Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yeso Noþ

The number of shares of the issuer’s common stock, $0.001 par value per share, outstanding as of MayAugust 9, 2011 was 28,161,96129,896,070 shares.

BIOLASE Technology Inc., (the “Company”) incorporated in Delaware in 1987, is a medical technology company operating in one business segment that designs,develops, manufactures and markets advanced dental, cosmetic and surgical lasers and related products.also markets and distributes dental imaging equipment; products that are focused on technologies for improved applications and procedures in dentistry and medicine.

The unaudited consolidated financial statements include the accounts of BIOLASE Technology, Inc. and its consolidated subsidiaries and have been prepared on a basis consistent with the December 31, 2010 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments and the elimination of all material intercompany transactions and balances, necessary to fairly present the information set forth therein. These unaudited, interim, consolidated financial statements do not include all the footnotes, presentations and disclosures normally required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements. Certain amounts have been reclassified to conform to current period presentation.

The preparation of these consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements and the accompanying notes. Significant estimates in these consolidated financial statements include allowances on accounts receivable, inventory and deferred taxes, as well as estimates for accrued warranty expenses, the ability of goodwill to be realized and indefinite-lived intangible assets to be realized, effects of stock-based compensation and warrants, contingent liabilities and the provision or benefit for income taxes. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ materially from those estimates.

Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgementsjudgments by management is contained on pages 41 to 43 in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K10K (the “2010 Form 10-K”)10-K). Management believes that there have been no significant changes during the threesix months ended March 31,June 30, 2011 in our critical accounting policies from those disclosed in Item 7 of on the 2010 Form 10-K, except as noted below.

Revenue Recognition.Through August 2010, the Company sold its products in North America through an exclusive distribution relationship with Henry Schein, Inc. (“HSIC”). Effective August 30, 2010, the Company began selling its products in North America directly to customers through its direct sales force and through non-exclusive distributors, including HSIC. The Company sells its products internationally through exclusive and non-exclusive distributors as well as to direct customers in certain countries. Sales are recorded upon shipment from ourthe Company’s facility and payment of ourthe Company’s invoices is generally due within 30 days or less. Internationally, we sellthe Company sells products through independent distributors, including HSIC in certain countries. We recordThe Company records revenue based on four basic criteria that must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and title and the risks and rewards of ownership have been transferred to our customer, or services have been rendered; (iii) the price is fixed or determinable; and (iv) collectability is reasonably assured.

Sales of the Company’s laser systems include separate deliverables consisting of the product, disposables used with the laser systems, installation, and training. For these sales, effective January 1, 2011, the Company applies the relative selling price method, which requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. This requires usthe Company to use (estimated) selling prices of each of the deliverables in the total arrangement. The sum of those prices is then compared to the arrangement, and any difference is applied to the separate deliverable ratably. This method also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (1) vendor-specific objective evidence (“VSOE”) if available, (2) third-party evidence if vendor-specific objective evidence is not available, and (3) estimated selling price if neither vendor-specific nor third-party evidence is available. VSOE is determined based on the value we sellthe Company sells the undelivered element to a customer as a stand-alone product. Revenue attributable to the undelivered elements is included in deferred revenue when the product is shipped and is recognized when the related service is performed. Disposables not shipped at time of sale and installation services are typically shipped or installed within 30 days. Training is included in deferred revenue when the product is shipped and is recognized when the related service is performed or upon expiration of time offered under the agreement, typically within six months from date of sale. The adoption of the relative selling price method does not significantly change the value of revenue recognized.

The Company’s need for additional capital and the uncertainties surrounding its ability to obtain such funding at December 31, 2010, raised substantial doubt about its ability to continue as a going concern, which contemplates that the Company will realize its assets and satisfy its liabilities and commitments in the ordinary course of business. The Company’s financial statements do not include adjustments relating to the recoverability of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. In order for the Company to discharge its liabilities and commitments in the normal course of business, the Company must sell its products directly to end-users and through distributors; establish profitable operations through increased sales and a reduction of operating expenses; and potentially raise additional funds, principally through the additional sales of securities or debt financings to meet its working capital needs.

