Laurence M. Rosen, Esq. THE ROSEN LAW FIRM, P.A. Complaint--web.pdfLaurence M. Rosen, Esq. THE ROSEN...
Transcript of Laurence M. Rosen, Esq. THE ROSEN LAW FIRM, P.A. Complaint--web.pdfLaurence M. Rosen, Esq. THE ROSEN...
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COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAW
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Laurence M. Rosen, Esq. THE ROSEN LAW FIRM, P.A. 355 South Grand Avenue, Suite 2450 Los Angeles, CA 90071 Telephone: (213) 785-2610 Facsimile: (213) 226-4684 Email: [email protected] Counsel for Plaintiff
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
______, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Plaintiff, vs. BIOLASE, INC., FEDERICO PIGNATELLI, ALEXANDER K. ARROW and FREDERICK D. FURRY, Defendants.
CASE No.: COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS CLASS ACTION JURY TRIAL DEMANDED
Plaintiff ("Plaintiff'), individually and on behalf of all other persons similarly situated, by
his undersigned attorneys, for his complaint against defendants, alleges the following based upon
personal knowledge as to himself and his own acts, and information and belief as to all other
matters, based upon, inter alia, the investigation conducted by and through his attorneys, which
included, among other things, a review of the defendants' public documents, conference calls and
announcements made by defendants, United States Securities and Exchange Commission ("SEC")
filings, wire and press releases published by and regarding Biolase, Inc. ("Biolase" or the
"Company"), analysts' reports and advisories about the Company, and information readily
obtainable on the Internet. Plaintiff believes that substantial evidentiary support will exist for the
allegations set forth herein after a reasonable opportunity for discovery.
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NATURE OF THE ACTION
1. This is a federal securities class action on behalf of a class consisting of all persons
other than defendants who purchased or otherwise acquired Biolase securities between November
5, 2012 and August 12, 2013, both dates inclusive (the "Class Period"), seeking to recover
damages caused by defendants' violations of the federal securities laws and to pursue remedies
under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules
10b-5 promulgated thereunder against the Company and certain of its top officials and/or
directors.
2. Biolase is a biomedical company that develops, manufactures, and markets lasers
in dentistry and medicine and also markets and distributes dental imaging equipment, including
cone beam digital x-rays and CAD/CAM intra-oral scanners.
3. The Company's dental laser systems purportedly allows dentists, periodontists,
endodontists, oral surgeons, and other specialists to perform a broad range of dental procedures,
including cosmetic and complex surgical applications. Moreover, the Company further advertises
its systems as designed to provide clinically superior performance for many types of dental
procedures with less pain and faster recovery times than are generally achieved with drills,
scalpels, and other dental instruments.
4. The Company's flagship program is the Waterlase system, which uses a patented
system of water and laser energy to perform various dental procedures.
5. On May 24, 2012, Biolase entered into two revolving credit facility agreements
with Comerica Bank (the "Credit Agreements"), as amended on August 6, 2012, ("Amendment
No.1"), which provide for borrowings against certain domestic accounts receivable and inventory,
as set forth in the $4.0 million revolving credit facility agreement (the "Domestic Revolver"), and
borrowings against certain export related accounts receivable and inventory, as set forth in the
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$4.0 million revolving credit facility agreement (the "Ex-1m Revolver"), for a combined
aggregate commitment of borrowings of up to $8.0 million. The Credit Agreements mature on
May 1, 2014 and are secured by substantially all of the Company's assets. The Credit Agreements
require Biolase's compliance with certain financial and non-financial covenants. If a default with
any of the covenants were to occur, Comerica Bank had the right to declare any amounts
outstanding under the Credit Agreements immediately due and payable.
6. Throughout the Class Period, Defendants made materially false and misleading
statements regarding the Company's business and operations. Specifically, Defendants made false
and/or misleading statements and/or failed to disclose that: (i) the Company was facing near term
solvency issues; (ii) the Company faced severe liquidity problems; (iii) the Company's sales were
not as strong as reported; and, (iv) as a result of the foregoing the Company's financial statements
were false and misleading at all relevant times.
