SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
OR
{ }TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _________ to _________
Commission file number 000-22673
SCHICK TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3374812
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31-00 47th Avenue, Long Island City, NY 11101 (Address of
principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (718) 937-5765
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
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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.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
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The aggregate market value of Common Stock held by non-affiliates of the
registrant as of June 26, 1998 was approximately $99,458,491
Such aggregate market value is computed by reference to
the last sale price of the Common Stock on such date.
As of June 26 , 1998, the number of shares outstanding of the Registrant's
Common Stock, par value $.01 per share, was 9,992,057.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement relating to its Annual Meeting of
Stockholders, which will be filed pursuant to Regulation 14A (the "Proxy
Statement"), are incorporated by reference in Part III. The portions of
the Proxy Statement under the headings "Report of the Compensation
Committee" and "Stock Performance Graph" are not incorporated by
reference and are not a part of this Report.
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Table of Contents
Item of Form 10-K Page
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Part I 1
Item 1. Business 1
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Part II 16
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 16
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 7.A Quantitive and Qualatative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure 26
Part III 27
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
And Management
Item 13. Certain Relationships and Related Transactions
Part IV 28
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 28
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PART I
ITEM 1. BUSINESS
Schick Technologies, Inc. (the "Company"), designs, develops and
manufactures innovative digital radiographic imaging systems and devices for the
dental and medical markets. The Company's products, which are based on
proprietary digital imaging technologies, create instant high resolution
radiographs with reduced levels of radiation.
In the field of dentistry, the Company's CDR(TM) computed dental
radiography imaging system was introduced in March 1994 and has become the
leading product in its field. The CDR(TM) system uses an intra-oral sensor to
produce instant, full size, high resolution dental x-ray images on a color
computer monitor without film or the need for chemical development, and with a
radiation dose that is approximately 10% of that required for conventional x-ray
film. The Company also manufactures and sells the CDRCam(TM), an intra-oral
camera which fully integrates with the CDR(TM) system, and the CDR DisCovery
60/70 DC(TM), a digitally optimized x-ray generator. The Company is currently
developing other products for the dental field, including a digital panoramic
device.
The Company also manufactures, markets and sells, in the field of medical
radiography, the accuDEXA(TM) bone densitometer -- an inexpensive and
easy-to-operate device for the assessment of bone mineral density and fracture
risk.
The Company is developing a digital mammography sensor which it believes
will offer high quality diagnostic capability at a substantially lower cost than
other available devices.
The Company's products are based on its proprietary enhanced charged
coupled device ("CCD") and active-pixel sensor ("APS") imaging technologies. APS
allows the fabrication of large-area imaging devices with high resolution at a
fraction of the cost of traditional technologies. APS technology was originally
developed by the California Institute of Technology and is licensed to the
Company for a broad range of health care applications.
The Company's objective is to be the leading provider of high resolution,
low-cost digital radiography products. The Company plans to leverage its
technological advantage in the digital imaging field to penetrate a broad range
of diagnostic imaging markets. The Company believes that its proprietary
technologies and expertise in electronics, imaging software and advanced
packaging will enable it to compete successfully in these markets. Key elements
of the Company's strategy include (i) expanding market leadership in dental
digital radiography through expanded sales channels, further product
enhancements, and increased direct sales, OEM and marketing activities; (ii)
marketing accuDEXA(TM) to the medical market through a combination of direct
sales and other distribution channels; (iii) introducing new products based on
patented and proprietary APS technology for digital mammography, other medical
and industrial applications; and (iv) expanding international distribution
channels for existing and new products.
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On July 7, 1997, the Company completed an initial public offering of its
Common Stock. Proceeds to the Company after expenses of the offering were
approximately $33,508,000.
The Company was incorporated in Delaware in 1997 and its business was
founded in 1992. The Company's principal executive offices are located at 31-00
47th Avenue, Long Island City, New York 11101. The Company's telephone number is
(718) 937-5765, and its web site address is http://www.schicktech.com.
PRODUCTS / INDUSTRY
Dental Imaging
X-ray imaging, or radiography, is widely used as a basic diagnostic
technique in a broad range of medical applications. To produce a conventional
radiograph, a film cassette is placed behind the anatomy to be imaged. A
generator, which produces high energy photons known as x-rays, is positioned
opposite the film cassette. The transmitted x-rays pass through soft tissue,
such as skin and muscle, and are absorbed by harder substances, such as bone.
These x-rays then form a latent image upon the film. After exposure, the film is
passed through a series of chemicals and then dried.
Film, however, has certain inherent limitations, including the substantial
time, operating expense, inconvenience and uncertainty associated with film
processing, as well as the cost of disposal of waste chemicals and the need for
compliance with environmental regulations. Furthermore, the radiation dosage
levels required to assure adequate image quality in conventional film raise
concerns regarding the health risks associated with exposure to radiation. Also,
conventional film images cannot be electronically retrieved from patient records
or electronically transmitted to health care providers or insurance carriers at
remote locations, a capability which has become increasingly important in
today's managed care environment. While x-ray scanning systems convert x-rays
into digital form, they add to the substantial time and expense associated with
the use of conventional film and do not eliminate the drawbacks of film
processing.
Digital radiography products have been developed to overcome the
limitations of conventional film. These systems replace the conventional film
cassette with an electronic receptor which directly converts the incident x-rays
to digital images. The first system to employ certain aspects of this technique
was Computed Radiography(TM) ('CR'), a 'near real time' system, in which a laser
scanner reads the x-ray image from a specially designed cassette. While CR
allows the images to be electronically displayed and stored, it does not achieve
instant results, and employs a large, costly scanning system. Other technologies
which allow for instant acquisition of digital x-rays have been developed,
including CCD arrays and amorphous silicon panels, neither of which is well
suited for imaging large areas due, respectively, to high cost and limited
resolution.
Dentists, who generally perform their own radiology work, represent the
single largest group of radiologists in the world and the dental industry is, in
terms of unit volume, the largest consumer of radiographic products and
equipment.
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The Company believes that there is a potential market for approximately 1.1
million digital dental radiography devices worldwide. According to the American
Dental Association, there are approximately 150,000 practicing dentists in the
United States. The Company believes that each of them, on average, operates 2.5
radiological units, creating a potential market of 375,000 digital dental
radiography devices in the United States. In addition, the Company believes that
there are approximately 600,000 practicing dentists in the world's major
healthcare markets outside of the United States and, the Company believes that
each of them, on average, operates 1.25 radiological units, creating a potential
market of 750,000 additional devices.
Dentists have a particularly strong motivation to adopt digital
radiography. Radiographic examinations are an integral part of routine dental
checkups and the dentist is directly involved in the film development process.
The use of digital radiography eliminates delays in film processing, thus
increasing the dentist's potential revenue stream and efficiency, and reduces
overhead expenses. The use of digital radiography also allows dentists to more
effectively communicate diagnosis and treatment plans to patients, which the
Company believes has the potential to increase the rate of patients' treatment
acceptance and resulting revenues. Finally, the dosage required to produce an
intra-oral dental x-ray, which is high when compared with other medical
radiographs, can be reduced by up to 90% through the use of digital radiography.
The Company's principal revenue-generating product is its CDR(TM) computed
dental radiography imaging system. The Company's CDR(TM) system is easy to
operate and can be used with any dental x-ray generator. To produce a digital
x-ray image using CDR(TM), the dentist selects an intra-oral sensor of suitable
size and places it in the patient's mouth. The sensor converts the x-rays into a
digital image which is displayed on the computer monitor within five seconds and
automatically stored as part of the patient's clinical records. CDR(TM) system
software allows the dentist to perform a variety of advanced diagnostic
operations on the image. The sensor can then be repositioned for the next x-ray.
As the x-ray dose is significantly lower than that required for conventional
x-ray film, concern over the potential health risk posed by multiple x-rays is
greatly diminished. The process is easy and intuitive, enabling nearly any
member of the dental staff to operate the CDR(TM) system with minimal training.
The Company manufactures image sensors in three sizes which correspond to
the three standard size conventional x-ray films. Size 0 measures 27 x 19 x 6 mm
and is designed for pediatric use; size 1 measures 42 x 25 x 5 mm and is
designed for taking anterior dental images; and size 2 measures 44 x 31 x 5 mm
and is designed to take bitewing images. All of the Company's CDR(TM) sensors
may easily be sterilized using cold solutions or gas. The typical CDR(TM)
configuration includes a computer, display monitor and size 2 digital sensor.
The Company began selling the CDRCam(TM), its innovative intra-oral camera,
in early 1997. CDRCam(TM) fully integrates with the CDR(TM) system to provide
color video images of the structures of the mouth. Since their introduction in
1991, intra-oral cameras have become widely accepted as a dental communication
and presentation tool.
The Company also sells the CDR DisCovery 60/70 DC(TM), an x-ray generator
manufactured by the Company's wholly-owned subsidiary, Schick X-Ray Corporation.
This
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device incorporates low-cost, high stability x-ray technology and is optimized
for digital radiography. It is sold with or without the CDR(TM) system.
Bone Mineral Density / Fracture Risk Assessment
Assessment of bone mineral density ("BMD") is an essential component in the
diagnosis and monitoring of osteoporosis. Osteoporosis is a disease that causes
progressive loss of bone mass which, in serious cases, results in bone fractures
and even death. Osteoporosis can develop over the course of many years without
apparent symptoms, until bone is sufficiently degenerated and fractures occur.
The National Osteoporosis Foundation estimates that approximately 200 million
people suffer from the disease worldwide, which affects one out of three post-
menopausal women and one out of ten men over the age of 70. In the United
States, an estimated twenty-five million people suffer from the disease. The
total estimated health care cost of osteoporosis in the United States, including
indirect costs, is approximately $13 billion annually.
Until recently, osteoporosis was considered neither treatable nor
preventable. Because effective treatments are now available and because
osteoporosis may be preventable if detected in its early stages, the demand for
BMD diagnostic equipment has significantly increased. In the United States,
there are approximately 28 million women who are at high-risk for developing
osteoporosis. Because of the large population segment which could benefit from
BMD testing, the Company believes that there is great demand for a practical,
instant, cost effective, precise, compact and easy-to-use BMD testing device for
the primary care physician. Primary care physicians consist of internal
medicine, family, geriatric and OB/GYN practices. These practices represent
approximately 172,000 potential testing sites in the United States alone.
Traditional BMD measuring devices have been large, costly and difficult to
operate, and are mainly found in large hospitals and diagnostic imaging centers.
In 1995, there were fewer than 1,200 such BMD assessment devices in use in the
United States.
The Company has developed an innovative BMD assessment device to assist
doctors in the diagnosis of low bone density and prediction of fracture risk.
This low-cost and highly precise diagnostic tool, which is marketed under the
trade name accuDEXA(TM), assesses BMD more quickly, accurately and easily than
any comparable product currently on the market, while using a minimal radiation
dosage. It is a point-of-treatment tool, designed for use by primary care
physicians as an integral part of a patient's regular physical examination. In
December 1997, the Company received clearance from the United States Food and
Drug Administration ("FDA") for the general use and marketing of the
accuDEXA(TM) as a BMD assessment device; on June 4, 1998, the FDA granted the
Company additional clearance for its marketing of accuDEXA(TM) as a predictor of
fracture risk.
Based on APS technology, accuDEXA(TM) is a small self-contained unit
capable of instantly assessing the BMD of a specific portion of the patient's
hand, a relative indicator of BMD elsewhere in the body. This device is the
first BMD assessment instrument which is virtually automatic, requiring little
operator intervention, calibration or interfacing of any kind other than the
entry of relevant patient data into a built-in touch sensitive video screen. The
device requires no external x-ray generator or computer and it exposes the
patient to less than 1%
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of the radiation of a single conventional chest x-ray. To use accuDEXA(TM), the
patient places his or her hand into a positioner and, once activated, the device
automatically produces two low-dosage instant radiographs. The patient's bone
density and fracture risk information is displayed on the screen in less than 30
seconds.
Mammography
Breast cancer is the leading cause of cancer death among women in the
United States between the ages of 40 and 55, and the second leading cause of
cancer death among all women in the United States. According to the American
Cancer Society, approximately 184,000 new cases of breast cancer were diagnosed
and approximately 44,000 women died from the disease in 1996. The annual cost of
breast cancer screening and diagnosis in the United States alone is estimated at
$6 billion. Successful treatment of breast cancer depends in large part on the
early detection of malignant lesions in the breast. According to the National
Cancer Institute, the five year survival rate decreases from more than 90% to
72% after the cancer has spread to the lymph nodes, and to 18% after it has
spread to other organs such as the lungs, liver or brain.
Mammography techniques have not changed significantly over the past 20
years, although slight improvements have been made in x-ray film quality. One
major drawback to the use of current mammography systems is their limited
ability to image dense breast tissue, typically found in women under the age of
50, resulting in an unduly high rate of 'false positive' test results and the
concomitant consequences: unwarranted surgical biopsies, significant cost and
great anxiety and concern to the patient. As reported by the American Cancer
Society, women under age 50 experience significant incidence of breast cancer,
with 23% of breast cancer cases detected in women under age 50.
Another limitation of conventional mammography is the time and cost
required to develop the film. Time is particularly problematic in the case of
stereotactic needle biopsies, in which a hollow needle is inserted into the
breast to obtain a tissue sample of a suspected lesion. Multiple mammograms must
be obtained during the procedure in order to properly position the needle. In
1995, approximately 1,000,000 breast biopsies were performed in the United
States, of which approximately 200,000 were stereotactic needle biopsies, up
from fewer than 500 in 1990.
Digital mammography is diagnostically superior to current film-based
systems, yielding higher contrast, improved resolution and lower radiation
dosage. Digital mammography may be especially useful in screening women under
the age of 50 because of its enhanced ability to image the denser breast tissue
typically found in younger women. Clinical testing has shown that digital
mammography, as compared with non-digital devices, can increase accurate
diagnosis by 20%. Digital mammography also provides instant images allowing for
real time stereotactic needle biopsies.
The only digital formats for mammography currently on the market are 'spot'
mammography devices, which can depict a 6 x 6 cm region of the breast. These
devices are fabricated with CCDs, are limited in size, and cost in excess of
$90,000. Because of their limited size, these 'spot' mammography devices are
useful for specific operative procedures, such as needle biopsies, but not for
general screening and diagnosis. A number of companies have
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developed prototypes of large area digital systems, using either amorphous
silicon or tiled CCD technology. The anticipated price for these units is
expected to fall in the $250,000 to $500,000 range, or approximately four to
eight times the current cost of standard mammography equipment.
According to the American College of Radiology, in 1996 there were
approximately 14,000 screening mammography machines in the United States, and
the Company believes that there were approximately 15,000 additional screening
mammography machines in other major health care markets. The market for
mammography machines is driven by increased awareness of breast cancer risk, the
emphasis on early detection, the growing number of stereotactic needle biopsies
and the advancement of digital technology.
The Company has developed a method of producing high quality digital
mammography sensors at a cost which, it believes, will be substantially lower
than its competitors' existing and proposed systems. The Company believes that
its digital mammography sensors will yield higher contrast, improved resolution
and lower radiation dosage than current film based systems, will be especially
useful in screening the denser breast tissue typically found in women under the
age of 50 and will allow for real time stereotactic needle biopsies. Clinical
testing has shown that, in comparison with non-digital devices, digital
mammography can increase accurate diagnosis by 20%.
The Company's proprietary APS technology allows the fabrication of high
resolution, large-area devices at low cost. The Company has manufactured a
prototype of an 8 x 8 cm sensor, which it first demonstrated publicly at the
1997 Radiological Society of North America meeting, held in Chicago, Illinois in
December 1997, and currently plans to manufacture a larger full field sensor for
sale outside of the United States in early 1999 and in the United States
following FDA clearance. See "-- Government Regulation." The small 'spot'
mammography 6 x 6 cm sensors currently available from other companies retail for
over $90,000. The prototype full sized sensors which are being developed by
these companies are projected to cost $250,000 to $500,000. The Company believes
that its mammography sensors will cost substantially less than these products
and provide superior image quality.
Schick X-Ray Corporation
On September 24, 1997, the Company completed the acquisition of certain
assets of Keystone Dental X-Ray, Inc., a manufacturer of x-ray equipment for the
medical and dental radiology field, for $1.5 million in cash. The acquired
assets have been integrated into the Company's subsidiary, Schick X-Ray
Corporation ("Schick X-Ray"). Schick X-Ray produces the Company's CDR DisCovery
60/70 DC(TM) and components utilized in the accuDEXA.
MANUFACTURING
The Company's products are manufactured at its facility in Long Island
City, New York, which includes a 2,300 square foot controlled environment sensor
production facility. This facility is subject to periodic inspection by the FDA.