The Company intends to increase sales by increasing its product offerings, expanding its direct sales force and expanding its distributor relationships both domestically and internationally. However, the Company cannot guarantee that it will be able to increase sales, reduce expenses or obtain additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. If the Company is unable to increase sales, reduce expenses or raise sufficient additional funds it may be unable to continue to fund its operations, develop its products or realize value from its assets and discharge its liabilities in the normal course of business.

At March 31,June 30, 2011, the Company had approximately $1.5$11.8 million in working capital. The Company’s principal sources of liquidity at March 31,June 30, 2011 consisted of $1.6$10.1 million in cash and cash equivalents and $6.0$6.4 million of net accounts receivable.

On February 8, 2011, the Company repaid all outstanding balances under a Loan and Security Agreement dated May 27, 2010, as amended, (the “Loan and Security Agreement”) with MidCap Financial, LLC (whose interests were later assigned to its affiliate MidCap Funding III, LLC) and Silicon Valley Bank, which included $2.6 million in principal, $30,000 of accrued interest and $169,000 of loan related expenses. As a result, the Company no longer has a credit facility. In connection with the repayment, MidCap Funding III, LLC and Silicon Valley Bank released their security interest in the Company’s assets. Unamortized costs totaling approximately $225,000, excluding interest, associated with the term loan payable were expensed in February 2011. MidCap Financial, LLC and Silicon Valley Bank also exercised all of their warrants on a cashless basis during February 2011 for 78,172 shares of common stock.

On September 23, 2010, the Company entered into a Distribution and Supply Agreement (the “D&S Agreement”) with Henry Schein, Inc. (“HSIC”),HSIC, effective August 30, 2010. In connection with the D&S Agreement, as amended, HSIC placed two irrevocable purchase orders for the Company’s products totaling $9 million. The first purchase order, totaling $6 million, was for the iLase system and was required to be fulfilled by June 30, 2011. The first purchase order was fully satisfied during the first quarter of 2011. The second purchase order, totaling $3 million, requires that the products ordered thereunder be delivered by August 25, 2011, and was also for the iLase system, but maycould be modified without charge and applied to other laser products. During the quarter ended March 31,April 2011, HSIC notifiedmodified the Company that it was planningtype of laser systems ordered on modifying the second purchase order. HSIC provided the modified purchase order in April 2011. As of March 31,June 30, 2011, approximately $3.0 million$900,000 remained from the second purchase order as a customer deposit which the Company will apply against the remaining open purchase order.deposit.

The Company considers the applicability and impact of all ASU’s. ASU’s not listed below were assessed and determined to not be applicable or are expected to have minimal impact on our consolidated financial position and results of operations.

In October 2009, the FASB issued an update to existing guidance on accounting for arrangements with multiple deliverables. This update allows companies to allocate consideration received for qualified separate deliverables using estimated selling price for both delivered and undelivered items when vendor-specific objective evidence or third-party evidence is unavailable. Additional disclosures discussing the nature of multiple element arrangements, the types of deliverables under the arrangements, the general timing of their delivery and significant factors and estimates used to determine estimated selling prices is required. This guidance is effective prospectively for interim and annual periods ending after June 15, 2010. The Company adopted this guidance effective January 1, 2011. The adoption did not have a material impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued an update to existing guidance on the calculation of impairment of goodwill. This update modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For these reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. The Company adopted this guidance on January 1, 2011, and will evaluate the impact, if any, on its consolidated financial statements if events occur or circumstances change that would more likely than not reduce the fair value of the Company or its assets below their carrying amounts. No events have occurred since June 30, 2010,2011, the Company’s tesing date, that would trigger further impairment testing of the Company’s intangible assets with finite lives subject to amortization.

