out. Thank you very much.

Thanks, Matt. Thank you all for joining us today. We appreciate your time and support. For those who saw the curtain ad that we ran in dentistry today, where there was a big curtain out and all of the ad said is we have a small announcement to make at the Chicago show, I want to let you know we have a lot more behind that curtain, and we're looking forward to getting that out, and we're looking forward to growing this business. Thank you very much for joining us.

Ladies and gentlemen, this concludes our conference. Thank you for your participation. You may now disconnect.