The Company has invested in automated and semi-automated equipment for the
fabrication and machining of parts and assemblies incorporated in its products.
The Company's quality assurance program includes various quality
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control measures from inspection of raw materials, purchased parts and
assemblies through in-process and final inspection.
The Company manufactures most of its custom components itself in order to
minimize dependence on suppliers and for quality control purposes. While the
Company does procure certain components from outside sources which, because of
the quality of their products, are sole suppliers, it believes that those
components could be obtained from additional sources without substantial
difficulty, although the need to change suppliers or to alternate between
suppliers might cause significant delays in delivery or significantly increase
the Company's costs. The Company procures its APS and CCD semiconductor wafers,
a significant component of its products, each from a single supplier. An
interruption in supply resulted in manufacturing and product shipment delays and
therefore lower revenues than anticipated during the fourth quarter of 1998.
Extended interruptions of this supply could have a material adverse effect on
the Company's results of operations. The Company's manufacturing processes are,
for the most part, vertically integrated, although selective outsourcing is
employed to take advantage of economies of scale at outside manufacturing
facilities and to alleviate manufacturing bottlenecks. Certain components used
in existing products of the Company, as well as products under development, may
be purchased from single sources.
DEPENDENCE ON CUSTOMERS
The Company's business is not dependent on any single customer, and the
Company does not believe that the loss of any single customer would have a
material adverse impact on the Company. Except for Dental Computer/Dental
Technologies, which accounted for 18.0% of the Company's sales in 1997, no
single customer has accounted for more than ten percent of the Company's annual
sales in either of the Company's two most recent fiscal years. During fiscal
1996, 1997 and 1998, respectively, sales of approximately $2.1 million, $3.9
million and $7.1 million were made to foreign customers.
PATENTS, TRADE SECRETS AND PROPRIETARY RIGHTS
The Company seeks to protect its intellectual property through a
combination of patent, trademark and trade secret protection. The Company's
future success will depend in part on its ability to obtain and enforce patents
for its products and processes, preserve its trade secrets and operate without
infringing the proprietary rights of others.
Patents
The Company has an active corporate patent program, the goal of which is to
secure patent protection for its technology. The Company currently has an issued
United States patent for an 'Intra-Oral Sensor for Computer Aided Radiography,'
which patent expires on October 16, 2012, and an allowed United States patent
application for a 'Large Area Image Detector' which will expire on November 20,
2016. The issued patent is currently the subject of a broadening reissue
proceeding before the United States Patent and Trademark Office ("PTO"). The
Company also has six additional patent applications currently pending before the
PTO. In addition, the Company is the exclusive licensee of a United States
patent for an 'Intra-oral Fluoroscope,' which patent expired on July 10, 1996,
and is the licensee
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of certain patents, patent applications and other know-how related to CMOS
active pixel sensors, a technology which was developed by the California
Institute of Technology and licensed to Photobit LLC, from whom the Company
obtained a license for a broad range of healthcare applications.
Trademarks
The Company currently has pending in the PTO trademark applications for the
mark "CDR" for its digital dental radiography product, "CDRCam" (both textual
and stylized) for its intra-oral camera, "QuickZoom" (both textual and stylized)
for a viewing feature in its digital dental radiography product and "accuDEXA"
for its BMD assessment product. The "CDR," "CDRCam," QuickZoom" (textual) and
"accuDEXA" marks have been allowed pursuant to Notices of Allowance issued by
the PTO.
Trade Secrets
In addition to patent protection, the Company owns trade secrets and
proprietary know-how which it seeks to protect, in part, through appropriate
non-disclosure, confidentiality, non-solicitation, non-competition and employee
agreements with appropriate individuals, including employees, consultants,
vendors and independent contractors. These agreements generally provide that all
confidential information developed by or made known to the individual by the
Company during the course of the individual's relationship with the Company is
the property of the Company, and is to be kept confidential and not disclosed to
third parties, except in specific limited circumstances. The agreements also
generally provide that all inventions conceived by the individual in the course
of rendering services to the Company shall be the exclusive property of the
Company. However, there can be no assurances that these agreements will not be
breached, that the Company would have adequate remedies available for any breach
or that the Company's trade secrets will not otherwise become known to, or
independently developed by, its competitors.
GOVERNMENT REGULATION
Products that the Company is currently developing or may develop in the
future are likely to require certain forms of governmental clearance, including
FDA marketing clearance. The FDA review process typically requires extended
proceedings pertaining to product safety and efficacy. The Company believes that
its future success will depend to a large degree upon commercial sales of
improved versions of its current products and sales of new products; the Company
will not be able to market such products in the United States without FDA market
clearance. There can be no assurance that any products developed by the Company
in the future will be given clearance by applicable governmental authorities or
that additional regulations will not be adopted or current regulations amended
in such a manner as to adversely affect the Company.
Pursuant to the Federal Food, Drug and Cosmetic Act, as amended (the "FD&C
Act"), the FDA classifies medical devices intended for human use into three
classes: Class I, Class II, and Class III. In general, Class I devices are
products for which the FDA determines that safety
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and effectiveness can be reasonably assured by general controls under the FD&C
Act relating to such matters as adulteration, misbranding, registration,
notification, records and reports. The CDRCam(TM) is a Class I device.
Class II devices are products for which the FDA determines that general
controls are insufficient to provide a reasonable assurance of safety and
effectiveness, and that require special controls such as promulgation of
performance standards, post-market surveillance, patient registries or such
other actions as the FDA deems necessary. The CDR(TM) system and accuDEXA(TM)
have been classified as Class II devices.
Class III devices are devices for which the FDA has insufficient
information to conclude that either general controls or special controls would
be sufficient to assure safety and effectiveness, and which are life-supporting,
life-sustaining, of substantial importance in preventing impairment of human
health, or present a potential unreasonable risk of illness or injury. Devices
in this case require pre-marketing approval, as described below. None of the
Company's existing products are in the Class III category.
The FD&C Act further provides that, unless exempted by regulation, medical
devices may not be commercially distributed in the United States unless they
have been cleared by the FDA. There are two review procedures by which medical
devices can receive such clearance. Some products may qualify for clearance
under a Section 510(k) procedure, in which the manufacturer submits to the FDA a
pre-market notification that it intends to begin marketing the product, and
shows that the product is substantially equivalent to another legally marketed
product (i.e., that it has the same intended use and that it is as safe and
effective as a legally marketed device, and does not raise different questions
of safety and effectiveness than does a legally marketed device). In some cases,
the 510(k) notification must include data from human clinical studies.
Marketing may commence once the FDA issues a clearance letter finding such
substantial equivalence. According to FDA regulations, the agency has 90 days in
which to respond to a 510(k) notification. There can be no assurance, however,
that the FDA will provide a response within that time, or reach a finding of
substantial equivalence.
If a product does not qualify for the 510(k) procedure (either because it
is not substantially equivalent to a legally marketed device or because it is a
Class III device), the FDA must approve a Pre-Market Approval ("PMA")
application before marketing can begin. PMA applications must demonstrate, among
other things, that the medical device is safe and effective. A PMA application
is typically a complex submission that includes the results of clinical studies.
Preparation of such an application is a detailed and time-consuming process.
Once a PMA application has been submitted, the FDA's review process may be
lengthy and include requests for additional data. By statute and regulation, the
FDA may take 180 days to review a PMA application, although such time may be
extended. Furthermore, there can be no assurance that a PMA application will be
approved by the FDA.
In February 1994, the FDA cleared the Company's 510(k) application for
general use and marketing of the CDR(TM) system. In November 1996, the FDA
cleared the Company's 510(k)
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application for general use and marketing of the CDRCam(TM). In December 1997,
the FDA cleared the Company's 510(k) application for general use and marketing
of accuDEXA(TM). On June 4, 1998, the FDA granted the Company additional
clearance to market accuDEXA(TM) as a predictor of fracture risk. The Company
has not yet submitted a 510(K) application for its digital mammography sensors.
There can be no assurance that the Company will obtain FDA clearance for such
products.
In addition to the requirements described above, the FD&C Act requires that
all medical device manufacturers and distributors register with the FDA annually
and provide the FDA with a list of those medical devices which they distribute
commercially. The FD&C Act also requires that all manufacturers of medical
devices comply with labeling requirements and manufacture their products and
maintain their documents in a prescribed manner with respect to manufacturing,
testing, and quality control activities. The FDA's Medical Device Reporting
regulation subjects medical devices to post-market reporting requirements for
death or serious injury, and for certain malfunctions that would be likely to
cause or contribute to a death or serious injury if malfunction were to recur.
In addition, the FDA prohibits a device which has received marketing clearance
from being marketed for applications for which marketing clearance has not been
obtained. The FDA further requires that certain medical devices not cleared for
marketing in the United States receive FDA marketing clearance before they are
exported.
FDA guidelines entitled "Quality System Regulation" ("QSR") set forth
standards for the Company's manufacturing process, require the maintenance of
certain records and provide for unscheduled inspections of the Company's
facilities. Certain requirements of state, local and foreign governments must
also be complied with in the manufacture and marketing of the Company's
products. The Company believes that its manufacturing and quality control
procedures meet the requirements of these regulations.
Failure to comply with applicable regulatory requirements can, among other
consequences, result in fines, injunctions, civil penalties, suspensions or loss
of regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution. In addition, governmental regulations may
be established that could prevent or delay regulatory clearance of the Company's
products. Delays in receipt of clearance, failure to receive clearance or the
loss of previously received clearance would have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition to laws and regulations enforced by the FDA, the Company is
subject to government regulations applicable to all businesses, including, among
others, regulations related to occupational health and safety, workers' benefits
and environmental protection. The extent of government regulation that might
result from any future legislation or administrative action cannot be accurately
predicted. Failure to comply with regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Distribution of the Company's products in countries other than the United
States may be subject to regulations in those countries. These regulations vary
significantly from country to country; the Company typically relies on its
independent distributors in such foreign countries to obtain the requisite
regulatory approvals. In order to market its products in the member countries of
the European Union, the Company will be required to obtain the "CE mark." The CE
mark is a
10
<PAGE>
European Union symbol of adherence to quality assurance standards and compliance
with the European Union's Medical Device Directives. The Company has developed
and implemented a quality assurance program in accordance with the guidelines of
the International Quality Standard, ISO 9001. The Company is currently seeking
ISO 9001 certification.
INSURANCE
The Company is subject to the risk of product liability and other liability
claims in the event that the use of its products results in personal injury or
other claims. Although the Company has not experienced any product liability
claims to date, any such claims could have an adverse impact on the Company. The
Company maintains insurance coverage related to product liability claims, but
there can be no assurance that product liability or other claims will not exceed
its insurance coverage limits, or that such insurance will continue to be
available on commercially acceptable terms, or at all.
RESEARCH AND DEVELOPMENT
During fiscal 1998, 1997 and 1996, research and development expenses were
$3.9 million, $1.4 million and $0.5 million, respectively.
BACKLOG
The Company does not generally maintain any significant backlog of its
products due to its ability to process orders in a timely manner. However, in
the fourth quarter of fiscal 1998, the Company experienced a delay in shipments
of a key component which resulted in manufacturing delays and a subsequent
backlog at the end of the quarter.
EMPLOYEES
As of March 31, 1998, the Company had 392 full-time employees, engaged in
the following capacities: sales and marketing (126); executive office (6);
executive staff (6); legal (3); production (87); engineering (46); operations
(69); product support (27); and Schick X-Ray (22). The Company believes that its
relations with its employees are good. No Company employees are represented by a
labor union or are subject to a collective bargaining agreement, nor has the
Company experienced any work stoppages due to labor disputes.
SALES AND MARKETING
Dental Products
In the United States, the Company markets its products primarily through a
direct sales system which incorporates dental trade shows and professional
seminars, advertisements in dental periodicals, journals and other publications,
direct mail and product announcements. The Company employs approximately 65
direct sales representatives who are located throughout the United States and
are organized into territories. A staff of 18 marketing specialists with 10
support staff based at the Company's offices in New York supports the direct
sales force by planning events and developing promotional and marketing
materials. In addition, the Company has an in-house sales program
11
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which focuses on universities and continuing education programs. As of March 31,
1998, CDR(TM) had been sold to more than 80% of dental schools in the United
States. The Company also employs a government sales program to sell directly to
the Armed Services, Veterans Administration hospitals, United States Public
Health Service and other government-sponsored health institutions.
In the international market, the Company sells the CDR(TM) system via
independent regional distributors. There are currently approximately 50
independent CDR(TM) dealers, covering over 50 countries. A specialized in-house
staff provides the foreign distributors with materials, technical assistance and
training, both in New York and abroad.
The Company has broadened its sales strategy by negotiating distribution
and private-label 'OEM' agreements, both domestically and internationally. The
Company has entered into an OEM sales agreement with Henry Schein, Inc., ("HSI")
under which HSI's subsidiary, Sullivan-Schein Dental Corp., sells the CDR(TM)
system under its own trade name, "easyray(TM)". The Company's goal is to utilize
its leading position in the industry, secure as many productive sales channels
as possible and to rapidly penetrate additional segments of the international
market.
BMD / Fracture Risk Assessment
The Company sells accuDEXA(TM) through a direct sales force and established
independent distributors and manufacturers of medical and radiological
equipment. The primary end-users for accuDEXA(TM) are primary care physicians,
including OB/GYN practices, and osteopathic and geriatric specialists.
Pharmaceutical companies are currently involved in wide-scale osteoporosis
education and awareness programs targeted at physicians. A number of such
companies, including Novartis, Wyeth-Ayerst Laboratories, Eli Lilly and Merck,
currently have FDA-approved therapies for the treatment of osteoporosis. Several
other companies, including Procter & Gamble, Boehringer-Mannheim, Sanofi and
Pfizer, have additional products which are currently in clinical trials. The
Company expects that the efforts of pharmaceutical companies to develop
medicines and treatment programs will result in the expansion of doctors'
involvement in initial screening and routine management of osteoporosis, thereby
increasing the market for BMD assessment devices. The Company intends to
capitalize on these efforts both in the United States and abroad.
The Company is currently conducting a number of research studies and
collecting normative reference data for the accuDEXA(TM) databases, worldwide.
The research studies address issues of long-term importance such as the
detection of osteoporosis and patient risk for bone fracture. The Company has
thus far established normative reference databases for the Caucasian female and
male populations and is seeking to complete databases for Asian,
African-American, Hispanic and Brazilian populations in the near future. The
Company will utilize these databases to address the needs of healthcare markets
in different countries and expects them to positively impact upon sales of
accuDEXA(TM) abroad.
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Mammography
The Company's sales strategy will be to market its mammography devices
through a direct sales force as well as through established manufacturers in the
mammography market, typically on an OEM basis. The Company plans to develop
customized versions of its "spot" and "full-field" sensors which OEM buyers can
incorporate into a wide variety of mammography machines. The Company believes
that this strategy will allow it to optimize its penetration of the mammography
market through utilization of existing distribution channels.
COMPETITION
The health care industry in general, and the market for imaging products in
particular, is highly competitive. The Company faces competition and potential
competition from a number of companies, many of which have substantially greater
financial, marketing and other resources than the Company. The specific
competitors are distinct within each of the Company's markets, as described
below. The Company competes primarily on the basis of technology, pricing,
product features and performance, and believes that its products compete
favorably in all such areas. There can be no assurance that the Company will
maintain its competitive position against current and potential competitors,
especially those with greater resources than the Company.
Dental Products
A number of companies currently sell intra-oral digital dental sensors.
These include Trophy S.A., Siemens Dental Systems, Cygnus Imaging, Inc., and
Dentsply. In addition, Dentsply and Soredex Corporation sell a storage-phosphor
based intra-oral dental system. The CDR(TM) system has thus far competed
successfully against other products. If other companies enter the digital
radiography field, it may result in a significantly more competitive market in
the future. Several companies are involved in the manufacture and sale of
intra-oral cameras, including Dentsply, Welch-Allyn Co., Henry Schein Co.,
Ultra-Cam, Air Technics and DMD. Numerous other companies are involved in the
manufacture and sale of x-ray generators, including Trophy, Dentsply and
Belmont.
BMD / Fracture Risk Assessment
Two other companies, Lunar and Norland, are currently marketing peripheral
BMD densitometers. Hologic recently received FDA clearance to market a
peripheral BMD ultrasound device. A number of other companies have submitted
510(k) applications to the FDA seeking clearance to market other devices. Two
companies, Ostex and Metra Biosystems, have developed biochemical markers which
indicate the rate at which the body is resorbing (i.e., breaking down) bone.
Another potential competitor of the Company's accuDEXA(TM) is the Osteogram
test, manufactured by CompuMed Inc., a peripheral screening test employing RA
technology, conventional hand x-rays and computer analysis.