The Company currently has one stock-based compensation plan, the 2002 Stock Incentive Plan (the “2002 Plan”). Eligible persons under the 2002 Plan include certain officers and employees of the Company and directors of the Company. Under the 2002 Plan, 5,950,0006,950,000 shares of common stock have been authorized for issuance. As of March 31,June 30, 2011, 1,980,0002,145,000 shares of common stock have been issued pursuant to options that were exercised, 3,820,0003,867,000 shares of common stock has been reserved for options that are outstanding, and 150,000938,000 shares of common stock remain available for future grant.

Compensation cost related to stock options recognized in operating results during the three months ended March 31,June 30, 2011 and 2010 was $220,000$456,000 and $206,000,$180,000, respectively. The net impact to earnings for those periods was $(0.02) and $(0.01) per basic and diluted share, respectively. Compensation cost related to stock options recognized in operating results during the periodssix months ended March 31,June 30, 2011 and 2010, was $(.01)$676,000 and $(.01)$386,000, respectively. The net impact to earnings for those periods was $(0.03) and $(0.02) per basic and diluted share, respectively. At March 31,June 30, 2011, the Company had $1.9$2.7 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements granted under our existing plans. The Company expects that cost to be recognized over a weighted-average period of 1.41.2 years.

The following table summarizes the income statement classification of compensation expense associated with share-based payments (in thousands):

The Black-Scholes option valuation model is used in estimating the fair value of traded options. This option pricing model requires the Company to make several assumptions regarding the key variables used to calculate the fair value of its stock options. The risk-free interest rate used is based on the U.S. Treasury yield curve in effect for the expected lives of the options at their dates of grant. Since July 1, 2005, the Company has used a dividend yield of zero as it does not intend to pay cash dividends on its common stock in the foreseeable future. The most critical assumption used in calculating the fair value of stock options is the expected volatility of the common stock. Management believes that the historic volatility of the common stock is a reliable indicator of future volatility, and accordingly, a stock volatility factor based on the historical volatility of the common stock over a period of time is used in approximating the estimated lives of new stock options. The expected term is estimated by analyzing the Company’s historical share option exercise experience over a five year period. Compensation expense is recognized using the straight-line method for all stock-based awards. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated at the date of grant based on historical experience and future expectations. Forfeitures are estimated at the time of the grant and revised as necessary in subsequent periods if actual forfeitures differ from those estimates.

The stock option fair values were estimated using the Black-Scholes option-pricing model with the following assumptions:

Inventory is net of the provision for excess and obsolete inventory of $2.0 million and $1.9 million at March 31,June 30, 2011 and December 31, 2010.2010, respectively.

Amortization expense for the three and six months ended March 31,June 30, 2011 was $32,000 and March 31, 2010 totaled $33,000$65,000, respectively, and $33,000, respectively.$32,000 and $65,000, respectively, for the same periods in 2010. Other intangible assets consist of an acquired customer list and a non-compete agreement.

The following table presents details of the Company’s intangible assets, related accumulated amortization and goodwill (in thousands):

In June 2006, the Company received a one-time payment from The Procter & Gamble Company (“P&G”) totaling $3.0 million for a license to certain patents pursuant to a binding letter agreement, subsequently replaced by a definitive agreement effective January 24, 2007 (the “2006 P&G Agreement”). Pursuant to the 2006 P&G Agreement, the entire amount was recorded as deferred revenue when received and $1.5 million was recognized in license fees and royalty revenue for each of the years ended December 31, 2008 and 2007. Additionally, beginning with a payment for the third quarter of 2006, P&G was required to make $250,000 quarterly payments until the first product under the agreement was shipped by P&G for large-scale commercial distribution in the United States. Seventy-five percent of each $250,000 payment received was treated as prepaid royalties and was credited against royalty payments and the remainder was credited to revenue. No payments were received from P&G subsequent to December 31, 2008. The Company recognized revenue related to these payments of $0 and $250,000 for the years ended December 31, 2009 and 2008, respectively.