7. On August 7, 2013, the Company issued a press release announcing disappointing
financial results for the second quarter of 2013. The Company reported net revenues of $14.2
million, and a non-GAAP net loss of $1.9 million or $0.06 per share. The Company also reported
that "Comerica Bank increased BIOLASE's credit facility agreements from $8 million to $10
million, decreased both the domestic and Ex-1m interest rates, established financial and non-
financial covenants for the year ending December 31, 2013, and added $1 million of additional
mid-quarter borrowing flexibility." The Company's CEO, commenting on the Company's poor
performance, placed part of the blame on flooding in Canada:
While we experienced 17% net revenue growth for the second quarter of 2013 when compared to the prior year second quarter, this result was approximately 7% to 10% lower than our internal goal for the quarter. While we are experiencing growth in all areas of our business, we fell short of our own internal expectations due to an unusually slow quarter end for our domestic laser sales, Germany not performing as expected, a delay in U.S. deliveries of the latest CAD/CAM system model from our European vendor, and a pair of problems that hurt our sales in Canada. Severe flooding in June
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in parts of Canada impeded sales and we did not receive approval from Health Canada for our EPIC 10, which was anticipated in the second quarter. Compounding these head winds domestically were the continued uncertainty and confusion over the recent implementation of Obamacare and a sharp rise in interest rates. 8. Also on August 7, 2013, the Company held a conference call with investors to
discuss its second quarter results. During the conference call the Company disclosed that:
While we are experiencing growth in all areas of our businesses, we fell short of our own internal expectations due to an unusually slow quarter end for our domestic laser sales, Germany not performing as expected, a delay in U.S. deliveries of the latest CAD/CAM system model from our European vendor, and a pair of problems that hurt our sales in Canada. Canada has historically been a significant revenue generating region for us, but second quarter Canadian revenues were hurt by severe flooding in parts of Canada in June that impeded iPlus sales, a delay in our anticipated Canadian Health Agency approval for our EPIC diode soft tissue laser also was part of the issue. Compounding these headwinds domestically were the continued uncertainty and confusion over the recent implementation of Obamacare and a sharp rise in interest rates. We anticipate Canadian approval of the EPIC lOin the current quarter. And we have fixes growing into a fact to address our German distributor situation. We also believe that the European manufacturer of our CAD/CAM product line will provide you in its sufficient quantities to lead our demand during the current quarter . The company reported a loss of $2.6 million for the 2013 second quarter compared to a loss of $1.9 million for the prior year quarter. The increased loss during the 2013 second quarter was primarily due to our continued investment in sales, marketing, and advertising efforts in North America and internationally as well as little cost incurred to enforce and protect our valuable IP portfolio. We expect that both investments will yield future returns. 9. On August 9, 2013, the Company announced in its quarterly report for the period
ending June 30, 2013, that Biolase was in breach if its financial covenants related to the Comerica
line of credit.
10. On this news, Biolase stock began a decline from $3.42 per share on August 7,
2013 to close at $1.81 per share on August 13, 2013. A decline of $1.61 per share or 47%.
11. Then on August 14, 2013, an analyst report was published on seekingalpha.com
which criticized the Company for misleading investors regarding the extent of its solvency
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problems as well as providing the market with false guidance regarding the Company's sales and
the state of adoption of the Company's products by practitioners.
12. On this news, the Company's stock declined a further $0.61 to close at $1.20 per
share on August 14,2013, a decline of over 33% on volume of over ten times the average daily
volume.
13. As a result of defendants' wrongful acts and omissions, and the precipitous decline
in the market value of the Company's securities, Plaintiff and other Class members have suffered
significant losses and damages.
JURISDICTION AND VENUE
14. The claims asserted herein arise under and pursuant to Sections 10(b), 14(a) and
20(a) of the Exchange Act (15 U.S.C. §§ 78j(b ), 78n(a) and 78t(a)) and Rule 10b-5 promulgated
thereunder (17 C.P.R.§ 240.10b-5).
15. This Court has jurisdiction over the subject matter of this action pursuant to§ of
the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331.
16. Venue is proper in this District pursuant to §27 of the Exchange Act, 15 U.S.C.
§78aa and 28 U.S.C. §1391(b), as Biolase’s headquarters are located within this District.
17. In connection with the acts, conduct and other wrongs alleged in this Complaint,
defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including but not limited to, the United States mail, interstate telephone communications and the
facilities of the national securities exchange.
PARTIES
18. Plaintiff, as set forth in the attached Certification, acquired Biolase securities at
artificially inflated prices during the Class Period and has been damaged thereby.