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<PAGE>
Mammography
The companies in the digital mammography market include the following
manufacturers of traditional mammography devices: GE Medical Systems, Fischer
Imaging, Trex Medical, Instrumentarium Imaging, Philips and Siemens.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is pervasive and complex, as many computer systems will be affected in some way
by the rollover of the two-digit year value to 00. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The "Year 2000" issue creates risk for the Company from unforeseen
problems in its own computer systems and from third parties with whom the
Company deals on transactions worldwide. Failures of the Company's and/or third
parties' computer systems could have a material impact on the Company's ability
to conduct its business.
Therefore, some computer hardware and software has been modified and some
will need to be modified prior to the year 2000 to remain functional. The
Company is assessing the internal readiness of its computer systems and the
readiness of third parties which interact with the Company's systems. The
Company plans to devote the necessary resources to resolve all significant year
2000 issues in a timely manner. Costs associated with the year 2000 assessment
and correction of problems noted are expensed as incurred. Based on management's
current assessment, it does not believe that the cost of such actions will have
a material effect on the Company's results of operations or financial condition.
FORWARD-LOOKING STATEMENTS
This Form 10-K Annual Report contains forward-looking statements that
involve risk and uncertainties. Forward-looking statements may be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," or "anticipates" or the negative thereof or variations thereon
or comparable terminology, or by discussions of strategy. The Company's actual
results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those contained in this Item 1--Business, Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Exhibit 99 to this Report.
ITEM 2. PROPERTIES
The Company presently occupies 105,800 square feet of leased space in Long
Island City, New York. This space houses the Company's executive offices, sales
and marketing headquarters, research and development laboratories and production
and shipping facilities. The Company recently expanded its facilities to meet
increased staffing and manufacturing needs and may require additional expansion
over the next 12 months. The Company expects that adequate space, if needed,
will be available at a reasonable cost.
14
<PAGE>
Schick X-Ray Corporation, the Company's wholly-owned subsidiary, leases
9,664 square feet of space in Roebling, New Jersey, which space is used for the
manufacture of DisCovery 60/70 DC(TM), the Company's digitally optimized x-ray
generator and components of the accuDEXA.
ITEM 3. LEGAL PROCEEDINGS
The Company is a named defendant in two lawsuits instituted by Trophy S.A.
One lawsuit was instituted in France and the other in the United States.
The French lawsuit instituted by Trophy S.A. was filed in November 1995, in
the tribunal de Grande Instance de Bobigny, the French patent court, and
originally alleged that the Company's CDR(TM) system infringes French Patent No.
2,547,495, European Patent No. 129,451 and French Certificate of Addition No.
2,578,737. These patents, all of which are related, are directed to a CCD-based
intra-oral sensor. Since filing its lawsuit, Trophy S.A. has withdrawn its
allegation of infringement with respect to the Certificate of Addition. Trophy
S.A. is seeking a permanent injunction and damages, including damages for its
purported lost profits. The Company believes that the lawsuit is without merit,
and is vigorously defending it.
The lawsuit in the United States was filed in March 1996 by Trophy S.A.,
Trophy Inc. and the named inventor on the patent in suit, Francis Mouyen, a
French citizen. The suit was brought in the United States District Court for the
Eastern District of New York, and alleges that the Company's CDR(TM) system
infringes United States patent no. 4,593,400 (the "'400 patent"), which is
related to the patents in the French lawsuit. Trophy S.A., Trophy Inc. and
Mouyen are seeking a permanent injunction and unspecified damages, including
damages for purported lost profits, enhanced damages for the Company's purported
willful infringement and an award of attorney fees. The Company believes that
the lawsuit is without merit, and is vigorously defending it. The Company's
counsel in the United States suit has issued a formal opinion that the CDR(TM)
system does not infringe the '400 patent.
In addition, the Company has counter-sued Trophy S.A. and Trophy Inc. for
infringement of United States Patent No. 4,160,997, a recently expired patent
which was exclusively licensed to the Company by its inventor, Dr. Robert
Schwartz, and for false advertising and unfair competition. The Company believes
that its counter-suits are meritorious, and is vigorously pursuing them.
On September 12, 1997, the Company served two motions for summary judgment
seeking dismissal of the action pending in the United States District Court for
the Eastern District of New York, on the grounds of non-infringement and the
"best mode" defense. Those motions are currently pending.
There can be no assurance that the Company will be successful in its
defense of any of these actions, or in its counter-suits. If the Company is
unsuccessful in its defense of any of these actions, it could have a material
adverse effect upon the Company. Moreover, regardless of their
15
<PAGE>
outcome, the Company may be forced to expend significant amounts of money in
legal fees in connection with these lawsuits.
The Company is currently not a party or otherwise subject to any pending or
threatened litigation other than routine litigation arising in the ordinary
course of business, none of which is expected to have a material adverse effect
on the business, financial condition or results of operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended March 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
The Company's Common Stock began trading on The Nasdaq National Market
under the symbol "SCHK" on July 1, 1997. Prior to such date, there was no
established public trading market for the Company's Common Stock.
The following table sets forth, for the period indicated, the high and low
sales prices of the Company's Common Stock, as quoted on The Nasdaq National
Market.
Fiscal Year Ended March 31, 1998 High Low
- -------------------------------- ---- ---
First Quarter n/a n/a
Second Quarter 30.75 15.50
Third Quarter 29.00 17.50
Fourth Quarter 28.75 19.125
On June 26, 1998, the closing sales price per share of the Company's Common
Stock as quoted on The Nasdaq National Market was $16.375 per share. On June 26,
1998, there were 230 holders of record of the Company's Common Stock.
16
<PAGE>
To date, the Company has not paid any dividends on its Common Stock. The
Company currently intends to retain future earnings to finance the growth and
development of the Company's business and does not anticipate paying any
dividends in the foreseeable future. The payment of dividends is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements, financial condition and other relevant
factors.
During the quarter ended March 31, 1998, existing warrantholders
surrendered an aggregate of 10,640 warrants exercisable at $8.93 per share in
cashless exercises to purchase an aggregate of 6,780 shares of Common Stock.
Such issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
On July 7, 1997, the Company's initial public offering (the "Offering") of
1,750,000 shares of its common stock, $.01 par value per share (the "Common
Stock") was completed. The Company's registration statement on Form S-1
(Registration No. 333-33731) was declared effective by the Securities and
Exchange Commission on June 30, 1997. As part of the Offering, the Company
granted to the Underwriters over-allotment options to purchase up to 262,500
shares of Common Stock ("the "Underwriters' Option"). On July 10, 1997, the
underwriters exercised the Underwriters' Option purchasing 262,500 shares of
Common Stock from the Company.
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<PAGE>
The aggregate net proceeds received by the Company from the Offering and as
a result of the exercise of the Underwriters' Option, after deducting
underwriting and commissions and expenses were $33,508,731. During the period of
July 1, 1997 through March 31, 1998, such net proceeds have been applied as
follows: (i) $870,706 for leasehold improvements; (ii) $3,134,081 for property,
plant, and equipment; (iii) $1,450,000 to purchase certain assets of Keystone
Dental X-Ray Corp.; (iv) $1,000,000 to purchase a 5% interest in Photobit, Inc.;
(v) $1,512,833 to pay the notes payable and interest in the amount of $144,296
to Merck & Co., Inc.; (vi) $10,791,270 to short-term investments; (vii)
$5,276,613 to money market investments; and (viii) the remaining $9,473,228 was
used for working capital purposes. None of the net proceeds were paid, directly
or indirectly, to directors, officers, controlling stockholders, or affiliates
of the Company.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from, and are qualified
by reference to, the audited financial statements of the Company for the period
indicated. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in ITEM 7 and the Financial Statements included in ITEM 8 of this
Report.
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue, net $ 29 $2,726 $6,804 $16,101 $38,451
Cost of sales 14 1,501 3,343 8,021 17,658
---------------------------------------------------------------------
Gross profit 15 1,225 3,461 8,080 20,793
---------------------------------------------------------------------
Operating expenses:
Selling and marketing 158 517 1,620 4,961 10,645
General and administrative 121 560 1,388 2,088 4,118
Research and development 393 150 458 1,418 3,852
Patent litigation settlement -- -- -- -- 600
---------------------------------------------------------------------
Total operating expenses 672 1,227 3,466 8,467 19,215
---------------------------------------------------------------------
Income (loss) from operations (657) (2) (5) (387) 1,578
Total other income (expense) 1 (22) (108) 35 1,111
---------------------------------------------------------------------
Income (loss) before income taxes (656) (24) (113) (352) 2,689
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Provision for income taxes -- -- -- -- 328
---------------------------------------------------------------------
Net income (loss) $ (656) $ (24) $ (113) $ (352) $ 2,361
---------------------------------------------------------------------
Basic earnings (loss) per share $(0.12) $(0.00) $(0.02) $ (0.05) $ 0.25
---------------------------------------------------------------------
Diluted earnings (loss) per share $(0.12) $(0.00) $(0.02) $ (0.04) $ 0.24
---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 25 $ 128 $ 525 $ 1,710 $ 6,217
Working capital (deficiency) (33) 35 1,240 5,518 33,745
Total assets 321 1,615 4,395 11,060 51,674
Total liabilities 196 1,289 3,026 4,973 9,565
Retained earnings (accumulated deficit) (1,067) (1,091) (1,203) (1,556) 805
Stockholders' equity
124 326 1,369 6,087 42,109
</TABLE>
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements included elsewhere in this Report. This
discussion contains forward-looking statements based on current expectations
that involve risks and uncertainties. Actual results and the timing of certain
events may differ significantly from those projected in such forward-looking
statements due to a number of factors, including those set forth in "Results of
Operations" in this Item and elsewhere in this Report. See "ITEM 1 - Business -
Forward-Looking Statements" and Exhibit 99 to this Report.
19
<PAGE>
Overview
The Company designs, develops and manufactures digital imaging systems for
the dental and medical markets. In the field of dentistry, the Company has
developed and currently manufactures and markets an intra-oral digital
radiography system. The Company has also developed a bone mineral density
assessment device to assist in the diagnosis and treatment of osteoporosis which
was introduced in December 1997. The Company is also developing large-area
radiographic imaging devices for digital mammography.
The Company's revenues during fiscal 1998 were derived primarily from sales
of its CDR(TM) and accuDEXA(TM) products and to a lesser extent from sales of
its CDRCam(TM) and extended warranties on its products. The Company recognizes
revenue on sales of its products at the time of shipment to its customers.
Revenues from the sales of extended warranties are recognized on a straight-line
basis over the life of the extended warranty, which is generally a one-year
period. The Company utilizes both a direct sales force and a limited number of
distributors for sales of its products within the United States. International
sales are made primarily through a network of independent foreign distributors.
In fiscal 1998, 1997 and 1996 sales to customers within the United States were
approximately 82%, 76% and 69% of total revenues, respectively. The Company's
international sales are made primarily to distributors in Western Europe,
Russia, Australia and South America. The Company intends to expand its business
in other international markets, including Asia. All of the Company's sales are
denominated in United States dollars.
Costs of sales consists of raw materials and computer components,
manufacturing labor, facilities overhead, product support, warranty costs and
installation costs. The Company procures its APS and CCD semiconductor wafers, a
significant component of its products, each from a single supplier. The Company
believes that sourcing from a single supplier provides certain competitive
advantages to the Company, however during the fourth quarter of fiscal 1998 the
Company experienced an interruption in the supply flow from the supplier. The
interruption in supply resulted in manufacturing and product shipment delays and
therefore lower revenues than anticipated during the fourth quarter of 1998.
Extended interruptions of this supply could have a material adverse effect on
the Company's results of operations. The Company believes that cost of sales as
a percentage of revenues in future periods will continue to decrease due to the
introduction of new products and manufacturing technologies and higher
manufacturing volumes of its existing products. However, as the Company
introduces new products, cost of sales may initially be a higher percentage of
net revenues until certain production efficiencies are achieved.
Operating expenses include selling and marketing expenses, general and
administrative expenses and research and development expenses. Selling and
marketing expenses consist of salaries and commissions, advertising, promotional
and sales events and travel. General and administrative expenses include
executive salaries, professional fees, facilities, overhead, accounting, human
resources, and general office administration expenses. Research and development
expenses are comprised of salaries, consulting fees, facilities overhead and
testing materials used for basic scientific research and the development of new
and improved products and their uses. Research and development costs are
expensed as incurred. Development costs incurred to establish the technological
feasibility of software applications are expensed as incurred. While the Company
expects to continue to increase its selling and marketing activities, develop
new products and enhance existing products, it anticipates that its total
operating expenses as a percentage of revenues will decrease.
20
<PAGE>
Results Of Operations
The following table sets forth, for the fiscal years indicated, certain
items from the Statement of Operations expressed as a percentage of net
revenues:
Year ended March 31,
-----------------------------------
1998 1997 1996
---- ---- ----
Revenue, net 100.0% 100.0% 100.0%
Cost of sales 45.9% 49.8% 49.1%
-----------------------------------
Gross Profit 54.1% 50.2% 50.9%
Operating expenses:
Selling and marketing 27.7% 30.8% 23.8%
General and administrative 10.7% 13.0% 20.4%
Research and development 10.0% 8.8% 6.7%
Patent litigation settlement 1.6% -- --
Fiscal Year Ended March 31, 1998 as Compared to Fiscal Year Ended March 31, 1997
Net revenues increased 138.8% to $38.5 million in fiscal 1998 from $16.1
million in fiscal 1997. This increase was attributable principally to an
increase in the number of CDR(TM) products sold. Also contributing to the
increase was the introduction of the Company's accuDEXA(TM) bone mineral density
assessment device in December 1997. The number of CDR(TM) products sold was
positively affected by the Company's increased expenditures on sales and
marketing, personnel recruiting, selling events and other promotional activities
and the increased use of domestic distributors of dental and medical products.
Cost of sales increased 120.1% to $17.7 million (45.9% of net revenues) in
fiscal 1998 from $8.0 million (49.8% of net revenues) in fiscal 1997. The
increase in cost of sales is directly attributable to the increase in sales of
the Company's products. Cost of sales as a percentage of revenues decreased
during fiscal 1998 as compared with 1997 due to increased manufacturing
efficiencies, increased production yields, lower material costs, improved fixed
overhead utilization, product mix and decreased warranty costs. The effect of
these improvements was partially offset by a decline in manufacturing labor
productivity attributable to the semiconductor wafer supply interruption during
the fourth quarter as discussed above and the increased use of domestic
distributors. During fiscal 1997 the Company recognized a non-recurring charge
of $114,000 related to excess inventory of a specific component of its CDR(TM)
system.
Selling and marketing expenses increased 114.6% to $10.6 million (27.7% of
net revenues) in fiscal 1998 from $5.0 million (30.8% of net revenues) in fiscal
1997. This increase was attributable principally to the hiring and training of
new salespeople as the Company continued to increase the size of its national
sales force. In addition, the Company significantly increased its promotional
activities to create greater market awareness, and developed market strategies
for new products.
21
<PAGE>
General and administrative expenses increased 97.2% to $4.1 million (10.7%
of net revenues) in fiscal 1998 from $2.1 million (13.0% of net revenues) in
fiscal 1997. The decrease as a percentage of revenues in 1998 was attributable
principally to increases in sales of the Company's products and partially offset
by growth in administrative expenditures, primarily the hiring of additional
administrative personnel.
Expenses for research and development in fiscal 1998 increased 171.7% to
$3.9 million (10.0% of net revenues) from $1.4 million (8.8% of net revenues) in
fiscal 1997. This increase was attributable principally to increased research
and development expenses associated with the development of accuDEXA(TM), a bone
mineral density assessment device and enhancements to the CDR(TM) system, as
well as the CDRCam(TM), and continued development of a mammography system. All
research and development costs are expensed as incurred.
In July 1997, the Company, in connection with the settlement of certain
pending patent litigation involving a United States patent directed to a display
for digital dental radiographs, was granted a worldwide, non-exclusive fully
paid license covering such patent in consideration of a payment by the Company
of $600,000, which constituted a fiscal 1998 operating expense.
Interest income increased to $1.2 million in fiscal 1998 from $196,000 in
fiscal 1997. This increase was due to higher cash balances and investments in
short-term interest-bearing securities which were purchased from the proceeds of
the Company's initial public offering.
Interest expense decreased to $77,000 in fiscal 1998 from $161,000 in
fiscal 1997. Interest expense was principally attributable to a loan from Merck
& Co., Inc. (the "Merck Loan") which was repaid upon consummation of the
Company's initial public offering in July 1997.