On May 20, 2010, the Company and P&G entered into a license agreement (the “2010 P&G Agreement”), effective January 1, 2009 which superseded the prior 2006 P&G Agreement. Pursuant to the 2010 P&G Agreement, the Company agreed to continue granting P&G an exclusive license to certain of the Company’s patents to enable P&G to develop products aimed at the consumer market and P&G will pay royalties based on sales of products developed with such intellectual property.

Pursuant to the 2010 P&G Agreement, the prepaid royalty payments previously paid by P&G have been applied to the new exclusive license period which was effective as of January 1, 2009, and continued through December 31, 2010. Previously recorded deferred revenue of $1.5 million, which was accounted for pursuant to the 2006 P&G Agreement, was recognized concurrent with the related exclusivity period. The Company recognized $1.5 million of revenue for the year ended December 31, 2010. As of March 31, 2011 and December 31, 2010, $375,000 remained in long term deferred revenue to be applied against future earned royalties. No royalty revenue relatedOn June 28, 2011, the Company entered into an amendment to the 2010 P&G Agreement was recognizedwhich extended the effective period for the 2010 P&G Agreement from January 1, 2009 through June 30, 2011. The extension of the effective period allowed the Company to recognize the previously deferred $375,000 of revenue as royalty revenue during the quarterly periodsquarter ended March 31, 2011 and 2010.June 30, 2011.

The warrant fair values were estimated using the Black-Scholes option-pricing model with the following assumptions:

On February 8, 2011, the Company repaid all outstanding balances under the Loan and Security Agreement, which included $2.6 million in principal, $30,000 of accrued interest and $169,000 of loan related expenses, and MidCap Funding III, LLC and Silicon Valley Bank released their security interest in the Company’s assets. As a result, the Company no longer has a credit facility. Unamortized costs totaling approximately $225,000, excluding interest, associated with the term loan payable were expensed in February 2011.

In December 2010, the Company financed approximately $389,000 of insurance premiums payable in nine equal monthly installments of approximately $43,000 each, including a finance charge of 2.92%. As of March 31,June 30, 2011, there was $215,000$87,000 outstanding under this arrangement. Such amount is included in Accrued Liabilities in the Consolidated Balance Sheets of the accompanying consolidated financial statements.

The Company discloses material loss contingencies deemed to be reasonably possible and accrues for loss contingencies when, in consultation with the Company’s legal advisors, the Company concludes that a loss is probable and reasonably estimable. Except as otherwise indicated, the possible losses relating to the matters described below are not reasonably estimable. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates.

Net revenue by geographic location based on the location of customers was as follows (in thousands):

Long-lived assets located outside of the United States at our foreign subsidiaries totaled $619,000were $613,000 and $584,000 as of March 31,June 30, 2011 and December 31, 2010, respectively.

Revenue from Waterlase systems, the Company’s principal product, comprised 41%63% and 35% of total net revenues for the three months ended March 31, 2011 and 2010, respectively. Revenue from Diode systems comprised 36% and 15%53% of total net revenue for the three and six month periods ended June 30, 2011, respectively, and 19% and 26% of total net revenue, respectively, for the same periods.periods in 2010. Revenue from consumables, serviceDiode systems comprised 14% and warranty contracts comprised 22% and 49%24% of total net revenue for the three and six month periods ended June 30, 2011, respectively, and 26% and 21%, for the same periods.periods of 2010.

Approximately 35%26% and 45%30% of the Company’s net revenue in the quartersthree and six month periods ended March 31,June 30, 2011 and 2010, respectively, was generated through sales to HSIC worldwide. Approximately 42% and 44% of the Company’s net revenue in the three and six month periods ended June 30, 2010 was generated through sales to HSIC worldwide.

The Company maintains its cash and cash equivalent accounts with established commercial banks. Such cash deposits periodically exceed the Federal Deposit Insurance Corporation insured limit.