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19. Defendant Biolase is a Delaware corporation with its principal executive offices
located at 4 Cromwell, Irvine, CA 92618. Biolase's common stock trades on the NASDAQ under
the ticker symbol "BIOL."
20. Defendant Federico Pignatelli ("Pignatelli") is, and at all relevant times was, the
Company's Chairman and Chief Executive Officer.
21. Defendant Alexander K. Arrow ("Arrow") has served at all relevant times as the
Company's President and Chief Operating Officer.
22. Defendant Frederick D. Furry ("Furry") has served at all relevant times, was the
Company's Chief Financial Officer.
23. The defendants referenced above in ¶¶ 20-22 are sometimes referred to herein as
the "Individual Defendants."
SUBSTANTIVE ALLEGATIONS Background
24. Biolase is a biomedical company that develops, manufactures, and markets lasers
in dentistry and medicine and also markets and distributes dental imaging equipment, including
cone beam digital x-rays and CAD/CAM intra-oral scanners.
Materially False and Misleading Statements Issued During the Class Period
25. On November 5, 2012, the Company issued a press release announcing 2012 Third
Quarter Results, and reported net revenue of $13.8 million, and a net loss of $548,000 or $0.02
per share. Defendant Pignatelli stated:
Sales of our core WaterLase line of products increased by nearly 13 % quarter over quarter and 20% year over year. This strong growth testifies to the successful execution of our sales and marketing strategies. While we met our revenue guidance for the third quarter, we are cautiously reducing our range of annual revenue guidance to adjust for the timing delay in obtaining regulatory clearance for our new EPIC 10 soft tissue diode laser. We received CE Mark clearance for the EPIC 10 with only 2 days remaining in the quarter and FDA approval in the fourth quarter, which limited the number of units that we could ship in the quarter.
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In addition to our top line growth, we "are very pleased that the combination of improved margins and lower general and administrative expenses enabled us to generate non-GAAP net income during the quarter. 26. In its press release the Company also provided the following financial guidance to
investors:
BIOLASE expects net revenue for the fourth quarter of 2012 of approximately $16.5 million to $17.5 million, which reflects expected growth of 26% to 34% as compared to the same period last year. The Company also expects to generate non-GAAP net income and be cash flow positive in the fourth quarter of2012.
Due to the timing in obtaining regulatory clearance for our new EPIC 10 soft tissue diode laser, BIOLASE expects non-GAAP adjusted gross revenue of $55 million to $58 million for 2012, which excludes the $1.1 million reduction in net revenue from the inventory re-purchase from Schein during the 2012 second quarter. Therefore, the Company's GAAP revenue guidance, which includes the $1.1 million reduction in net revenue from the inventory re-purchase from Schein during the 2012 second quarter, is effectively $53.9 million to $56.9 million for fiscal 2012. 27. On November 9, 2012 the Company filed a quarterly report for the period ended
April 1, 2012 on a Form 10-Q with the SEC signed by Defendants Pignatelli and Furry, where it
reiterated the Company's previously reported financial results and financial position.
28. On January 7, 2013, the Company issued a press release announcing that Biolase
expected net revenue in excess of $18 million. Defendant Pignatelli stated:
We are very pleased with the strong growth in our core dental laser products and the trends that are accelerating with the adoption of our WaterLase® technology and diode laser systems. Our strong revenue growth in the 2012 fourth quarter compared to the prior year period was primarily due to the increased demand for our flagship WaterLase iPlus™ and our new EPIC 10TM soft tissue diode laser. Revenues were also bolstered by sales of our mid-priced WaterLase products and our digital imaging products, including the initial sales of our CAD/CAM systems. After closing 2012 on a strong note, we are very excited to look ahead to 2013 and beyond as we expect a substantial acceleration in the adoption of lasers, specifically our core WaterLase technology, in dental practices around the world over the next three to five years. We are very confident
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that all-tissue lasers will become the standard of care in dental practices worldwide. Furthermore, as we move forward in 2013 we do not expect to be troubled with the multitude of extraneous issues that we faced throughout our challenging turnaround, including exiting our exclusive global distribution relationship with Henry Schein, Inc. (NASDAQ: HSIC), and moving to a direct sales model in North America and multi-distributor model internationally.