Income tax expense for fiscal 1998 reflects a combined federal and state
effective tax rate of 12.2%. The low effective rate in fiscal 1998 was primarily
due to the utilization of net operating loss carryforwards, research and
development tax credits generated in prior years and the reversal of valuation
reserves provided for deferred tax assets in prior years.
Fiscal Year Ended March 31, 1997 as Compared to Fiscal Year Ended March 31,
1996.
Net revenues increased 136.6% to $16.1 million in fiscal 1997 from $6.8
million in fiscal 1996. This increase was attributable principally to an
increase in the number of CDR(TM) products sold which was positively affected by
the Company's increased expenditures on sales and marketing, personnel
recruiting, selling events and other promotional activities. The Company
believes that net revenues will continue to increase as the Company sells more
CDR(TM) products and introduces new products.
Cost of sales increased 139.9% to $8.0 million (49.8% of net revenues) in
fiscal 1997 from $3.3 million (49.1% of net revenues) in fiscal 1996. Cost of
sales as a percentage of revenues was relatively stable in fiscal 1997 as
improved manufacturing efficiencies and fixed overhead utilization were
partially offset by increases in the cost of certain computer components of the
CDR(TM) system as well as increased customer service costs. In addition, in
fiscal 1997, the
22
<PAGE>
Company recognized a non-recurring charge of approximately $114,000 related to
excess inventory of a specific component of its CDR(TM) system.
Selling and marketing expenses increased 206.3% to $5.0 million (30.8% of
net revenues) in fiscal 1997 from $1.6 million (23.8% of net revenues) in fiscal
1996. This increase was attributable principally to the hiring and training of
new salespeople as the Company completed the establishment of its national sales
force. In addition, the Company significantly increased its promotional
activities to create greater market awareness, and developed market strategies
for new products.
General and administrative expenses increased 50.4% to $2.1 million (13.0%
of net revenues) in fiscal 1997 from $1.4 million (20.4% of net revenues) in
fiscal 1996. This decrease as a percentage of revenues was attributable
principally to increases in sales of the Company's products and partially offset
by growth in administrative expenditures. This decrease was partially offset by
an increase in legal fees associated with certain patent infringement litigation
in the amount of $509,000.
Expenses for research and development in fiscal 1997 increased 209.5% to
$1.4 million (8.8% of net revenues) from $458,000 (6.7% of net revenues) in
fiscal 1996. This increase was attributable principally to increased research
and development expenses associated with the development of a bone mineral
density measurement device and enhancements to the CDR(TM) system, as well as
the CDRCam(TM), and initial development of a mammography system.
Interest income increased to $196,000 in fiscal 1997 from $15,000 in fiscal
1996. This increase was due to higher cash balances and investments in
interest-bearing securities which were purchased from the proceeds of the May
1996 equity private placement and from the proceeds of the convertible
promissory notes issued by the Company in connection with a June 1995 private
placement (the '12.5% Notes Payable'). Interest expense increased to $161,000 in
fiscal 1997 from $123,000 in fiscal 1996. Interest expense was attributable
principally to the outstanding secured notes and the 12.5% Notes Payable prior
to their conversion into Common Stock at various dates in fiscal 1997.
The following table sets forth certain unaudited quarterly financial
information for each of the eight quarters in the period ended March 31, 1998.
This information is presented on the same basis as the audited financial
statements appearing elsewhere in this Report and, in the opinion of the
Company, includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the unaudited quarterly results. The
quarterly results should be read in conjunction with the audited consolidated
financial statements of the Company and related notes thereto. The operating
results for any quarter are not necessarily indicative of the operating results
for any future period. In addition, the Company's CDR(TM) products are subject
to seasonal variations. Historically the Company has experienced higher sales
growth rates in its first and third fiscal quarters than in its second and
fourth fiscal quarters.
23
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1996 1996 1996 1997 1998 1998 1998 1998
-------- --------- -------- -------- -------- --------- -------- --------
(In thousands, unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue, net $2,627 $3,160 $4,954 $5,360 $6,040 $8,224 $11,912 $12,275
Cost of sales 1,440 1,631 2,360 2,590 2,831 3,867 5,529 5,431
----------------------------------------------------------------------------------------
Gross Profit 1,187 1,529 2,594 2,770 3,209 4,357 6,383 6,844
Gross Profit Margin 45.2% 48.4% 52.4% 51.7% 53.1% 53.0% 53.6% 55.8%
Operating expenses 1,483 1,827 2,592 2,565 3,912 3,910 5,384 6,009
Income (loss) from operations (297) (297) 2 205 (703) 447 999 835
Net income (loss) (317) (294) 20 239 (697) 1,010 1,225 823
</TABLE>
The Company may in the future experience significant quarter-to-quarter
fluctuations in its results of operations, which may result in volatility in the
price of the Company's common stock. Quarterly results of operations may
fluctuate as a result of a variety of factors, including demand for the
Company's products, the introduction of new or enhanced products by the Company
or its competitors, market acceptance of new products, the timing of significant
marketing programs, the commencement of new product development programs, supply
and manufacturing delays, the extent and timing of the hiring of additional
personnel, competitive conditions in the industry and general economic
conditions. See Exhibit 99 to this Report.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998 the Company had $6.2 million in cash and cash equivalents,
$14.0 million in short term investments and $33.7 million in working capital
compared to $1.7 million in cash and cash equivalents, $2.3 million in
short-term investments and $5.5 million in working capital at March 31, 1997.
The increase in working capital at March 31, 1998, is primarily
attributable to the net proceeds received from the issuance and sale of common
stock in connection with the Company's IPO.
On July 7, 1997, the Company sold 1,750,000 shares of common stock in an
IPO at a price of $18.50 per share, resulting in net proceeds to the Company of
approximately $29 million after deducting expenses. In addition, on July 10,
1997, the Company received approximately $4.5 million, net of expenses, upon the
exercise of the underwriters' over-allotment option to purchase 262,500 shares
of common stock. A portion of the proceeds from the IPO was used to retire the
outstanding notes payable in the principal amount of $1.5 million and interest
of $144 thousand. Additional proceeds were used to purchase assets in Keystone
Dental X-Ray Inc. ("Keystone") and a minority interest in Photobit Corporation
("Photobit") as described below. The remaining
24
<PAGE>
proceeds are expected to be used (i) to expand the Company's research and
development capabilities, (ii) to expand its sales and marketing efforts, (iii)
for working capital and general corporate purposes, and (iv) for expansion of
the Company's facilities. Pending such uses, the Company invests the net
proceeds in investment-grade, interest-bearing securities. From time to time,
the Company may evaluate potential acquisitions of assets, businesses and
product lines, which would complement or enhance the business of the Company.
Depending on the cash requirements of any such acquisition, the Company may
finance such acquisition, in whole or in part, with a portion of the net
remaining proceeds of the IPO.
On September 24, 1997, the Company's wholly-owned subsidiary, Schick X-Ray
Corporation, acquired certain assets of Keystone Dental X-Ray, Inc., a
manufacturer of x-ray equipment for the medical and dental radiology field, for
$1.5 million in cash. Schick X-Ray acquired inventory, manufacturing equipment,
tooling and intellectual property. The acquisition has been accounted for using
the purchase method.
On September 30, 1997, the Company purchased a minority interest of 5% in
Photobit Corporation, a developer of sensor imaging technology, for
approximately $1.0 million. The Company is the exclusive licensee from Photobit
Corporation of a certain technology for medical applications and utilizes the
technology in its bone mineral density assessment device and its CDR(TM) system.
In fiscal 1998, cash used in operations was $9.4 million as compared to
$274,000 in fiscal 1997. This increase was primarily attributable to increases
in the Company's inventory and accounts receivable resulting from its increased
level of operations.
The Company's capital expenditures in fiscal 1998 increased to $4.7 million
from $1.1 million in fiscal 1997 primarily due to the purchase of additional
production equipment and leasehold improvements.
Management currently believes that existing capital resources are adequate
to meet its current cash requirements for 18-24 months.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130"), which requires the presentation of the components of comprehensive income
in a company's financial statements for reporting periods beginning subsequent
to December 15, 1997. Comprehensive income is defined as the changes in a
Company's equity during a financial reporting period from transactions and other
events and circumstances from non-owner sources (including cumulative
translation adjustments, minimum pension liabilities and unrealized gains/losses
on available for sale securities). The adoption of FAS 130 is not expected to
have a material impact on the Company's financial statements.
25
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("FAS 131"), which requires that public
business enterprises report certain information about operation segments. It
also requires that public business enterprises report certain information about
their products and services, geographic areas in which they operate and major
customers. FAS 131 is effective for fiscal years beginning after December 15,
1997. In the initial year of application, comparative information for earlier
years must be restated. The adoption of FAS 131 is not expected to have a
material impact on the Company's existing disclosures.
Year 2000 Compliance
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words , date
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failures or miscalculations causing
disruptions of operation, including, among others, a temporary inability to
process transactions, send invoices or engage in similar normal business
activities. The Company is assessing the internal readiness of its computer
systems and the readiness of third parties which interact with the Company's
systems. The Company plans to devote the necessary resources to resolve all
significant year 2000 issues in a timely manner. Costs associated with the year
2000 assessment and correction of problems noted are expensed as incurred. Based
on management's current assessment, it does not believe that the cost of such
actions will have a material effect on the Company's results of operations or
financial condition. The Company has not fully evaluated the impact of the Year
2000 issue on its suppliers and customers. The Company is currently unable to
predict the extent to which the Year 2000 issue will effect its suppliers and
customers, or the extent to which it would be vulnerable to its suppliers or
customers' failure to remedy Year 2000 issues on a timely basis. If a major
supplier or customer fails to convert its systems on a timely basis the Company
could be materially adversely affected. See "ITEM 1. Business - Year 2000."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this Annual
Report commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DATA
Not applicable
26
<PAGE>
PART III
In connection with the 1998 Annual Meeting of Stockholders of the Company,
the Company intends to furnish stockholders with proxy materials which set forth
the information required by Items 11, 12, and 13 of this Part III. The Company
expects to file copies of such material with the Commission pursuant to Rule
14a-6c promulgated under the Securities and Exchange Act of 1934, as amended,
not later than 120 days after the end of the fiscal year covered by this Annual
Report on Form 10-K.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
SCHICK TECHNOLOGIES, INC.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Index to Consolidated Financial Statements ........................................... F-1
Report of Independent Accountants .................................................... F-2
Consolidated Balance Sheet as of March 31, 1998 and 1997 ............................. F-3
Consolidated Statement of Operations for the years ended March 31, 1998,
1997 and 1996 ...................................................................... F-4
Consolidated Statement of Changes in Stockholders' Equity for the years ended
March 31, 1998, 1997 and 1996 ...................................................... F-5
Consolidated Statement of Cash Flows for the years ended March 31, 1998,
1997 and 1996 ...................................................................... F-6
Notes to Consolidated Financial Statements ........................................... F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Shareholders of Schick Technologies, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Schick Technologies, Inc. at March 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1998 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
New York, New York
June 9, 1998
F-2
<PAGE>
Schick Technologies, Inc.
Consolidated Balance Sheet
(In thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
-----------------------------
1998 1997
-------- --------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 6,217 $ 1,710
Short-term investments (Note 7) 14,022 2,313
Accounts receivable, net of allowance for
doubtful accounts of $200 in 1998 and $50 in 1997 10,173 1,928
Inventories (Note 5) 12,152 2,511
Prepayments and other current assets (Note 14) 746 327
-------- --------
Total current assets 43,310 8,789
Equipment, net (Note 6) 5,801 1,645
Investments (Notes 6 and 16) 1,000 490
Deferred tax asset (Note 9) 349 --
Other assets 1,214 136
-------- --------
Total assets $ 51,674 $ 11,060
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 7,010 $ 2,102
Accrued salaries and commissions 1,473 540
Deferred revenue 362 141
Deposits from customers 331 137
Provision for warranty obligations 245 329
Income taxes payable 144 --
Capital lease obligations, current -- 22
-------- --------
Total current liabilities 9,565 3,271
-------- --------
Notes payable (Note 8) -- 1,513
Accrued interest on notes payable -- 102
Capital lease obligations, long term -- 87
-------- --------
Total liabilities 9,565 4,973
Commitments (Note 11) -- --
Stockholders' equity
Preferred stock ($0.01 par value; 2,500,000
shares authorized, none issued and outstanding) -- --
Common stock ($.01 par value; 25,000,000 shares authorized;
9,992,057 and 7,957,231 shares issued and outstanding) 100 80
Additional paid-in capital 41,204 7,563
Retained earnings (accumulated deficit) 805 (1,556)
-------- --------
Total stockholders' equity 42,109 6,087
-------- --------
Total liabilities and stockholders' equity $ 51,674 $ 11,060
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
Schick Technologies, Inc.
Consolidated Statement of Operations
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues, net $ 38,451 $ 16,101 $ 6,804
Cost of sales 17,658 8,021 3,343
-------- -------- --------
Gross profit 20,793 8,080 3,461
-------- -------- --------
Operating expenses
Selling and marketing 10,645 4,961 1,620
General and administrative 4,118 2,088 1,388
Research and development 3,852 1,418 458
Patent litigation settlement 600 -- --
-------- -------- --------
Total operating expenses 19,215 8,467 3,466
-------- -------- --------
Income (loss) from operations 1,578 (387) (5)
-------- -------- --------
Other income (expense)
Interest income 1,188 196 15
Interest expense (77) (161) (123)
-------- -------- --------
Total other income (expense) 1,111 35 (108)
-------- -------- --------
Income (loss) before income taxes 2,689 (352) (113)
-------- -------- --------
Provision for income taxes 328 -- --
-------- -------- --------
Net income (loss) $ 2,361 $ (352) $ (113)
======== ======== ========
Basic earnings (loss) per share $ 0.25 $ (0.05) $ (0.02)
======== ======== ========
Diluted earnings (loss) per share $ 0.24 $ (0.04) $ (0.02)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
Schick Technologies, Inc.
Consolidated Statement of Changes in Stockholders' Equity
(In thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings Total
----------------------- Paid-in (Accumulated Stockholders'
Shares Amount Capital Deficit) Equity
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1995 6,368,463 $ 64 $ 1,353 $ (1,091) $ 326
Issuance of compensatory common stock
to employees, director and others 73,184 1 130 -- 131
Issuance of common stock upon
conversion of stockholder loans 126,823 1 199 -- 200
Issuance of common stock upon
conversion of notes payable 484,400 5 820 -- 825
Net loss -- -- -- (113) (113)
--------- --------- --------- --------- ---------
Balance at March 31, 1996 7,052,870 71 2,502 (1,204) 1,369
Issuance of common stock upon
conversion of notes payable 376,446 4 729 -- 733
Issuance and sale of common
stock and warrants 526,470 5 4,307 -- 4,312
Issuance of compensatory
stock options to employees -- -- 13 -- 13
Issuance of compensatory
common stock to an employee 1,445 -- 12 -- 12
Net loss -- -- -- (352) (352)
--------- --------- --------- --------- ---------
Balance at March 31, 1997 7,957,231 80 7,563 (1,556) 6,087
Issuance and sale of common stock in initial
public offering 2,012,500 20 33,488 -- 33,508
Issuance of common stock upon
exercise of stock options 2,479 -- 18 -- 18
Issuance of common stock upon
exercise of warrants 19,847 -- 100 -- 100
Issuance of compensatory
stock options to employees -- -- 35 -- 35
Net income -- -- -- 2,361 2,361
--------- --------- --------- --------- ---------
Balance at March 31, 1998 9,992,057 $ 100 $ 41,204 $ 805 $ 42,109
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
Schick Technologies, Inc.