As of December 31, 2010, based on the weight of available evidence, including cumulative losses in recent years and expectations regarding future taxable income, realization of our deferred tax assets does not appear more likely than not. We recorded a valuation allowance of approximately $34.3 million. In addition we recorded a deferred tax position taken orliability related to its indefinite-lived other intangible assets that is not expected to be takenreverse in the foreseeable future resulting in a net deferred tax returnliability of approximately $533,000. As of June 30, 2011 due to uncertainties surrounding the timing of realizing tax benefits of NOL carryfowards in the future, we continue to carry the full valuation allowance net of the naked liability.

On August 10, 2011, the Company announced that its Board of Directors has authorized a stock repurchase program, pursuant to which the Company may repurchase up to an aggregate of 2,000,000 shares of the Company’s outstanding common stock. The stock repurchase program will be effective on August 12, 2011. The Company expects to fund the stock repurchase program with existing cash and provides guidancecash equivalents on derecognition, classification, interesthand. Any shares repurchased will be retired and penalties, accounting in interim periods, disclosureshall resume the status of authorized and transition.unissued shares. Repurchases of the Company’s common stock may be made from time to time through a variety of methods, including open market purchases, privately negotiated transactions or block transactions. The Company has electedno obligation to classify interestrepurchase shares under the stock repurchase program, and penalties asthe timing, actual number and value of the shares that are repurchased will be at the discretion of the Company’s management and will depend upon a componentnumber of its income tax provision. Forconsiderations, including the three months ended March 31, 2011trading price of the Company’s common stock, general market conditions, applicable legal requirements and 2010,other factors. The stock repurchase program will expire on August 12, 2013, unless the Company recorded an increase of $1,000 and $2,000, respectively, in the liability for unrecognized tax benefits, including related estimates of penalties and interest.program is completed sooner, suspended, terminated or otherwise extended.

We are a medical technology company that develops, manufactures and markets lasers and relatedalso markets and distributes dental imaging equipment; products that are focused on technologies for improved applications and procedures in dentistry and medicine. In particular, our principal products provide dental laser systems that allow dentists, periodontists, endodontists, oral surgeons and other specialists to perform a broad range of dental procedures, including cosmetic and complex surgical applications. Our systems are 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. We have clearance from the U.S. Food and Drug Administration (“FDA”) to market our laser systems in the United States and also have the necessary approvals to sell our laser systems in Canada, the European Union and certain other international markets.

We offer two categories of laser system products: (i) Waterlase systems and (ii) Diode systems. Our flagship product category, the Waterlase system, uses a patented combination of water and laser to perform most procedures currently performed using dental drills, scalpels and other traditional dental instruments for cutting soft and hard tissue. We also offer our Diode laser systems to perform soft tissue and cosmetic procedures, including tooth whitening.

We have suffered recurring losses from operations and during the three fiscal years ended December 31, 2010 had declining revenues. As of December 31, 2010, we had a working capital deficit. For the threesix months ended March 31,June 30, 2011, although our revenues increased compared to the same period in 2010, we still incurred losses from operations and a net loss.

Our audited financial statements as of and for the year ended December 31, 2010, were prepared assuming that we would continue to operate as a going concern. Our need for additional capital and the uncertainties surrounding our ability to obtain such funding at December 31, 2010, raised substantial doubt about our ability to continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. Our financial statements do not include adjustments relating to the recoverability of recorded asset amounts or the amounts or classification of liabilities that might be necessary should we be unable to continue as a going concern.

Our need for additional capital andAccordingly, we have taken steps during the uncertainties surrounding our ability to raise such funding, raised substantial doubt about our ability to continue as a going concern as ofyear ending December 31, 2010. In order for us to discharge its liabilities2011 (“Fiscal 2011”) which we believe have improved our financial condition and commitments in the normal course of business, we must sellwill ultimately improve our products directly to end-users and through distributors; establish profitable operations through increased sales and a reduction of operating expenses; and potentially raisefinancial results. These steps include: raising additional funds,equity, principally through the additional sales of securities, or debt financings to meet our working capital needs.