29. On March 6, 2013, the Company issued a press release announcing fourth quarter
and fiscal year results for period ending December 31, 2012. For the fourth quarter, the Company
reported revenues of $19.1 million, net income of $1 million, or $0.03 per share of $0.47. For the
fiscal year, the Company reported revenue of $57.4 million, and a net loss of$3.1 million or $0.10
per share.
30. In the March 6,2013 press release, Defendant Pignatelli stated:
For the past two years, BIOLASE has undergone a radical restructuring, which was substantially completed at year-end 2012. Now we can concentrate on continued execution and the meaningful expansion of our business in 2013 and beyond. Overall 2012 was a year of execution where we met or exceeded our guidance throughout the year and went on to generate cash from operations in the fourth quarter. We have expanded our offerings of internally developed lasers and in-licensed cone beam and CAD/CAM Imaging products while significantly strengthening our intellectual property and patent portfolio. As a result of these efforts, our annual revenue for 2012 increased significantly over 2011 and more than doubled that of 2010," noted Pignatelli. "With a number of solid initiatives in place, including new product launches, the recent approval of over 80 new procedures in 19 additional medical markets, and the launch of EPIC V-Series in to the veterinary market, we expect BIOLASE to continue to grow strongly in 2013.
31. On March 15, 2013, the Company filed an annual report for the period ended
December 31, 2012 on a Form 10-K with the SEC signed by Defendants Pignatelli and Furry,
where it reiterated the Company's previously reported financial results and financial position.
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32. On May 7, 2013, the Company issued a press release reporting results for the
period ended March 31, 2013. The Company reported revenues of $14.6 million, and a net loss of
$2.6 million, or $0.08 per share. The Company also forecast the following:
For the year ending December 31, 2013, the Company is reiterating its revenue expectation of approximately $68 million to $72 million. The midpoint of $70 million represents a 22% increase over 2012 net revenue and would also represent record revenue for the Company. The Company also reiterates that it expects to generate cash from operations for the year ending December 31, 2013.
33. On May 7, 2013, the Company also held a conference call with investors
to discuss its recent results. During the conference call defendants continued to tout the
adoption of the Company's technology by dentists and other practitioners. Defendant Pignatelli in
responding to analysts' questions, stated:
Analyst: Okay. Alright, so that's fine, and that's why I wanted to clarify the point, let me just get into another question, conceptually speaking you are expected to do $70 million or so in 2011 going forward into the 2011 year, and you were at this run rate before in your history as a company. What is different this time around? Can you summarize it in one or two minutes exactly why you think that this is a true secular growth -- early stage of a true secular growth time for the company versus before you had stops and starts? Thanks. Defendant Pignatelli:
Well, Lenny, this is a pretty lengthy and deep question to answer, but I will try to do my best. First of all, we reached $70 million, actually it was $69.7 million in 2006 and that was because we entered into an agreement with Shine. And Shine purchased a lot of lasers as inventory and as training units. So, the $69.7 million in sales in reality that were out officially increased by us entering into a transaction - I am sorry into a distribution agreement with Shine. So, that is the first difference. So, this number is record number this year will be way more solid than what used to be back then, because there was a specific factor that inflated sales back then. What also is different is that back then we didn't have a level of adoption of lasers as we have now. Laser dentistry in the past few years has acquired a lot of recognition in the dental and academic field. So, we have way more clinical papers. We have a clear mode of acceptance and interest in laser dentistry that we didn't have back then. Let's look at the adoption rate of diode lasers in 2006, and seven years later, we grew essentially from 5% or around there to around 25%. So,
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we have a base today from which to grow that it is way more solid, because dentistry has finally adopted laser technology into their practices. Clearly, we have a long way to go in becoming standard of care with WaterLase, but not so much as few years ago. What we see is that dentist now they understand the value of laser technology and they have started clearly directing their interest towards diodes at a much lower cost than a WaterLase, but now they are laser dentists, they think in a different way that used to think 10, 15 years ago. They understand the laser technology in dentistry is there to stay and to grow. And so we have a base of customers now that is very significant to upgrade them, not only to sell them more diodes, but also to upgrade them to the WaterLase technology.
34. On May 10, 2013, the Company filed a quarterly report for the period
ended March 31, 2013 on a Form 10-Q with the SEC signed by Defendants Pignatelli
and Furry, where it reiterated the Company's previously reported financial results and
financial position.