Consolidated Statement of Cash Flows
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended March 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net cash flows from operating activities
Net income (loss) $ 2,361 $ (352) $ (113)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization 943 318 210
Stock and option grant compensation 35 25 131
Accrued interest on investments (428) (53) --
Non-cash interest expense -- 98 51
Changes in assets and liabilities, net of effects of business acquired
Accounts receivable (8,245) (983) (495)
Inventories (9,474) (553) (1,233)
Prepayments and other current assets (419) (167) (140)
Other assets (61) (115) (115)
Deferred income taxes (349) -- --
Accounts payable and accrued expenses 5,757 1,212 900
Income taxes payable 144 -- --
Deferred revenue 221 141 --
Deposits from customers 194 53 68
Accrued interest on notes payable (102) 102 --
-------- -------- --------
Net cash used in operating activities (9,423) (274) (736)
-------- -------- --------
Cash flows from investing activities
Capitalization of software development costs (165) -- --
Business acquisition (1,450) -- --
Purchase of minority interest in Photobit Corporation (1,000) -- --
Purchase of held-to-maturity investments (23,425) (6,619) --
Purchase of available-for-sale investments -- (990) --
Proceeds from maturities of held-to-maturity investments 12,144 4,359 --
Proceeds from redemption of available-for-sale investments 490 500 --
Capital expenditures (4,668) (1,082) (570)
-------- -------- --------
Net cash used in investing activities (18,074) (3,832) (570)
-------- -------- --------
Cash flows from financing activities
Net proceeds from issuance and sale of common stock and warrants -- 4,312 --
Net proceeds from issuance and sale of common stock 33,626 -- --
Proceeds from issuance of long-term notes -- 1,000 1,457
Proceeds from issuance of short-term notes -- -- 500
Repayments of short-term debt -- -- (163)
Repayments of loan payable to stockholder -- -- (50)
Other -- -- (36)
Principal payments on capital lease obligations (109) (21) (5)
Repayment of notes payable (1,513) -- --
-------- -------- --------
Net cash provided by financing activities 32,004 5,291 1,703
-------- -------- --------
Net increase in cash and cash equivalents 4,507 1,185 397
Cash and cash equivalents at
beginning of year 1,710 525 128
-------- -------- --------
Cash and cash equivalents at
end of year $ 6,217 $ 1,710 $ 525
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
Schick Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
1. Organization and Business
Schick Technologies, Inc. (the "Company") designs, develops, manufactures
and markets digital imaging systems and devices for the dental and medical
markets that utilize low dosage radiation to produce instant computer
generated high resolution electronic x-ray images. The Company is a
supplier of an intra-oral computed dental x-ray imaging system to the
dental industry and in December 1997 introduced a bone mineral density
assessment device for the medical market. The Company's products are sold
worldwide.
The consolidated financial statements of the Company at March 31, 1998,
include the accounts of the Company and its wholly owned subsidiaries,
Schick New York (as hereinafter defined) and Schick X-Ray Corporation.
2. Restructuring and Recapitalization
In connection with the Company's initial public offering (the "IPO") under
the Securities Act of 1933, as amended, the Company engaged in the
following restructuring and recapitalization transactions. In April 1997,
the Company and its wholly owned subsidiary, STI Acquisition Corporation
("STI") were formed under the General Corporation Law of the State of
Delaware for the purpose of forming a holding company and changing the
state of incorporation of Schick Technologies, Inc., a New York Corporation
("Schick New York" or the "Predecessor Corporation"). Effective June 4,
1997 (pursuant to a merger agreement among the Company, the Predecessor
Corporation and STI), the Company issued 7,957,231 shares of its common
stock for all the outstanding common stock of the Predecessor Corporation.
STI and the Predecessor Corporation merged and the Predecessor Corporation
was the survivor of the merger, and became a wholly-owned subsidiary of the
Company. In connection with the restructuring and merger, the holders of
the Predecessor Corporation's outstanding warrants and options converted
such warrants and options to similar warrants and options of the Company
(based on the same ratio of exchange, 2.8 shares for 1 share, applicable to
the common stock exchange).
The 1996 Stock Option Plan of the Predecessor Corporation was amended by
the Company and the shares available for issuance pursuant to the Plan were
adjusted to 470,000. The Company also implemented its 1997 Stock Option
Plan for Non-Employee Directors ("the Directors Plan") whereby nonqualified
options to purchase up to 35,000 shares of the Company's common stock may
be granted to non-employee directors. Each option granted under the
Directors Plan becomes exercisable on the second anniversary date of its
grant and must have an exercise price equal to the fair market value of the
Company's common stock on the date of grant.
All common shares, stock options, warrants and related per share data
reflected in the accompanying financial statements and notes thereto have
been presented as if the recapitalization had been effective for all
periods presented.
References herein to the operations and historical financial information of
the "Company" prior to the date of the restructuring refer to the
operations and historical financial information of the Predecessor
Corporation.
3. Summary of Significant Accounting Policies
Basis of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
F-7
<PAGE>
Schick Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash equivalents
Cash equivalents consist of short-term, highly liquid investments, with
original maturities of less than three months when purchased and are stated
at cost. Interest is accrued as earned.
Investments
Investments with original maturities greater than three months and less
than one year when purchased are classified as short-term investments.
Investments with maturities of greater than one year when purchased are
classified as long-term investments. Investments are further categorized as
being available for sale or are expected to be held-to-maturity.
Investments categorized as available for sale are recorded at fair value
based on fluctuations of the market value of the securities, with the
resulting adjustments, net of deferred taxes, reported as a component of
stockholder's equity until realized. Investments categorized as
held-to-maturity are carried at amortized cost, without recognition of
gains or losses that are deemed to be temporary, because the Company has
both the intent and the ability to hold these investments until they mature
(see Note 7).
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market value.
Equipment
Equipment is stated at cost. Depreciation is provided on the straight-line
method over the estimated useful lives of the respective assets, none of
which exceeds seven years.
Revenue recognition
Revenues from sales of the Company's hardware and software products are
recognized at the time of shipment to customers. Amounts received from
customers in advance of product shipment are classified as deposits from
customers. Revenues from the sale of extended warranties on the Company's
products are recognized on a straight-line basis over the life of the
extended warranty, which is generally for a one year period. Deferred
revenues relate to extended warranty fees which have been paid by customers
prior to the performance of extended warranty services.
Advertising costs
Advertising costs included in selling and marketing expenses are expensed
as incurred and were $1,484, $906 and $349 for the years ended March 31,
1998, 1997 and 1996, respectively.
Warranties
The Company provides its customers with a limited product warranty for a
period of one year subsequent to the sale of its products. The Company
recognizes estimated costs associated with the limited warranty at the time
of sale of its products.
Research and development
Research and development costs consist of expenditures covering basic
scientific research and the application of scientific advances to the
development of new and improved products and their uses. Research and
development costs are expensed as incurred.
F-8
<PAGE>
Schick Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Software development costs for external use software incurred after the
establishment of technological feasibility are capitalized and amortized to
cost of revenues on a straight line basis over the expected useful life of
the software. Software development costs incurred prior to the attainment
of technological feasibility are considered research and development and
are expensed as incurred. Costs of software developed for internal use
incurred during the development of the application are capitalized and
amortized to operating expense on a straight line basis over the expected
useful life of the software.
The Company capitalized $165 of software development costs during the year
ended March 31, 1998 and recorded amortization expense related to such
capitalized costs of $7 during 1998.
Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recorded for temporary differences between
financial statement carrying amounts and the tax basis of assets and
liabilities. Deferred tax assets and liabilities reflect the tax rates
expected to be in effect for the years in which the differences are
expected to reverse. A valuation allowance is provided if it is more likely
than not that some or all of the deferred tax asset will not be realized.
Fair value of financial instruments
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximates fair value due to the
relatively short maturity of these instruments.
New accounting pronouncements
In June 1997, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("FAS 130"), which requires the presentation of the components of
comprehensive income in a company's financial statements for reporting
periods beginning subsequent to December 15, 1997. Comprehensive income is
defined as the change in a company's equity during a financial reporting
period from transactions and other events and circumstances from non-owner
sources (including cumulative translation adjustments, minimum pension
liabilities and unrealized gains/losses on available for sale securities).
The adoption of FAS 130 is not expected to have a material impact on the
Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("FAS 131"), which requires that public
business enterprises report certain information about operating segments.
It also requires that public business enterprises report certain
information about their products and services, geographic areas in which
they operate and major customers. FAS 131 is effective for fiscal years
beginning after December 31, 1997. In the initial year of application,
comparative information for earlier years must be restated. The adoption of
FAS 131 is not expected to have a material impact on the Company's existing
disclosure.
4. Earnings (loss) per share
Effective December 31, 1997, the Company adopted statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128") which
requires presentation of basic earnings per share ("Basic EPS") and diluted
earnings per share ("Diluted EPS"). Basic EPS is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted EPS gives effect to
all dilutive potential common shares outstanding during the period. The
computation of Diluted EPS does not assume conversion, exercise or
contingent exercise of securities that would have an antidilutive effect on
earnings.
F-9
<PAGE>
Schick Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
All prior periods presented have been restated for the adoption of FAS 128.
The adoption of FAS 128 did not have a significant impact on the loss per
share of prior periods.
The computations of basic earnings (loss) per share and diluted earnings
(loss) per share for the years ended March 31, 1998, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) available to common stockholders $ 2,361 $ (352) $ (113)
Interest on convertible notes 23
---------- ----------- -----------
Income (loss) for diluted earnings per share $ 2,361 $ (329) $ (113)
========== =========== ===========
Weighted average shares outstanding for basic
earnings (loss) per share 9,474,590 7,643,307 6,416,644
Dilutive effect of stock options and warrants 339,464 -- --
---------- ----------- -----------
Weighted average shares outstanding for diluted
earnings (loss) per share 9,814,054 7,643,307 6,416,644
Basic earnings (loss) per share $ 0.25 $ (0.05) $ (0.02)
========== =========== ===========
Diluted earnings (loss) per share $ 0.24 $ (0.04) $ (0.02)
========== =========== ===========
</TABLE>
5. Inventories
Inventories at March 31, 1998 and 1997 are comprised of the following:
1998 1997
------- -------
Raw materials $ 7,108 $ 1,671
Work-in-process 3,466 422
Finished goods 1,578 418
------- -------
Total inventories $12,152 $ 2,511
======= =======
6. Equipment
Equipment at March 31, 1998 and 1997 is comprised of the following:
F-10
<PAGE>
Schick Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
1998 1997
------- -------
Production equipment $ 3,300 $ 965
Computer and communications equipment 1,096 411
Demonstration equipment 934 313
Leasehold improvements 1,169 192
Other equipment 608 202
------- -------
Total equipment 7,107 2,083
Less - accumulated depreciation (1,306) (438)
------- -------
Equipment, net $ 5,801 $ 1,645
======= =======
At March 31, 1997, production equipment included approximately $135 of
equipment acquired under capital leases. During 1998, the Company purchased
such equipment from the lessor.
7. Investments in Debt Securities
Held-to-maturity securities at March 31, 1998 and 1997 consist of short
term U.S. Treasury and government agency debt securities of $14,022 and
$2,313, on an amortized cost basis, with maturity dates of less than one
year. Available for sale securities of $490 at March 31, 1997, consist of
long term U.S. government agency debt securities and are recorded at fair
value. The gross unrealized gains and losses at March 31, 1998 and 1997 by
type of security were insignificant.
8. Notes Payable
Secured note
In January and March 1996, the Company issued secured short term promissory
notes to a third party. In August 1996, the aggregate principal of the
notes, $500 plus accrued but unpaid interest in the amount of $13 were
consolidated into a long term note payable pursuant to a secured term loan
agreement with the third party.
Under the provisions of the secured term loan agreement the Company
received additional proceeds of $1,000 upon execution, in August 1996, of
the agreement. The note bore interest at a rate of prime plus two percent,
subject to annual adjustment on the anniversary date of the note, and was
due and payable together with accrued but unpaid interest, upon the earlier
of (a) February 7, 1999, or (b) the declaration of the effectiveness of a
registration statement filed pursuant to the Securities Act of 1933 in
connection with an initial public offering of the Company's common stock.
The proceeds of the note were restricted for use by the Company solely for
the purposes of developing, obtaining regulatory approval, conducting
clinical studies, establishing manufacturing operations and selling and
marketing a bone mineral density assessment device. The note was secured by
the accounts receivable and inventories of the Company.
In July 1997, upon the declaration of the effectiveness of the Company's
registration statement on Form S-1, the Company repaid the note in the
principal amount of $1,513 and accrued interest thereon in the amount of
$144.
12.5% Notes
On various dates during 1996, the Company secured promissory notes (the
"12.5% Notes"), in the cumulative principal amount of $1,457, which bore
interest at a rate of 12.5% per annum and matured two
F-11
<PAGE>
Schick Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
years from the date of issuance. Principal repayment was required upon
maturity and interest was payable by the Company on the six-month
anniversary of the date of issuance and monthly thereafter.
At March 31, 1996, holders of the 12.5% Notes in the principal amount of
$810, with accrued but unpaid interest in the amount of $51 thereon, had
converted such notes into 484,400 shares of common stock, at conversion
prices ranging from $1.52 to $1.79 per share. During 1997 holders of 12.5%
Notes in the principal amount of $647 with accrued but unpaid interest in
the amount of $86 thereon converted such notes into 376,446 shares of
Common stock at conversion prices ranging from $1.52 to $1.79 per share.
Payment of accrued but unpaid interest thereon was waived and such amounts
have been contributed to paid-in capital. As the Company's intention from
the date of issuance of the 12.5% Notes was to convert such notes to
equity, the notes have been treated as if they were convertible since
issuance. Interest expense on the 12.5% Notes amounted to $30 and $107 in
1997 and 1996, respectively.
9. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying value of assets and liabilities for financial
reporting purposes and the amounts reported for income tax purposes.
Significant components of the Company's deferred income tax assets and
liabilities are as follows:
1998 1997 1996
----- ----- -----
Net operating loss carryforwards $ -- $ 241 $ 300
Reserves and allowance for inventory,
accounts receivable and warranties 355 212 78
Depreciation and other (211) -- --
Other accrued expenses
not currently deductible 205 48 112
Research and development tax credit carryforward -- 122 --
----- ----- -----
Net deferred tax asset 349 623 490
Deferred tax asset valuation allowance -- (623) (490)
----- ----- -----
$ 349 $ -- $ --
===== ===== =====
At March 31, 1997 and 1996, the Company's operating plans anticipated
taxable income in future periods; however, such plans made significant
assumptions which could not be reasonably assured, including regulatory
approval of new products and continued market acceptance of the Company's
products by customers. Therefore in consideration of the Company's
accumulated losses through such dates and the uncertainty of its ability to
utilize its deferred tax benefits in the future, the Company had recorded a
valuation allowance of an equal amount on such dates. As the Company
attained profitability during 1998 and received regulatory approval of
certain products, no valuation allowance is considered necessary.
F-12
<PAGE>
Schick Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The components of the provision (benefit) for income taxes for the years
ended March 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996
----- ----- -----
Current
Federal $ 415 $ -- $ --
State 262 -- --
----- ----- -----
677 -- --
----- ----- -----
Deferred
Federal (282) -- --
State (67) -- --
----- ----- -----
(349) -- --
----- ----- -----
Provision for income taxes $ 328 $ -- $ --
----- ----- -----
The financial statement income tax provision differs from income taxes
determined by applying the statutory Federal income tax rate to the
financial statement net income (loss) for the years ended March 31, 1998,
1997 and 1996 as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at Federal statutory rate 34.0% (34.0)% (34.0)%
State income tax expense (benefit), net of Federal tax 8.0 (9.0) (9.0)
Non-deductible expenses 4.9 10.3 18.1
Research and development tax credit (11.2) (20.6) --
Valuation allowance on deferred tax assets (23.5) 53.3 24.9
---- ---- ----
Income tax rate as recorded 12.2% -- --
---- ---- ----
</TABLE>
10. Concentration of Risks and Customer Information
Substantially all of the Company's sales are to domestic and foreign
dentists and doctors, distributors of dental and medical supplies and
equipment, and third-party financing companies. Financial instruments which
potentially subject the Company to concentrations of credit risk are
primarily accounts receivable, cash equivalents and short-term investments.
The Company generally does not require collateral and the majority of its
trade receivables are unsecured. The Company is directly affected by the
financial well-being of the dental and medical industries; however, the
Company does not believe significant credit risk exists at March 31, 1998.
The Company places its cash equivalents in short-term money market
instruments. Short-term investments consist of U.S. Treasury and government
agency debt obligations (see Note 6).
The Company currently relies on two vendors to supply each of its primary
raw materials, the active-pixel sensor ("APS") and the charged coupled
device ("CCD") semiconductor wafers. During the fourth quarter of fiscal
1998, the Company experienced a delay in the supply flow from such vendor
which resulted in manufacturing and product shipment delays. Although there
are a number of manufacturers capable of supplying this material, which the
Company believes could provide for its semiconductor requirements on
comparable terms, such delays could occur again.
F-13
<PAGE>
Schick Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Approximately $7,085, $3,867 and $2,142 of the Company's sales in 1998,
1997 and 1996, respectively, were to foreign customers. The majority of
such foreign sales were to customers in Europe. During 1996, sales of
$1,227 were to a distributor. In 1998 and 1997 no customer accounted for
10% or more of sales.
11. Commitments and Contingencies
Operating and capital leases
The Company leases its facilities under operating lease agreements expiring
from February 2001 to August 2004. Rent expense for the years ended March
31, 1998, 1997 and 1996 was $383, $193 and $68, respectively.