The 2010 Shelf Registration Statement. On April 16, 2010, we filed a shelf registration statement (the “2010 Shelf Registration Statement”) with the Securities and Exchange Commission (the “SEC”) to enable usin order to offer for sale, from time to time, in one or more offerings, an unspecified amount of common stock, preferred stock or warrants up to an aggregate public offering price of $9.5 million. The 2010 Shelf Registration Statement (File No. 333-166145) was declared effective by the SEC on April 29, 2010.

During the quarter ended March 31,first three months of 2011, we sold approximately 2.2 million shares of common stock under the 2010 Shelf Registration Statement with net proceeds of approximately $7.1 million, net of commission and direct costs through a Controlled Equityin an at the market offering. No additional sales were made under the Offering Agreement (the “Offering Agreement”) with Ascendiant Securities, LLC (“Ascendiant”), as sales agent.Agreement.

On April 7, 2011, we entered into an agreement with Rodman & Renshaw, LLC (“Rodman & Renshaw”), pursuant to which Rodman & Renshaw agreed to arrange for the sale of shares of our common stock in a registered direct public offering (the “April 2011 Registered Direct Offering”) pursuant to the 2010 Shelf Registration Statement with a fee of 4.5% of the aggregate gross proceeds. We also agreed to reimburse Rodman & Renshaw for expenses incurred in connection with the April 2011 Registered Direct Offering equal to 1.0% of the gross proceeds, not to exceed $25,000. In addition, on April 7, 2011, we and certain institutional investors entered into a securities purchase agreement with certain institutional investors arranged by Rodman & Renshaw, pursuant to which we agreed to sell in the April 2011 Registered Direct Offering an aggregate of 320,000 shares of our common stock with a purchase price of $5.60 per share for gross proceeds of approximately $1.8 million. The net proceeds to us from the April 2011 Registered Direct Offering totaled approximately $1.7 million. The costs associated with the April 2011 Registered Direct Offering totaled approximately $124,000 and were paid in April 2011 upon the closing of the transaction. The shares of common stock sold in connection with the April 2011 Registered Direct Offering were issued pursuant to a prospectus supplement dated April 11, 2011 to the 2010 Shelf Registration Statement, which was filed with the Securities and Exchange Commission.SEC.

The transactions described above exhausted the securities available for sale under theour 2010 Shelf Registration Statement.

On February 8, 2011, we repaid all outstanding balances under a Loan and Security Agreement dated May 27, 2010, as amended, (the “Loan and Security Agreement”) with MidCap Financial, LLC (whose interests were later assigned to its affiliate MidCap Funding III, LLC) and Silicon Valley Bank, which included $2.6 million in principal, $30,000 of accrued interest and $169,000 of loan related expenses. As a result, we no longer have a credit facility. In connection with the repayment, MidCap Funding III, LLC and Silicon Valley Bank released their security interest in our assets. Unamortized costs totaling approximately $225,000, excluding interest, associated with the term loan payable were expensed in February 2011. MidCap Financial, LLC and Silicon Valley Bank also exercised all of their warrants on a cashless basis during February 2011 for 78,172 shares of common stock. As of August 11, 2011, we do not have a credit agreement.

On September 23, 2010, we entered into a Distribution and Supply Agreement (the “D&S Agreement”) with Henry Schein, Inc. (“HSIC”), effective August 30, 2010. In connection with the D&S Agreement, as amended, HSIC placed two irrevocable purchase orders for our products totaling $9 million. The first purchase order, totaling $6 million, was for the iLase system and was required to be fulfilled by June 30, 2011. The first purchase order was fully satisfied during the first quarter of 2011. The second purchase order, totaling $3 million, requires that the products ordered thereunderthere under be delivered by August 25, 2011, and was also for the iLase system, but maycould be modified without charge and applied to other laser products. During the quarter ended March 31,April 2011, HSIC notified us that it was planningmodified the type of laser systems ordered on modifying the second purchase order. HSIC provided the modified purchase order in April 2011. As of March 31,June 30, 2011, approximately $3.0 million$900,000 remained from the second purchase order as a customer deposit which we will apply against the remaining open purchase order.deposit.