35. The statements referenced in " 25-34 above were materially false and/or
misleading because they misrepresented and failed to disclose the following adverse
facts, which were known to defendants or recklessly disregarded by them, including: (i)
the Company was facing near term solvency issues; (ii) the Company faced severe
liquidity problems; (iii) the Company's sales were not as strong as reported; and, (iv) as
a result of the foregoing the Company's financial statements were false and misleading
at all relevant times.
THE TRUTH EMERGES
36. On August 7, 2013, the Company issued a press release announcing disappointing
financial results for the second quarter of 2013. The Company reported net revenues of $14.2
million, and a non-GAAP net loss of $1.9 million or $0.06 per share. The Company also reported
that "Comerica Bank increased BIOLASE's credit facility agreements from $8 million to $10
million, decreased both the domestic and Ex-1m interest rates, established financial and non-
financial covenants for the year ending December 31,2013, and added $1 million of additional
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mid-quarter borrowing flexibility." The Company's CEO commenting on the Company's poor
performance placed part of the blame on flooding in Canada:
While we experienced 17% net revenue growth for the second quarter of 2013 when compared to the prior year second quarter, this result was approximately 7% to 10% lower than our internal goal for the quarter. While we are experiencing growth in all areas of our business, we fell short of our own internal expectations due to an unusually slow quarter end for our domestic laser sales, Germany not performing as expected, a delay in U.S. deliveries of the latest CAD/CAM system model from our European vendor, and a pair of problems that hurt our sales in Canada. Severe flooding in June in parts of Canada impeded sales and we did not receive approval from Health Canada for our EPIC 10, which was anticipated in the second quarter. Compounding these head winds domestically were the continued uncertainty and confusion over the recent implementation of Obamacare and a sharp rise in interest rates. 37. Also on August 7, 2013, the Company held a conference call with
investors to discuss its second quarter results. During the conference call the Company
disclosed that:
While we are experiencing growth in all areas of our businesses, we fell short of our own internal expectations due to an unusually slow quarter end for our domestic laser sales, Germany not performing as expected, a delay in U.S. deliveries of the latest CAD/CAM system model from our European vendor, and a pair of problems that hurt our sales in Canada. Canada has historically been a significant revenue generating region for us, but second quarter Canadian revenues were hurt by severe flooding in parts of Canada in June that impeded iPlus sales, a delay in our anticipated Canadian Health Agency approval for our EPIC diode soft tissue laser also was part of the issue. Compounding these headwinds domestically were the continued uncertainty and confusion over the recent implementation of Obamacare and a sharp rise in interest rates. We anticipate Canadian approval of the EPIC lOin the current quarter. And we have fixes growing into a fact to address our German distributor situation. We also believe that the European manufacturer of our CAD/CAM product line will provide you in its sufficient quantities to lead our demand during the current quarter. The company reported a loss of $2.6 million for the 2013 second quarter compared to a loss of $1.9 million for the prior year quarter. The increased loss during the 2013 second quarter was primarily due to our continued
investment in sales, marketing, and advertising efforts in North America and internationally as well as little cost incurred to enforce and protect our valuable IP portfolio. We expect that both investments will yield future
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returns. 38. On this news, Biolase securities began a decline from $3.42 per share on
August 7, 2013 to close at $2.51 per share on August 8, 2013. A decline of $0.91 per
share or 26%.