Future minimum payments on a fiscal year basis under noncancellable
operating leases are as follows:
1999 $ 605
2000 638
2001 634
2002 479
2003 162
Thereafter 75
------
Total minimum lease payments $2,593
======
Litigation
During 1996, the Company was named as defendant in patent infringement
litigation commenced by a competitor in the United States and France. The
Company is vigorously defending itself against such allegations and
believes the claims to be without merit. The Company has filed a
countersuit against the competitor for infringement of a U.S. Patent which
has been exclusively licensed to the Company. The Company has obtained a
formal opinion of intellectual property counsel that its products do not
infringe on the competitor's U.S. patent. As these actions are in their
preliminary stages, the Company is unable to predict the ultimate outcome
of these claims. The outcome, if unfavorable, could have a material adverse
effect on the financial position and results of operations of the Company.
No provision has been made for any potential losses at March 31, 1998 and
1997 as the range of potential loss, if any, cannot be reasonably
estimated.
During 1997, the Company was named as a defendant in patent litigation
involving a patent directed to a display system for digital dental
radiographs. In July 1997 the Company reached a settlement under which it
paid $600 for a world-wide, non-exclusive license for the patent. The
license fee was expensed during 1998.
12. Stock Option Plan, Stock Grants and Defined Contribution Plan
Stock option plan and stock grants
In April 1996 the Company implemented its 1996 Stock Option Plan (the
"Plan") whereby incentive and non-qualified options to purchase up to
470,400 shares of the Company's common stock may be granted to key
employees, directors and consultants. The exercise and vesting periods and
the exercise price for options granted under the Plan is determined by a
committee of the Board of Directors. The Plan stipulates that the exercise
price of non-qualified options granted under the Plan must have a exercise
price equal to or exceeding 85% of the fair market value of the Company's
common stock as of the date of grant of the option and no option may be
exercisable after ten years from the date of grant. Options granted under
the plan are generally exercisable immediately but vest over a period of
four years.
F-14
<PAGE>
Schick Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
During fiscal 1996, prior to implementation of the Plan, an employee of the
Company was granted an option to purchase 56,000 shares of the Company's
common stock at $1.79 per share, determined by the Company's Board of
Directors to be the fair market value of the Company's common stock at the
date of the option grant. As of March 31, 1998, 42,000 shares are
exercisable under such option. The remaining options become exercisable on
December 31, 1998.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting
for its Plan and other stock-based compensation issued to employees and
directors. During the year ended March 31, 1996, the Company did not
recognize compensation expense for options granted to employees. During
1998 and 1997, the Company has recognized compensation expense in the
amounts of $36 and $13, respectively, for options granted to employees. Had
compensation cost for option grants to employees been determined based upon
the fair value at the grant date for awards under the Plan consistent with
the methodology prescribed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," ("FAS 123")
the Company's net income in 1998 would have been decrease by approximately
$164 ($.02 per basic share) and the net loss in 1997 and 1996 would have
been increased by approximately $45 ($.01 per basic share) and $7 ($.001
per basic share), respectively.
The fair value of options granted to employees during 1998, 1997 and 1996
has been determined on the date of the respective grant using the
Black-Scholes option-pricing model based on the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Dividend yield None None None
Risk free interest rate on date of grant 5.43% - 5.55% 6.27% 5.36%
Forfeitures None None None
Expected life 5 years 5 years 5 years
Volatility 75% -- --
</TABLE>
The following table summarizes information regarding stock options for
1998, 1997 and 1996:
Weighted Average
Options Exercise Price
------- --------------
Options outstanding, March 31, 1995 -- --
Option grants 56,000 $ 1.79
-------- ------
Options outstanding, March 31, 1996 56,000 1.79
Options grants 79,338 7.14
Options forfeited (4,385) 7.14
-------- ------
Options outstanding, March 31, 1997 130,953 $ 4.85
Option grants 97,902 20.87
Options forfeited (2,965) 20.88
Options exercised (2,479) 7.14
-------- ------
Options outstanding, March 31, 1998 223,411 $11.46
-------- ------
F-15
<PAGE>
Schick Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Options available for grant, March 31, 1998 302,989
Weighted average remaining contractual life 8 years
Options exercisable, March 31, 1998 124,851
Weighted average exercise price of
exercisable options, March 31, 1998 $ 6.20
The Company also issued 1,445 shares of its common stock to an employee
during the year ended March 31, 1997 for services rendered by the employee
to the Company. The employee was immediately vested in the shares. The
Board of Directors of the Company has determined the fair market value of
such shares to be $8.16 per share. The Company recognized expense of $12
for the year ended March 31, 1997 related to the grant.
During 1996 the Company issued 73,184 shares of its common stock to certain
employees, directors and consultants. The shares vested upon issuance and
the fair market value of such shares at the date of grant was determined by
the Board of Director's to be $1.79 per share. The Company recognized
expense of $131 for the year ended March 31, 1996 related to the stock
grants.
Defined Contribution Plan
Effective October 1996, the Company implemented a defined contribution
savings plan, which qualifies under Section 401(k) of the Internal Revenue
Code, for employees meeting certain service requirements. Participants may
contribute up to 15% of their gross wages not to exceed, in any given year,
a limitation set by the Internal Revenue Service regulations. The plan
provides for mandatory matching contributions to be made by the Company to
a maximum amount of 2.5% of a plan participant's compensation. Company
contributions to the plan approximated $111 and $38 in 1998 and 1997,
respectively.
13. Supplemental Cash Flow Information
Cash payments for interest approximated $144, $56 and $17 in 1998, 1997 and
1996, respectively. The Company paid $533 and $7 for income taxes in 1998
and 1997, respectively. There were no payments for income taxes in 1996.
During fiscal 1997 and 1996, the Company acquired $95 and $40,
respectively, of production equipment under capital leases.
14. Related Parties
In July 1997, the Company loaned its President, who is a principal
stockholder, $200. Such loan bore interest at a rate of 8% and was due and
payable on June 15, 1998. The loan along with accrued but unpaid interest
in the amount of $1, was repaid in August 1997.
In July 1996, the Company loaned its President $32,. The loan bore interest
at a rate of 8%, commencing October 14, 1996, and was due and payable on
September 1, 1997. The loan along with accrued but unpaid interest in the
amount of $1, was repaid in April 1997.
In November 1996, the Company received an interest bearing demand note in
return for a loan of $200 to a related party in which the Company's former
Chief Financial Officer is a principal stockholder. The loan which bore
interest at a rate of 8.75% per annum, was repaid with accrued interest in
the amount of $4 in February 1997.
F-16
<PAGE>
Schick Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
15. Stockholders' Equity
In July 1997, the Company completed the IPO, selling 2,012,500 shares of
common stock at a price of $18.50 per share providing gross proceeds to the
Company of $37,231 and net proceeds, after underwriting discounts and
commissions and offering expenses payable by the Company, of $33,508.
During 1997, the Company completed a private offering of 520,315 units, as
defined in such offering, at a price per unit ranging from $7.86 to $8.93
based on the quantity of units purchased. Each unit consisted of one share
of the Company's common stock, $.01 par value, and a warrant to purchase
one additional share of the Company's common stock at a price per share
equal to the purchase price of the unit, on or before May 3, 1999. The
offering provided net proceeds of $4,312. In conjunction with the offering
the Company issued 6,155 units, as a placement fee, to certain individuals
who assisted the Company in selling the units. The fair value of such
units, in the amount of $55, or $8.93 per unit has been reflected as a
reduction of paid in capital.
During 1998, warrants to purchase 24,640 shares of the Company's common
stock were exercised. Exercises of 11,200 of such warrants, for which
11,200 shares of common stock were issued, provided the Company with net
proceeds of approximately $100. The remaining 13,440 warrant exercises were
cash-less exercises pursuant to which 8,647 shares of the Company's common
stock were issued. At March 31, 1998 the Company has reserved 501,830
shares of its common stock for issuance upon the exercise of outstanding
warrants.
16. Acquisition and Investment
Keystone Acquisition
On September 24, 1997, the Company's wholly owned subsidiary, Schick X-Ray
Corporation ("Schick X-Ray"), a Delaware corporation, acquired certain
assets of Keystone Dental X-Ray Inc. ("Keystone"), a manufacturer of x-ray
equipment for the medical and dental radiology field, for $1,450. Schick
X-Ray was formed on September 24, 1997, for the sole purpose of acquiring
the assets of Keystone. Schick X-Ray acquired inventory, manufacturing
equipment, tooling and intellectual property. The acquisition has been
accounted for using the purchase method, and Schick X-Ray has recorded
goodwill in the amount of $750, which is included in other assets and is
being amortized on a straight-line basis over 7 years. The Company
recognized $55 for amortization of goodwill in 1998.
Investment in Photobit Corporation
On September 30, 1997, the Company purchased a minority interest of 5%, for
$1,000 in Photobit Corporation, a developer of complementary metal-oxide
semiconductor ("CMOS"), APS imaging technology. The Company is the
exclusive licensee of the APS technology for medical applications and
utilizes the technology in its bone-mineral density assessment device and
certain components of its computed dental x-ray imaging system. The Company
carries the investment at cost. At March 31, 1998 it is not practicable to
estimate the fair value of this investment because of the lack of quoted
market prices and the inability to estimate fair value without incurring
excessive costs. No dividends were paid on this investment.
F-17
<PAGE>
Schedule II
Schick Technologies, Inc.
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
--------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
of Period Expenses Accounts Deductions of Period
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the year ended March 31, 1996 $ 20,000 $ 42,782 $ 27,782 $ 35,000
For the year ended March 31, 1997 35,000 33,933 18,933 50,000
For the year ended March 31, 1998 50,000 163,866 13,866 200,000
RESERVE FOR OBSOLETE/SLOW MOVING
INVENTORY
For the year ended March 31, 1996 -- -- -- -- --
For the year ended March 31, 1997 -- 113,714 -- -- 113,714
For the year ended March 31, 1998 113,714 -- -- 113,714 --
VALUATION ALLOWANCE-DEFERRED TAX
ASSET
For the year ended March 31, 1996 465,000 -- $ 25,000 -- 490,000
For the year ended March 31, 1997 490,000 -- 133,000 -- 623,000
For the year ended March 31, 1998 623,000 -- -- 623,000 --
PROVISION FOR WARRANTY OBLIGATIONS
For the year ended March 31, 1996 52,000 78,055 -- -- 130,055
For the year ended March 31, 1997 130,055 199,371 -- -- 329,426
For the year ended March 31, 1998 329,426 -- 84,517 244,909
</TABLE>
<PAGE>
Page(s)
(a) Documents filed as a part of this Report
(1) Consolidated Financial Statements filed as part of this Report:
Index to the Financial Statements F-1
Report of Independent Accountants F-2
Consolidated Balance Sheet at March 31, 1998 and 1997 F-3
Consolidated Statement of Operations for the year ended
March 31, 1998, 1997 and 1996 F-4
Consolidated Statement of Stockholders' Equity for the year
ended March 31, 1998, 1997 and 1996 F-5
Consolidated Statement of Cash Flows for the year ended
March 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
(2) Financial statement schedules filed as part of this Report
Report of Independent Accountants S-1
Schedule II Valuation and Qualifying Accounts
Schedules other than that mentioned above are omitted because the conditions
requiring their filing do not exist, or because the information is provided in
the financial statements filed herewith, including the notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1998.
(c) The following Exhibits are included in this report:
Number Description
*3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Bylaws of the Company, as amended
*4.1 Form of Common Stock certificate of the Company
29
<PAGE>
*4.2 Form of Warrant of the Company
*4.3 Agreement and Plan of Merger dated as of May 15, 1997 among
Schick Technologies, Inc., a New York corporation, Schick
Technologies Inc., a Delaware corporation and STI Acquisition
Corp, a Delaware corporation.
*10.1 Schick Technologies, Inc. 1996 Employee Stock Option Plan
*10.2 Schick Technologies, Inc. 1997 Stock Option Plan for Non Employee
Directors
*10.3 Form of Non-Disclosure, Non- Solicitation, Non-Competition and
Inventions Agreements between Schick Technologies, Inc. and each
Named Executive of Schick Technologies, Inc.
*10.4 Secured Term Loan Agreement dated August 7, 1996 between Schick
Technologies, Inc. and Merck & Co., Inc. (the 'Agreement').
*10.5 Service and License Agreement between Photobit, LLC and Schick
Technologies, Inc. dated as of June 24, 1996 amending the
Agreement.
*10.6 Letter Agreement between Schick Technologies, Inc. and Merck &
Co., Inc., dated May 12, 1997.
*10.7 Sales Agreement between Schick Technologies, Inc. and Norland
Medical Systems, Inc. dated as of May 12, 1997.
30
<PAGE>
*10.8 Agreement, dated as of May 30, 1997, by and between Schick
Technologies, Inc. and Henry Schein, Inc.
10.9 Asset Purchase Agreement dated September 24, 1997 among Keystone
Dental X-Ray, Inc., DisCovery X-Ray Corporation and Imaging
Sciences, Inc. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated October 9, 1997.)
11 Computation of Per Share Earnings
21 List of subsidiaries of Schick Technologies, Inc.
23.1 Consent of Price Waterhouse LLP
24 Powers of Attorney (included on signature page of this Report)
27.1 Financial Data Schedule [filed in electronic format only]
99 Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
* Filed as the same exhibit number as part of the registrant's Registration
Statement on Form S-1 (File No. 333-33731) declared effective by the
Securities and Exchange Commission on June 30, 1997 and incorporated by
reference herein.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Long
Island City, State of New York, on June 29, 1998.
SCHICK TECHNOLOGIES, INC
By: /s/ David B. Schick
---------------------------------------------
David B. Schick
Chairman of the Board, Chief Executive Officer
And President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on June 29, 1998.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David B. Schick and Zvi N. Raskin (with full
power to act alone), as his true and lawful attorneys-in-fact and agents, with
full powers of substitution and
31
<PAGE>
resubstitution, for him in his name, place and stead, in any and all capacities,
to sign an Annual Report on Form 10-K of Schick Technologies, Inc, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, lawfully do or cause to be done by virtue
hereof.
Signature / Title
--------- -----
/s/ David Schick Chairman of the Board, Chief Executive
-------------------------- Officer and President
David Schick
/s/ Thomas Rutenberg Director of Finance
------------------------ (Principal Financial and Accounting Officer)
Thomas Rutenberg
/s/ Jon Singer Vice President of Engineering and Director
------------------------
Jon Singer
/s/ Mark Bane
------------------------ Director
Mark Bane
/s/ Howard Wasserman Director
------------------------
Howard Wasserman
/s/ Allen Schick Director
------------------------
Allen Schick
/s/ Euval Barrekette Director
------------------------
Euval Barrekette
32
BY-LAWS
OF
SCHICK TECHNOLOGIES, INC.
ARTICLE I - MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings.
All meetings of stockholders shall be held at the registered office of the
Corporation in the State of Delaware or at such other places within or without
the State of Delaware as may be specified by the board of Directors of the
Corporation (the "Board"), if such meeting shall have been called by the Board,
or the President, if such meeting shall have been called by any other person or
persons as permitted by the Certificate of Incorporation of the Corporation, as
then in effect (the "Certificate of Incorporation").
Section 2. Annual Meeting.
An annual meeting of stockholders for the election of directors and the
transaction of such other business as may be properly brought before such
meeting shall be held on a date that is within one hundred eighty (180) days
following the last date of the Corporation's fiscal year. Any annual meeting of
stockholders may be adjourned from time to time until the business to be
transacted at such meeting is completed.
Section 3. Special Meetings.
Special meetings of stockholders can be called only as provided in the
Certificate of Incorporation. Each such meeting shall be called by giving notice
to that effect to the Secretary not more than sixty-five (65) days and not less
than fifteen (15) days before the date of such meeting. Such notice shall state
the place, date, hour and purpose or purposes of such meeting. Any special
meeting may be adjourned in accordance with Section 5(c) of this Article I from
time to time until the business to be transacted at such meeting is completed.
<PAGE>
Section 4. Record Date.
(a) In order to determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing such record date is adopted by the Board and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the close of business on the day next preceding the day on
which notice of such meeting is given or, if such notice is waived by all of the
stockholders, the close of business on the day next preceding the day on which
such meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board may fix a new record date for
such adjourned meeting.
(b) In order to determine the stockholders entitled to consent to action in
writing without a meeting, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing such record date is
adopted by the Board and which record date shall not be more than ten (10) days
after the date upon which the resolution fixing such record date is adopted by
the Board. If no record date is fixed by the Board, the record date for
determining stockholders entitled to consent to action in writing without a
meeting, when no prior action by the Board is required by the General
Corporation Law of the State of Delaware, as then in effect (the "Law"), shall
be the first date on which a signed written consent setting forth the action
taken or proposed to be taken is delivered to the Corporation at its registered
office in the State of Delaware, its principal place of business or an officer
or agent of the Corporation having custody of the books in which proceedings of
meeting of stockholders are recorded. Delivery made to the Corporation at its
registered office shall be made by personal delivery or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board and prior action by the Board is required by the Law, the record date
for determining stockholders entitled to consent to action in writing without a
meeting shall be the close of business on the day on which the Board adopts the
resolution taking such prior action.