Sales of our laser systems include separate deliverables consisting of the product, disposables used with the laser systems, installation and training. For these sales, effective January 1, 2011, we apply the relative selling price method, which requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. This requires us to use (estimated) selling prices of each of the deliverables in the total arrangement. The sum of those prices is then compared to the arrangement, and any difference is applied to the separate deliverable ratably. This method also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (1) vendor-specific objective evidence (“VSOE”) if available, (2) third-party evidence if vendor-specific objective evidence is not available, and (3) estimated selling price if neither vendor-specific nor third-party evidence is available. VSOE is determined based on the value we sell the undelivered element to a customer as a stand-alone product. Revenue attributable to the undelivered elements is included in deferred revenue when the product is shipped and is recognized when the related service is performed. Disposables not shipped at time of sale and installation services are typically shipped or installed within 30 days. Training is included in deferred revenue when the product is shipped and is recognized when the related service is performed or upon expiration of time offered under the agreement, typically within six months from date of sale. The adoption of the relative selling price method does not significantly change the value of revenue recognized.

The key judgments related to our revenue recognition include the collectability of payment from the customer, the satisfaction of all elements of the arrangement having been delivered, and that no additional customer credits and discounts are needed. We evaluate a customer’s credit worthiness prior to the shipment of the product. Based on our assessment of the available credit information, we may determine the credit risk is higher than normally acceptable, and we will either decline the purchase or defer the revenue until payment is reasonably assured. Future obligations required at the time of sale may also cause us to defer the revenue until the obligation is satisfied.

Although all sales are final, we accept returns of products in certain, limited circumstances and record a provision for sales returns based on historical experience concurrent with the recognition of revenue. The sales returns allowance is recorded as a reduction of accounts receivable and revenue.

Extended warranty contracts, which are sold to our non-distributor customers, are recorded as revenue on a straight-line basis over the period of the contracts, which is typically one year.

We recognize revenue for royalties under licensing agreements for our patented technology when the product using our technology is sold. We estimate and recognize the amount earned based on historical performance and current knowledge about the business operations of our licensees. Our estimates have been consistent with amounts historically reported by the licensees. Licensing revenue related to exclusive licensing arrangements is recognized concurrent with the related exclusivity period.

We may offer sales incentives and promotions on our products. We recognize the cost of sales incentives at the date at which the related revenue is recognized as a reduction in revenue, increase in cost of revenue or as a selling expense, as applicable, or later, in the case of incentives offered after the initial sale has occurred.

The following table sets forthpresents certain data from our consolidated statements of operations expressed as percentages of net revenue:

Consumables and service net revenue which(which includes consumable products, advanced training programs and extended service contracts,contracts) and shipping revenue increased by approximately $197,000$394,000 or 9%19% for First Quarterthe three months ended June 30, 2011, as compared to the same periodthree months ended June 30, 2010. This was primarily driven by an increase of $260,000, or 24%, in the sales of our consumables products while services revenues increased $134,000 or 14% for the three months ended June 30, 2011, as compared to the three months ended June 30, 2010. Consumable products revenue increased $356,000, or 39%,This increase in consumable and service revenues decreased approximately $159,000, or 13%.net revenue is primarily a result of our decision to recommence selling our products in North America directly to consumers and through non-exclusive distributor arrangements, rather than exclusively through a single distributor and the launch of our Biolase Store in late 2010.

License fees and royalty revenue decreased by approximately $41,000,$758,000, or 73%66%, for the three months ended June 30, 2011, as compared to the three months ended June 30, 2010. The decrease resulted primarily from $56,000 for First Quarter 2010the recognition of $375,000 of deferred Proctor & Gamble (“P&G”) royalties in the three months ended June 30, 2011, as compared to $15,000 for First Quarter 2011.the recognition of $1.1 million of deferred P&G royalties in the three months ended June 30, 2010.