39. On August 9, 2013, the Company filed a quarterly report for the period
ended June 30, 2013 on a Form 10-Q with the SEC signed by Defendants Pignatelli and
Furry, where it reiterated the Company's previously reported financial results and
financial position. The Company also reported that it was in breach of its financial
covenants related to its Comerica line of credit:
The Credit Agreements require the Company to maintain compliance with certain financial and non-financial covenants, as defined therein. If a default occurs, Comerica Bank may declare the amounts outstanding under the Credit Agreements immediately due and payable. As of June 30, 2013, the Company was in compliance with these covenants with the exception of the earnings before income tax, depreciation and amortization ("EBITDA") covenant. On August 5, 2013, the Company obtained a waiver for noncompliance of the minimum EBITDA covenant from Comerica Bank as of June 30, 2013, provided that the Company and Comerica Bank establish amended covenants by September 13, 2013 and until the amendment is executed the aggregate borrowing capacity is reduced from $10.0 million to $7.5 million. As a result of Amendment No.2, interest rates on the outstanding principal balance of the Credit Agreements bear interest at annual percentage rates equal to the daily prime rate, plus 2.00% for the Domestic Revolver and 1.50% for the Ex-1m Revolver. The daily prime rate is subject to a floor of the daily adjusting LIBOR rate plus 2.50% per annum, or if LIBOR is undeterminable, 2.50% per annum. Prior to the amendment, interest rates were equal to the daily adjusting LIB OR rate (subject to a floor of 1.00% per annum), plus spreads of 5.25% for the Domestic Revolver and 4.25% for the Ex-1m Revolver. The Company is also required to pay an unused commitment fee of 0.25% based on a portion of the undrawn lines of credit, payable quarterly in arrears. During the three and six months ended June 30, 2013, the Company incurred interest expense associated with the credit facilities of $116,000 and $200,000, respectively, including $43,000 and $81,000 of amortization of deferred debt issuance costs and $18,000 and $36,000 of amortization of the discount on lines of credit, respectively. During the three and six months ended June 30, 2012, the Company incurred interest expense associated with the credit facilities of $38,000, including
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$15,000 of amortization of deferred debt issuance costs and $7,000 of amortization of the discount on lines of credit. Interest expense payable was approximately $26,000 and $19,000 at June 30, 2013 and December 31, 2012, respectively, and was included in accrued liabilities in the accompanying consolidated financial statements.
During the year ended December 31, 2012, the Company issued and amended a warrant to Comerica Bank (the "2012 Comerica Warrant") to purchase up to 80,000 shares of the Company's common stock at an amended exercise price of $2.00. During the three months ended March 31, 2013, Comerica Bank exercised all 80,000 of the 2012 Comerica Warrant shares on a cashless basis pursuant to the Notice of Exercise resulting in a net issuance of 40,465 shares of common stock.
40. On this news, Biolase securities began a decline from $2.51 per share to
close at $1.94 per share on August 9,2013. A decline of$0.57 per share or 22%.
41. Then, on August 14, 2013, an analyst report was published on
seekingalpha.com which reported that the Company has deep and substantial solvency
issues which it has been hiding from investors, and that the adoption of its products by
practitioners is not as strong as the Company informed investors. The report stated the
following in relevant part:
On Wednesday, August 7th, Biolase Inc. (BIOL) announced Q2 results. The company missed analyst estimates by 2 cents and updated investors with guidance at the lower end of previously given ranges.
Missing earnings is never a good thing. But as earnings misses go, this one was certainly not catastrophic. Despite the moderate nature of the miss, shares of Biolase began to plunge in the days that followed. The shares have now fallen by 50% in the week since earnings, and shares have not traded up on a single day since earnings. Clearly something bigger is going on. As shown below, further steep declines in Biolase are highly likely in the next few days due to the need to issue a large amount of equity, regardless of the price. The company's $30 million S-3 registration statement should be effective within days, at which time the offering can proceed. Biolase is in a position where it simply must complete an offering, such that even if the price falls to $1.00 or below, the offering must still proceed. What has happened is that details given in the 10-Q and the earnings call
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have revealed that Biolase is now in the middle of a near term solvency crisis. Yesterday, as the stock was hitting $1.80 (down 50% since earnings), Biolase put out a brief press release, repeating what it had already stated in the recent 10-Q, that Comerica Bank had waived Biolase's non-compliance until September. But, as expected, the stock price was not cheered and continued to fall 7% further that day. Following the press release, Biolase closed at $1.81, a new low for the year. As confirmed in the press release, Biolase is now in violation of its bank covenants. It has around 19 more trading days in which to rectify this situation before the Comerica deadline. Biolase has already given weak guidance for the remainder of the year such that any turnaround in financial performance will not be able to repair the situation with Comerica. 42. On this news, the Company's stock declined a further $0.61 to close at
$1.20 per share on August 14, 2013, a decline of over 33% on volume of over ten times the
average daily volume.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
43. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or
otherwise acquired Biolase securities during the Class Period (the "Class"); and were damaged
thereby. Excluded from the Class are defendants herein, the officers and directors of the
Company, at all relevant times, members of their immediate families and their legal
representatives, heirs, successors or assigns and any entity in which defendants have or had a
controlling interest.
44. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Biolase securities were actively traded on the
NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and can
be ascertained only through appropriate discovery, Plaintiff believes that there are hundreds or
thousands of members in the proposed Class. Record owners and other members of the Class may
be identified from records maintained by Biolase or its transfer agent and may be notified of the
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pendency of this action by mail, using the form of notice similar to that customarily used in
securities class actions.
45. Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by defendants' wrongful conduct in violation of
federal law that is complained of herein.
46. Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
Plaintiff has no interests antagonistic to or in conflict with those of the Class.
47. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
whether the federal securities laws were violated by defendants' acts as alleged herein;
whether statements made by defendants to the investing public during the Class Period misrepresented material facts about the business, operations and management of Biolase;
whether the Individual Defendants caused Biolase to issue false and misleading financial statements during the Class Period;
whether defendants acted knowingly or recklessly in issuing false and misleading financial statements;
whether the prices of Biolase securities during the Class Period were
artificially inflated because of the defendants' conduct complained of herein; and
whether the members of the Class have sustained damages and, if so, what is
the proper measure of damages.
48. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively small, the expense and burden
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of individual litigation make it impossible for members of the Class to individually redress the
wrongs done to them. There will be no difficulty in the management of this action as a class
action.
49. Plaintiff will rely, in part, upon the presumption of reliance established by the
fraud-on-the-market doctrine in that:
defendants made public misrepresentations or failed to disclose material facts
during the Class Period;
the omissions and misrepresentations were material;
Biolase securities are traded in an efficient market;
the Company's shares were liquid and traded with moderate to heavy volume during the Class Period;
the Company traded on the NASDAQ and was covered by multiple analysts; the misrepresentations and omissions alleged would tend to induce a reasonable
investor to misjudge the value of the Company's securities; and
Plaintiff and members of the Class purchased, acquired and/or sold Biolase securities between the time the defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts.
50. Based upon the foregoing, Plaintiff and the members of the Class are entitled to a
presumption of reliance upon the integrity of the market.
COUNT 1
(Against All Defendants For Violations of Section 10(b) and Rule 10b-5 Promulgated Thereunder)
51. Plaintiff repeats and realleges each and every allegation contained above as if fully
set forth herein.
52. This Count is asserted against defendants and is based upon Section 10(b) of the
Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder by the SEC.
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53. During the Class Period, defendants engaged in a plan, scheme, conspiracy and
course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,
practices and courses of business which operated as a fraud and deceit upon Plaintiff and the
other members of the Class; made various untrue statements of material facts and omitted to state
material facts necessary in order to make the statements made, in light of the circumstances under
which they were made, not misleading; and employed devices, schemes and artifices to defraud in
connection with the purchase and sale of securities. Such scheme was intended to, and,
throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and other
Class members, as alleged herein; (ii) artificially inflate and maintain the market price of Biolase
securities; and (iii) cause Plaintiff and other members of the Class to purchase or otherwise
acquire Biolase securities and options at artificially inflated prices. In furtherance of this unlawful
scheme, plan and course of conduct, defendants, and each of them, took the actions set forth
herein.
54. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the
defendants participated directly or indirectly in the preparation and/or issuance of the quarterly
and annual reports, SEC filings, press releases and other statements and documents described
above, including statements made to securities analysts and the media that were designed to
influence the market for Biolase securities. Such reports, filings, releases and statements were
materially false and misleading in that they failed to disclose material adverse information and
misrepresented the truth about Biolase's finances and business prospects.
55. By virtue of their positions at Biolase, defendants had actual knowledge of the
materially false and misleading statements and material omissions alleged herein and intended
thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, defendants
acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose
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such facts as would reveal the materially false and misleading nature of the statements made,
although such facts were readily available to defendants. Said acts and omissions of defendants
were committed willfully or with reckless disregard for the truth. In addition, each defendant
knew or recklessly disregarded that material facts were being misrepresented or omitted as
described above.
56. Information showing that defendants acted knowingly or with reckless disregard
for the truth is peculiarly within defendants' knowledge and control. As the senior managers
and/or directors of Biolase, the Individual Defendants had knowledge of the details of Biolase's
internal affairs.