(c) In order to determine the stockholders (i) entitled to receive payment
of any dividend or other distribution or allotment of any rights or to exercise
any rights in respect of any change, conversion or exchange of shares of capital
stock of the Corporation or (ii) for the purpose of any other lawful action, the
Board may fix a record date, which record date shall not precede the date upon
which the resolution fixing such record date is adopted and which record date
shall be not more than sixty (60) days prior to such action. If no record date
is fixed, the record date for determining stockholders therefor shall be at the
close of business on the day on which the Board adopts the resolution relating
to such action.
Section 5. Notice of Meetings; Waiver.
(a) Each notice of each meeting of stockholders shall state the place, date
and hour of such meeting and, unless it is an annual meeting of stockholders,
shall indicate that it is being sent by or at the direction of the person or
persons calling such meeting and state the purpose or purposes for which such
meeting is being called. If at any meeting of stockholders action is proposed to
be taken which would, if taken, give stockholders fulfilling the
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requirements of Section 262 of the Law the right to receive payment for their
shares of capital stock of the Corporation, the notice of such meeting shall
include a statement of such proposed action and such right. Not less than ten
(10) nor more than sixty (60) days before the date of such meeting, the
Secretary shall give or cause to be given a copy of the notice of such meeting,
either by personal delivery or by mail, to each person entitled to notice of
such meeting. If mailed, such notice shall be deemed to have been given to a
stockholder when it is deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the stock records of
the Corporation or, if he shall have filed with the Secretary a written request
that notices to him be mailed to some other address, then directed to him at
such other address.
(b) A written waiver of notice of a meeting of stockholders signed by a
stockholder entitled to notice of such meeting, before or after such meeting,
shall be deemed to be equivalent to the giving of proper notice to such
stockholder of such meeting. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
such stockholder attends such meeting for the express purpose of objecting, at
the commencement of such meeting, to the transaction of any business at such
meeting because such meeting was not lawfully called or convened. Neither the
business to be transacted at nor the purpose of a meeting of stockholders is
required to be specified in any written waiver of notice of such meeting.
(c) When a meeting of stockholders is adjourned to another time or place,
it shall not be necessary to give any notice of the adjourned meeting if the
time and place to which such meeting is adjourned are announced at such meeting.
Any business may be transacted at such adjourned meeting which might have been
transacted at such meeting. If the adjournment is for more than thirty (30) days
or if, after such adjournment, the Board fixes a new record date for such
adjourned meeting, a notice of such adjourned meeting shall be given to each
person entitled to notice of such adjourned meeting.
Section 6. List of Stockholders.
The Secretary shall prepare, at least ten (10) days prior to each meeting
of stockholders, a complete list of the stockholders entitled to vote at such
meeting, arranged in alphabetical order and showing the address of each such
stockholder and the number of shares held of record by each such stockholder.
Such list shall be open for inspection by any stockholder, for purposes germane
to such meeting, during ordinary business hours, for the ten (10) days prior to
such meeting, either at a place in the city where such meeting is to be held,
which place shall be specified in the notice of such meeting, or, if not so
specified, at the place where such meeting is to be held. Such list shall also
be produced and kept open at such meeting during the whole time thereof and may
be inspected by any stockholder who is present thereat. The stock records of the
Corporation shall be conclusive evidence as to who are the stockholders entitled
to examine such stock records, the list described in this Section 6 or the books
of the Corporation or to vote at any meeting of stockholders.
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Section 7. Quorum; Manner of Acting.
(a) Except as otherwise required by the Law or the Certificate of
Incorporation or as provided with respect to meetings consisting solely of
holders of shares of Preferred Stock in the resolution or resolutions providing
for the issuance of such shares, the presence, at the commencement of such
meeting, in person or by proxy of holders of a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote at a
meeting of stockholders shall be required in order to constitute a quorum for
the transaction of business thereat.
(b) If a quorum shall not be present at the commencement of any meeting of
stockholders, holders of a majority of the issued and outstanding shares of
capital stock of the Corporation present in person or by proxy and entitled to
vote at such meeting may adjourn such meeting to another time and place.
(c) Except as otherwise required by the Law or the Certificate of
Incorporation and as otherwise provided in these By-Laws with respect to the
election of directors and except as otherwise provided with respect to meetings
consisting solely of holders of shares of Preferred Stock in the resolution on
resolutions providing for the issuance of such shares, a matter submitted to a
vote at a meeting of stockholders shall have been approved only if a quorum was
present at the commencement of such meeting and the holders of a majority of the
issued and outstanding shares of the capital stock of the Corporation entitled
to vote on such matter shall have voted to approve such matter.
(d) Every stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for him by proxy. Such authorization
must be granted by a means expressly permitted by the Law. No proxy shall be
voted or acted upon after three (3) years from its date unless such proxy
provides that it may be voted or acted upon for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the relevant meeting of stockholders and voting or acting in
person, by filing with the Secretary a written instrument revoking such proxy or
by filing with the Secretary another duly executed proxy bearing a later date.
Section 8. Business Transacted.
(a) No business shall be transacted at any meeting of stockholders unless
it shall have been brought in accordance with this Section 8(a) of this Article
I. Business may be brought (i) before a special meeting of stockholders only by
the person or persons calling such meeting as permitted by the Certificate of
Incorporation or (ii) before an annual meeting of stockholders only by or at the
direction of the Board or any other person or persons who could call a special
meeting of stockholders as permitted by the Certificate of Incorporation or by a
stockholder who is entitled to vote thereon at such annual meeting and who
complies with the procedures set forth in this Section 8. For business to be
properly brought before an annual meeting of stockholders by a stockholder, such
stockholder must have given timely notice of his intention to do so in writing
to the Secretary. To be timely, such notice must be delivered or mailed to, and
received at, the principal executive office of the Corporation not less than
ninety
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(90) days prior to the date of such meeting; provided, however, that if less
than ninety (90) days' notice or prior public disclosure of the date of such
meeting is given to stockholders or made, such notice must be so delivered or
mailed, and received, not later than the close of business on the tenth (10th)
day following the day on which notice or public disclosure of the date of such
meeting is given or made. Such notice must set forth as to each matter such
stockholder proposes to bring before such meeting (i) a brief description (which
includes all of the material aspects thereof) of the business desired to be
brought before such meeting and the reasons for conducting such business at such
meeting, (ii) the name and address, as they appear on the stock records of the
Corporation, of the stockholder desiring to propose such business, (iii) the
classes and number of shares of each class of capital stock of the Corporation
that are owned beneficially and of record by such stockholder, his affiliates,
all groups of which he is a member and all persons with whom he is acting in
concert (in each case, identifying them) and (iv) any material direct or
indirect interest of such stockholder, affiliates, groups or persons in such
business. The chairman of such meeting shall determine whether any business to
be brought before such meeting will be properly so brought in accordance with
this Section 8(a) of this Article I and, if he should determine that such
business will not be properly so brought, he shall so declare at such meeting
and such business shall not be transacted at such meeting.
(b) No individual shall be eligible for election as a director unless he is
nominated in accordance with this Section 8(b) of this Article I. Nominations of
individuals for election as directors may be made at a meeting of stockholders
at which directors are to be elected only (i) by or at the direction of the
Board, a nominating committee of the Board or any other person or persons who
could call a special meeting of stockholders as permitted by the Certificate of
Incorporation or (ii) by a stockholder who is entitled to vote for the election
of directors at such meeting and who complies with the procedures set forth in
this Section 8. For nominations to be properly made at a meeting by a
stockholder, such stockholder must have given timely notice of his intention to
do so in writing to the Secretary. To be timely, such notice must be delivered
or mailed to, and received at, the principal executive office of the Corporation
not less than ninety (90) days prior to the date of such meeting; provided,
however, that if less than ninety (90) days' notice or prior public disclosure
of the date of such meeting is given to stockholders or made, such notice must
be so delivered or mailed, and received, not later than the close of business on
the tenth (10th) day following the day on which notice or public disclosure of
the date of such meeting is given or made. Such notice must set forth: (i) as to
each individual whom such stockholder proposes to nominate for election as a
director, (a) the name, date of birth, business address and residential address
of such individual, (b) the principal occupation or employment of such
individual for at least the five years preceding the date of such notice, (c)
the classes and number of each class of the capital stock of the Corporation
that are owned beneficially and of record by such individual, his affiliates,
all persons with whom he is acting in concert and all groups of which he is a
member (in each case, identifying them) and (d) all information relating to such
individual that is required to be disclosed in solicitations of proxies for
election of directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (including
each such individual's written consent to serve as director if elected); and
(ii) as to the stockholder giving such notice, (A) the name and address of such
stockholder, as they appear on the stock records of the Corporation, (B) the
classes and number of shares of each class of capital stock of the Corporation
that are owned beneficially and of record by such stockholder, his affiliates,
all persons acting in concert
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with him and all groups of which he is a member (in each case, identifying them)
and (C) any professional, commercial, business or familial relationship of such
stockholder, affiliates, persons or groups (in each case, identifying them) to
such nominees, his affiliates, any person acting in concert with him or any
group of which he is a member (in each case, identifying them). The chairman of
such meeting shall determine whether any nomination to be made at such meeting
will be properly so made in accordance with this Section and, if he should
determine that such nomination will not be properly so made, he shall so declare
at such meeting and such nomination shall not be made at such meeting.
(c) For the purposes of this Section, "acting in concert" and "group" shall
have the same meanings as they have under the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder.
Section 9. Order of Business; Voting.
(a) The Chairman of the Board or, in the absence of the Chairman of the
Board (including an absence because no Chairman of the Board shall have been
designated), the President, or, in the absence of both of them, a Vice
President, or, in the absence of all of them, a person designated by the Board,
or in the absence of all of them, a person designated by the holders of a
majority of the outstanding shares of capital stock of the Corporation present
in person or by proxy and entitled to vote at such meeting shall act as the
chairman of such meeting. The chairman of each meeting of stockholders shall
call such meeting to order, determine the order of business at such meeting and
otherwise preside over such meeting.
(b) The Secretary shall act as secretary of each meeting of stockholders
and keep the minutes thereof, but, in the absence of the Secretary, the chairman
of such meeting shall appoint some other person to act as secretary of such
meeting.
(c) Unless required by the Law, requested by any stockholder present in
person or by proxy and entitled to vote at such meeting or directed by the
chairman of such meeting, neither the vote for the election of directors nor
upon any other business before any meeting of stockholders is required to be
conducted by written ballot. On a vote by written ballot, (i) each written
ballot cast by a stockholder voting in person shall state the name of such
stockholder, the number of shares of capital stock of the Corporation held of
record by him and the number of such shares voted by him and (ii) each ballot
cast by proxy shall bear the name of such proxy, the name of the stockholder for
whom he is voting, the number of shares of capital stock of the Corporation held
of record by such stockholder and the number of such shares voted on behalf of
such stockholder.
(d) Shares of capital stock of the Corporation held by the Corporation or
any of its majority-owned subsidiaries in treasury shall not be shares entitled
to vote at, or to be counted in determining the presence of a quorum for, any
meeting of stockholders or be counted in determining the total number of
outstanding shares of capital stock of the Corporation. This Section shall not
limit the right of the Corporation or any of its subsidiaries to vote any shares
of capital stock of the Corporation held by the Corporation or such subsidiary
in a fiduciary capacity.
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(e) To the extent (but only to the extent) expressly provided in the
Certificate of Incorporation, action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting, without any prior notice
and without a vote thereon, if stockholders having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which all stockholders entitled to vote thereon were present and voting, consent
in writing to such action and such writing or writings are filed with the
minutes of proceedings of the stockholders. Prompt written notice of the taking
of such action shall be given by the Secretary to all stockholders who have not
consented in writing to such action.
Section 10. Inspectors.
(a) The Board in advance of any meeting of stockholders may (and shall, if
required by the Law) appoint one or more inspectors to act at such meeting or
any adjournment thereof. If inspectors are not so appointed, the chairman of
such meeting may and, on request of any stockholder present in person or by
proxy and entitled to vote at such meeting, shall appoint one or more such
inspectors. No director, nominee for director, officer or employee of the
Corporation shall be appointed as an inspector. Inspectors need not be
stockholders. In case any person so appointed fails to appear or act, the
vacancy may be filled by appointment of another person by the Board in advance
of such meeting or at such meeting by the chairman of such meeting.
(b) Each inspector appointed to act at any meeting of stockholders shall,
before entering upon the discharge of his duties, take and sign an oath to
execute faithfully the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. Such inspectors shall (i)
determine the number of shares outstanding and the voting power of each such
share, the number of shares represented at such meeting, the existence of a
quorum and the validity and effect of proxies, (ii) receive votes or ballots,
(iii) hear and determine all challenges and questions arising in connection with
the right to vote, (iv) count and tabulate all votes or ballots, (v) determine
the result and (vi) do all acts which may be proper in connection with
conducting a vote at such meeting, with fairness to all stockholders. On the
request of the chairman of such meeting or any stockholder present in person or
by proxy and entitled to vote at such meeting, the inspectors shall make a
report in writing of any challenge, question or matter determined by them and
execute a certificate of any fact found by them. Any such report or certificate
shall be prima facie evidence of the facts so stated and of the vote so
certified.
ARTICLE II - BOARD OF DIRECTORS
Section 1. Powers; Qualifications; Number; Election.
(a) The business and affairs of the Corporation shall be managed by or
under the direction of the Board. Except as otherwise provided in the
Certificate of Incorporation, the Board may exercise all of the authority and
powers of the Corporation and do all of the lawful acts and things which are not
by the Law, the Certificate of Incorporation or these By-Laws directed or
required to be exercised or done by the stockholders. The directors shall act
only as a
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board and the individual directors shall have no power as such. Each director
shall be at least twenty-five (25) years of age. A director is not required to
be a resident of the State of Delaware or a stockholder. The Board shall consist
of that number of directors (but not less than five or more than twelve) as
shall be fixed in accordance with the Certificate of Incorporation.
(b) At all elections of directors by stockholders entitled to vote thereon,
the individuals receiving a plurality of the votes cast shall be deemed to have
been elected as directors.
Section 2. Term of Office of a Director.
The term of office of each director shall commence at the time of his due
election and qualification and shall expire as specified in the Certificate of
Incorporation or upon his earlier death, resignation or removal.
Section 3. Resignations; Filling of Vacancies.
(a) Any director may resign at any time by giving written notice of his
resignation to the Board or the Secretary. Such resignation shall take effect at
the time of receipt of such notice by the Board or the Secretary, as the case
may be, or at any later time specified therein and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
(b) Any vacancy on the Board can be filled as (but only as) provided in the
Certificate of Incorporation. A director elected to fill such a vacancy shall
hold office as provided in the Certificate of Incorporation.
Section 4. Meetings of the Board; Notice; Waiver.
(a) All regular meetings of the Board shall be held at such places within
or without the State of Delaware as may be fixed by the Board. All special
meetings of the Board shall be held at such places within or without the State
of Delaware as may be specified in the notices of such meetings.
(b) Regular meetings of the Board for the transaction of such business as
may be properly brought before such meetings shall be held on such dates and at
such times as may be fixed by the Board. Notices of such regular meetings are
not required to be given.
(c) Special meetings of the Board may be called at any time by the
President or any director. Each such meeting shall be called by giving notice to
that effect to the Secretary at least forty-eight (48) hours before such
meeting. Such notice shall state the place, date, hour and purpose or purposes
of such meeting. Promptly after receipt of such notice and, in any event, not
less than twenty-four (24) hours before such meeting, the Secretary shall give
notice of such meeting to all directors. Such notice shall state the place,
date, hour and purpose or purposes of such meeting and shall indicate that such
notices are being sent at the request of the
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person calling such meetings. Except as otherwise required by the Law, each
notice of each special meeting of the Board shall be given by (i) mail addressed
to a director at his residence or usual place of business at least seven (7)
days before the date of such meeting or (ii) personal delivery or telex,
telephone, telegraph, telecopier or other electronic means addressed to a
director at his usual place of business at least twenty-four (24) hours before
such meeting. If mailed, such notice shall be deemed to have been given to a
director five (5) days after it is deposited in the United States mail, postage
prepaid, directed to such director at his residence or usual place of business.