Interest IncomeExpense. Interest income results fromexpense consists primarily of interest earnedon the financing of our business insurance premiums and interest on our cashterm loan payable which was funded in May 2010 and equivalents balances.repaid in full in February 2011. Interest incomeexpense, excluding the amortization of debt related costs, totaled approximately $0$6,000 and $1,000$41,000 for First Quarterthree months ended June 30, 2011 and 2010, respectively.

Interest Expense. Interest expense consists primarily of interest on the financing of our business insurance premiums and interest on our term loan payable which was funded in May 2010 and repaid in full in February 2011. Interest expense, excluding the amortization of debt related costs, totaled approximately $73,000$79,000 and $4,000$59,000 for First Quarterthe six months ended June 30, 2011 and 2010, respectively.

Nonrecurring Charge for the Expense of Unamortized Debt-Related Costs. Unamortized debt-related costs in the amount of $225,000 were expensed in First Quarterthe six months ended June 30, 2011 as a resultin conjunction with the repayment of paying offour outstanding balances under the term loan payable onLoan and Security Agreement during February 8, 2011.

Net Loss.For the reasons above,Our net loss was $750,000$1.5 million for First Quarterthe six months ended June 30, 2011 compared to a net loss of $5.3$9.5 million for First Quarterthe six months ended June 30, 2010. Our loss for the six months ended June 30, 2011, was primarily due to unanticipated expenses in costs of revenues related to the introduction of our new waterlase iPlus system and increased payroll and consulting expenses in our operating expenses to support our growing operations. The decrease in our net loss for the six months ended June 30, 2011, when compared to the six months ended June 30, 2010, was primarily due to our increased sales volumes.

At March 31,June 30, 2011, the Companywe had approximately $1.5$11.8 million in working capital. The Company’sOur principal sources of liquidity at March 31,June 30, 2011 consisted of $1.6$10.1 million in cash and cash equivalents and $6.0$6.4 million of net accounts receivable. We define cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. The following table summarizes our statements of cash flows (in millions):

Net cash used in operating activities during First Quarterthe six months ended June 30, 2011 was $5.1$7.1 million, as compared to cash provided byused in operating activities of $585,000$2.7 million during First Quarterfor the six months ended June 30, 2010. Cash flow from operating activities consists of our net loss, adjusted for our non-cash charges, plus or minus working capital changes. Net cash used in working capital changes totaled $5.1$7.3 million for First Quarterthe six months ended June 30, 2011, as compared to net cash provided by working capital changes of $5.4$5.6 million for the prior year period. The most significant changes in operating assets and liabilities for First Quarterthe six months ended June 30, 2011, as reported in our consolidated statements of cash flows, were increases of $2.6$3.1 million in accounts receivable (before the change in allowance for doubtful accounts) as a result of increased sales duringtowards the end of the period and a $2.9$5.0 million decrease in customer deposits as we fully satisfied the remainder of the first purchase order with HSIC in First Quarterand shipped a significant portion of the second purchase order with HSIC during the six months ended June 30, 2011.

Cash used in investing activities for First Quarterthe six months ended June 30, 2011 consisted of $18,000$157,000 of capital expenditures. For the fiscal year ending December 31, 2011, we expect capital expenditures to total approximately$500,000,approximately $500,000, and we expect depreciation and amortization to be approximately $960,000 for fiscal 2011.$750,000.

Net cash provided by financing activities for First Quarterthe six months ended June 30, 2011 was $4.9$15.6 million compared to $8,000$3.0 million provided by financing activities in the prior year period. Net cash provided by financing activities was derived from the offerings of our common stock pursuant to the 2010 Shelf Registration Statement ($8.8 million in net proceeds), the June 2011 Securities Purchase ($8.5 million in net proceeds) and $964,000 in proceeds from the exercise of stock options. Net cash used in financing activities for First Quarterthe six months ended June 30, 2011 consisted of $2.7 million used to repayfor the term loan payable, offset by a net $7.1 million related to proceeds from salesrepayment of common stockour outstanding balances under the 2010 Shelf Registration StatementLoan and $594,000 related to proceeds from exercise of stock options.Security Agreement. See “Overview” above.