57. The Individual Defendants are liable both directly and indirectly for the wrongs
complained of herein. Because of their positions of control and authority, the Individual
Defendants were able to and did, directly or indirectly, control the content of the statements of
Biolase. As officers and/or directors of a publicly-held company, the Individual Defendants had a
duty to disseminate timely, accurate, and truthful information with respect to Biolase's businesses,
operations, future financial condition and future prospects. As a result of the dissemination of the
aforementioned false and misleading reports, releases and public statements, the market price of
Biolase securities was artificially inflated throughout the Class Period. In ignorance of the
adverse facts concerning Biolase's business and financial condition which were concealed by
defendants, Plaintiff and the other members of the Class purchased or otherwise acquired Biolase
securities at artificially inflated prices and relied upon the price of the securities, the integrity of
the market for the securities and/or upon statements disseminated by defendants, and were
damaged thereby.
58. During the Class Period, Biolase securities were traded on an active and efficient
market. Plaintiff and the other members of the Class, relying on the materially false and
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misleading statements described herein, which the defendants made, issued or caused to be
disseminated, or relying upon the integrity of the market, purchased or otherwise acquired shares
of Biolase securities at prices artificially inflated by defendants' wrongful conduct. Had Plaintiff
and the other members of the Class known the truth, they would not have purchased or otherwise
acquired said securities, or would not have purchased or otherwise acquired them at the inflated
prices that were paid. At the time of the purchases and/or acquisitions by Plaintiff and the Class,
the true value of Biolase securities was substantially lower than the prices paid by Plaintiff and
the other members of the Class. The market price of Biolase securities declined sharply upon
public disclosure of the facts alleged herein to the injury of Plaintiff and Class members.
59. By reason of the conduct alleged herein, defendants knowingly or recklessly,
directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule l0b-5
promulgated thereunder.
60. As a direct and proximate result of defendants' wrongful conduct, Plaintiff and the
other members of the Class suffered damages in connection with their respective purchases,
acquisitions and sales of the Company's securities during the Class Period, upon the disclosure
that the Company had been disseminating misrepresented financial statements to the investing
public.
COUNT II
(Violations of Section 20(a) of the Exchange Act Against The Individual Defendants)
61. Plaintiff repeats and realleges each and every allegation contained in the foregoing
paragraphs as if fully set forth herein.
62. During the Class Period, the Individual Defendants participated in the operation
and management of Biolase, and conducted and participated, directly and indirectly, in the
conduct of Biolase's business affairs. Because of their senior positions, they knew the adverse
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non-public information about Biolase's misstatement of income and expenses and false financial
statements.
63. As officers and/or directors of a publicly owned company, the Individual
Defendants had a duty to disseminate accurate and truthful information with respect to Biolase's
financial condition and results of operations, and to correct promptly any public statements issued
by Biolase which had become materially false or misleading.
64. Because of their positions of control and authority as senior officers, the Individual
Defendants were able to, and did, control the contents of the various reports, press releases and
public filings which Biolase disseminated in the marketplace during the Class Period concerning
Biolase's results of operations. Throughout the Class Period, the Individual Defendants exercised
their power and authority to cause Biolase to engage in the wrongful acts complained of herein.
The Individual Defendants therefore, were "controlling persons" of Biolase within the meaning of
Section 20(a) of the Exchange Act. In this capacity, they participated in the unlawful conduct
alleged which artificially inflated the market price of Biolase securities.
65. Each of the Individual Defendants, therefore, acted as a controlling person of
Biolase. By reason of their senior management positions and/or being directors of Biolase, each
of the Individual Defendants had the power to direct the actions of, and exercised the same to
cause, Biolase to engage in the unlawful acts and conduct complained of herein. Each of the
Individual Defendants exercised control over the general operations of Biolase and possessed the
power to control the specific activities which comprise the primary violations about which
Plaintiff and the other members of the Class complain.
66. By reason of the above conduct, the Individual Defendants are liable pursuant to
Section 20(a) of the Exchange Act for the violations committed by Biolase.
PRAYER FOR RELIEF
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WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a) Determining that this action is a proper class action, designating Plaintiff as
class representative under Rule 23 of the Federal Rules of Civil Procedure and Plaintiff’s counsel
as Class Counsel;
(b) Awarding compensatory damages in favor of Plaintiff and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
(c) Awarding Plaintiff and the Class their reasonable costs and expenses
incurred in this action, including counsel fees and expert fees; and
(d) Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: August _, 2013 Respectfully submitted, THE ROSEN LAW FIRM, P.A.
Laurence M. Rosen, Esq. 355 South Grand Avenue, Suite 2450 Los Angeles, CA 90071 Telephone: (213) 785-2610 Facsimile: (213) 226-4684 Email: [email protected] Counsel for Plaintiff