(d) A written waiver of notice of a meeting of the Board signed by a
director, before or after such meeting, shall be deemed to be equivalent to the
giving of proper notice to such director of such meeting. Attendance of a
director at a meeting of the Board shall constitute a waiver of notice of such
meeting, except when such director attends such meeting for the express purpose
of objecting, at the commencement of such meeting, to the transaction of any
business at such meeting because such meeting was not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the Board is required to be specified in any
written waiver of notice of such meeting.
Section 5. Quorum; Adjournment.
The presence of a majority of the Whole Board (as defined in the
Certificate of Incorporation) at any meeting of the Board shall be required in
order to constitute a quorum for the transaction of business thereat. Any
meeting of the Board may be adjourned from time to time until the business to be
transacted at such meeting is completed. If a quorum shall not be present at any
such meeting, a majority of the directors present may adjourn such meeting to
another time and place. When a meeting of the Board is adjourned to another time
and place, it shall not be necessary to give any notice of the adjourned meeting
if the time and place to which such meeting is adjourned are announced at such
meeting. Any business may be transacted at such adjourned meeting which might
have been transacted at such meeting.
Section 6. Manner of Acting.
(a) The Board may designate a Chairman of the Board. The Chairman of the
Board shall preside at all meetings of stockholders and of the Board. He shall
perform such other duties as the Board may from time to time assign to him. In
the absence of the Chairman of the Board (including an absence because no
Chairman of the Board shall have been designated), a person designated by a
majority of the directors present at such meeting shall serve as the chairman of
such meeting. The chairman of each meeting of the Board shall call such meeting
to order, determine the order of business at such meeting and otherwise preside
over such meeting.
(b) The Secretary shall act as secretary of each meeting of the Board and
keep the minutes thereof, but, in the absence of the Secretary, the chairman of
such meeting shall appoint some other person to act as secretary of such
meeting.
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(c) At each meeting of the Board each director shall be entitled to one
vote. Except as otherwise provided in the Certificate of Incorporation or these
By-Laws, a matter submitted to a vote at a meeting of the Board shall have been
approved only if a quorum was present at the time of the vote thereon and a
majority of the directors present at that time shall have voted to approve such
matter.
(d) Any action required or permitted to be taken at any meeting of the
Board may be taken without a meeting if all of the directors consent in writing
to such action and such writing or writings are filed with the minutes of
proceedings of the Board.
Section 7. Annual Meeting of Directors.
An annual meeting of the Board for the transaction of such business as may
be properly brought before such meeting shall be held promptly following each
annual meeting of stockholders. Such annual meeting of the Board shall
constitute a regular meeting of the Board for all purposes.
Section 8. Participation in Meeting by Telephone.
One or more directors may participate in a meeting of the Board by means of
conference telephone or similar communications equipment by means of which all
persons participating in such meeting can hear each other at the same time.
Participation in a meeting of the Board by such means shall constitute presence
in person at such meeting.
Section 9. Compensation and Expenses of Directors.
Directors may be compensated for rendering services as such as determined
from time to time by the Board. Directors shall be reimbursed for expenses
incurred by them in connection with rendering services as such.
ARTICLE III - COMMITTEES OF THE BOARD
Section 1. Regular Committees.
The Board may, pursuant to a resolution or resolutions adopted by an
affirmative vote of a majority of the Whole Board, designate one or more
committees of the Board. The members of each such committee shall consist of
such directors (but only such directors) designated by the Board, pursuant to a
resolution or resolutions adopted by an affirmative vote of a majority of the
Whole Board. The Board may, pursuant to a resolution or resolutions adopted by
an affirmative vote of a majority of the Whole Board, designate one or more
directors as alternate members of any committee who may replace any absent or
disqualified member of any committee at any meeting of such committee. Any
vacancy on any committee resulting from death, resignation or any other event or
circumstance, which is not filled by an alternate member,
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shall be filled by the Board, pursuant to a resolution or resolutions adopted by
an affirmative vote of a majority of the Whole Board. Directors elected to fill
such vacancies shall hold office for the balance of the terms of the members
whose vacancies are so filled. Each committee will report its actions in the
interim between meetings of the Board at the next meeting of the Board or as
otherwise directed by the Board.
Section 2. Regular Committee Powers.
Any committee of the Board, to the extent (but only to the extent) provided
in a resolution or resolutions adopted by the affirmative vote of a majority of
the Whole Board, (i) shall have and may exercise all of the powers and authority
of the Board and do all of the lawful acts and things which may be done by the
Board in the management of the business and affairs of the Corporation and (ii)
may authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that no such committee shall have the power or
authority to: amend the Certificate of Incorporation; adopt an agreement of
merger or consolidation; recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets;
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution of the Corporation; except as otherwise provided in the
Certificate of Incorporation, call a meeting of stockholders; amend or repeal
these By-Laws or adopt new By-Laws; or, unless the Certificate of Incorporation,
these By-Laws or resolutions adopted by the affirmative vote of a majority of
the Whole Board shall expressly so provide, declare a dividend, authorize the
issuance of shares of capital stock of the Corporation or adopt a certificate of
ownership and merger.
Section 3. Advisory Committees.
The Board or a committee of the Board may designate one or more advisory
committees to report to the Board or a committee of the Board. Each such
advisory committee shall consist of one or more individuals designated by the
Board or the committee of the Board which designated such advisory committee.
Such individuals are not required to be directors. The Board may designate one
or more individuals as alternate members of any advisory committee who may
replace any absent or disqualified member of any advisory committee at any
meeting of such committee. Any absence of any member of any advisory committee
or vacancy on any advisory committee resulting from death, resignation or any
other event or circumstance, which is not filled by an alternate member, shall
be filled only by the Board or the committee of the Board which designated such
advisory committee. Individuals elected to fill such vacancies shall hold office
for the balance of the terms of the members whose vacancies are so filled. Each
advisory committee will report its actions in the interim between meetings of
the Board or the committee of the Board which designated such advisory committee
at the next meeting of the Board or the committee of the Board which designated
such advisory committee or as otherwise directed by the Board or the committee
of the Board which designated such advisory committee. An advisory committee
shall have none of the powers or authority of the Board or any committee of the
Board.
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Section 4. Procedures.
Unless otherwise expressly authorized by the Board, in the resolution or
resolutions designating such committee or advisory committee, the members of
committees or advisory committees shall act only as a committee and the
individual members shall have no power as such. Any member of any committee or
advisory committee may be removed as such at any time as (but only as) provided
in the resolution or resolutions designating such committee or advisory
committee. The presence, at any meeting thereof, of a majority of the total
number of members which a committee or advisory committee would have if there
were no vacancies thereon shall be required in order to constitute a quorum for
the transaction of business at such meeting. The term of office of each member
of any committee or advisory committee shall commence at the time of his due
election and qualification and shall continue until his successor shall have
been duly elected or until his earlier death, resignation or removal. Except as
otherwise provided in this Article III or in the resolution or resolutions
designating such committee or advisory committee and except for the reference to
presiding at meetings of stockholders in Section 6(a) of Article II hereof,
Sections 4, 5, 6, 7 and 8 of Article II hereof shall apply to committees and
advisory committees and members thereof as if references therein to the Board
and directors were references to such committees and members, respectively.
ARTICLE IV - OFFICERS
Section 1. Officers.
The officers of the Corporation shall be a President, one or more Vice
Presidents (one or more of whom may be designated as an Executive Vice President
or a Senior Vice President), a Secretary and a Treasurer. The officers shall be
elected at any time and from time to time by the Board. The Board may also elect
or appoint, in accordance with Section 6 of this Article, such other officers as
it may at any time and from time to time determine. Any of such offices may be
held by the same person.
Section 2. President.
The President shall be the chief executive officer of the Corporation and
shall, subject to the control of the Board, have general supervision over and
general charge for the business of the Corporation. The President shall see that
all orders of the Board are carried into effect. The President shall, generally,
perform such duties as may from time to time be assigned to him by these By-Laws
or by the Board and is authorized to enter into contracts and execute and
deliver instruments on behalf of the Corporation in the ordinary course of its
business without specific approval of the Board.
Section 3. Vice Presidents.
Each Vice President shall, subject to the control of the Board, perform all
duties as may from time to time be assigned to him by the Board, the President
or these By-Laws. In case of the absence of the President, any Vice President
designated by the Board shall perform the duties of the President with all of
the powers of, and subject to all of the restrictions upon, the President.
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<PAGE>
Section 4. Treasurer.
The Treasurer shall, subject to the control of the Board, have charge and
custody of and be responsible for all of the funds and securities of the
Corporation, keep full and accurate accounts of assets, liabilities, receipts,
disbursements and other transactions of the Corporation in books belonging to
the Corporation, cause regular audits of such books to be made and deposit all
moneys and other valuable effects in the name of and to the credit of the
Corporation in such banks or other depositories as may be designated by the
Board. The Treasurer shall, subject to the control of the Board, disburse the
funds of the Corporation as ordered by the Board or the other officers of the
Corporation in accordance with these By-Laws, taking proper vouchers for such
disbursements, and shall render to the President and to the Board at its
meetings or whenever he or it may require a statement of all his transactions as
treasurer and an account of the financial condition of the Corporation. In
general, the Treasurer shall, subject to the control of the Board, perform all
of the duties incident to the office of treasurer and such other duties as may
from time to time be assigned to him by the Board, the President or these
By-Laws.
Section 5. Secretary.
The Secretary shall, subject to the control of the Board, act as secretary
of, and keep the minutes of, the proceedings of the Board and the stockholders
in books belonging to the Corporation, give or cause to be given notice of all
meetings of stockholders and directors as required by these By-Laws, be
custodian of the seal of the Corporation, affix the seal, or cause it to be
affixed, to all certificates for shares of capital stock of the Corporation and
to all documents the execution of which on behalf of the Corporation under its
seal shall have been specifically or generally authorized by the Board, have
charge of the stock records of the Corporation and of the other books, records
and papers of the Corporation relating to its organization as a corporation and
see that the reports, statements and other documents required by law relating to
the maintenance of the existence, qualifications and franchises of the
Corporation as a corporation are properly kept or filed. The Secretary shall,
subject to the control of the Board, generally perform all of the duties
incident to the office of secretary and such other duties as may from time to
time be assigned to him by the Board, the President or these By-Laws.
Section 6. Additional Officers.
The Board may from time to time elect or appoint such other officers
(including, without limitation, assistant officers), employees, agents,
consultants, representatives and advisors of the Corporation as the Board may
deem proper, each of whom shall hold office for such period, have such authority
and perform such duties as the Board or the President pursuant to authority
delegated to him by the Board may from time to time determine.
Section 7. Removal.
Any officer, employee, agent, consultant, representative or advisor of the
Corporation may be removed at any time by the Board or by the President pursuant
to authority delegated to him by the Board, except that an officer of the
Corporation may be removed or replaced, directly or indirectly (including,
without limitation, removal or replacement effected by
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<PAGE>
reason of election and qualification of a successor, demotion, relocation,
failure to re-elect or diminution in duties or compensation), pursuant to (but
only pursuant to) a resolution or resolutions adopted by the affirmative vote of
a majority of the Whole Board (excluding, if such officer is also a director,
such director).
Section 8. Resignations.
Any officer may resign from his office at any time by giving written notice
of his resignation to the Board, the President or the Secretary. The resignation
of any officer shall take effect at the time of receipt of such notice by the
Board, the President or the Secretary, as the case may be, or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective. No such
resignation shall affect any rights which the Corporation may have under any
agreement with such officer.
Section 9. Giving of Bond by Officers.
All officers of the Corporation, if required to do so by the Board, shall
furnish bonds to the Corporation for the faithful performance of their duties
subject to such penalties and with such conditions and security as the Board may
from time to time require. All expenses of any such bond shall be paid by the
Corporation.
Section 10. Compensation of Officers.
Compensation of officers of the Corporation may be fixed from time to time
by the Board or, in the case of officers other than the President, by the
President pursuant to authority delegated to him by the Board.
Section 11. Term of Office.
Subject to Section 7 of this Article IV, the term of office of each officer
shall commence at the time of his election and qualification and shall continue
until his successor shall have been duly elected and qualified or his earlier
death, resignation or removal.
Section 12. Voting Stock Held by Corporation.
Except as otherwise determined from time to time by the Board, the
President shall have full power and authority in the name and on behalf of the
Corporation to attend, act and vote at any meeting of stockholders, partners or
owners of any corporation, partnership or other entity in which the Corporation
may hold stock, a partnership interest or another ownership interest and at any
such meeting shall possess and may exercise any and all rights and powers
incident to the ownership of such stock or interest which, as the owner thereof,
the Corporation might have possessed and exercised. The Board may from time to
time confer like powers upon any other person or persons and the President may
delegate his powers hereunder to any other officer of the Corporation.
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<PAGE>
ARTICLE V - INDEMNIFICATION
Section 1. Indemnification.
(a) Each person who is or was made a party or is threatened to be made a
party to, or is or was involved in, any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding"), by reason of
the fact that he, or a person of whom he is the legal representative, is or was
a director, officer, employee or, pursuant to a resolution or resolutions
adopted by the affirmative vote of a majority of the Board, agent of the
Corporation or a subsidiary of the Corporation or is or was serving at the
request of the Corporation as a director, officer, partner, member, employee,
agent or trustee of another corporation (other than a subsidiary of the
Corporation) or of a partnership, joint venture, trust or other enterprise,
including an employee benefit plan, whether the basis of such proceeding is
alleged action in an official capacity as an officer or director or in any other
capacity while so serving, shall be indemnified by the Corporation for and held
harmless by the Corporation from and against, to the fullest extent authorized
by the Law, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader or greater rights to indemnification than the Law
prior to such amendment permitted the Corporation to provide), all expenses,
liabilities and losses (including attorneys' fees, judgments, fines, excise
taxes, penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith; provided, however,
that except as provided herein with respect to proceedings seeking to enforce
rights to indemnification, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board. Such right to indemnification shall continue as to a
person who has ceased to be such an officer, director, partner, member,
employee, agent or trustee and shall inure to the benefit of his or her heirs,
executors and administrators. Such right to indemnification shall be a contract
right and shall include the right of a director, officer, partner, member,
employee, agent or trustee to be paid the expenses (including costs and
attorneys' fees and disbursements) incurred in defending a proceeding in advance
of its final disposition to the fullest extent authorized by the Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader or greater rights to indemnification than the Law prior to such
amendment permitted the Corporation to provide); provided, however, that, if the
Law requires, the payment of such expenses incurred by a director or officer of
the Corporation in his capacity as a director or officer of the Corporation (and
not in any other capacity in which service was or is rendered by such person
while a director or officer of the Corporation, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Article or otherwise. Such right to
indemnification and to the payment of expenses may be granted to any other
employee or agent of the Corporation or its subsidiaries if, and to the extent,
authorized by the Board.
(b) If a claim under this Article is not paid in full by the Corporation
within thirty (30) days after a written demand therefor has been received by the
Corporation, the
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<PAGE>
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall also be entitled to be paid the expense of prosecuting such
suit. It shall be a defense to any such suit (other than a suit brought to
enforce a claim for expenses incurred in defending a proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Law for the Corporation to indemnify
the claimant for the amount claimed, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation (including
the Board, independent legal counsel to the Corporation or the stockholders) to
have made a determination prior to the commencement of such suit that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the Law nor an actual
determination by the Corporation (including the Board, independent legal counsel
to the Corporation or the stockholders) that the claimant has not met such
applicable standard of conduct shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
Section 2. Indemnification Not Exclusive.
The indemnification of or the payment of expenses for any person under this
Article, or the right of any person to indemnification or payment of expenses
under this Article, shall not limit or restrict in any way the power of the
Corporation to indemnify or pay expenses for such person in any other manner
permitted by law or be deemed exclusive of, or invalidate, any other right which
such person may have or acquire under any law, agreement, vote of stockholders
or disinterested directors, or otherwise. The Corporation has the right to enter
into indemnification contracts or otherwise arrange for indemnification of
persons under this Article that may be broader than the indemnifications
provided for herein.
Section 3. Successors.
The right of any person to indemnification and payment of expenses under
this Article shall continue as to a person after such person shall have ceased
to be such an officer, director, partner, member, employee, agent or trustee,
shall inure to the benefit of the heirs, distributees, executors, administrators
and other legal representatives of such person, shall survive and not be
adversely affected by any modification or repeal of this Article with respect to
any claim or proceeding which arose or transaction, matter, event or condition
which occurred or existed before such modification or repeal and shall be
binding upon all successors of the Corporation.
Section 4. Insurance.
The Corporation may purchase and maintain insurance on behalf of any person
who is or was such an officer, director, partner, member, employee, agent or
trustee against any expense, liability or loss asserted against such person as
such an officer, director, partner, member, employee, agent or trustee or
arising out of such person's status as such an officer, director, partner,
member, employee, agent or trustee, whether or not the Corporation would
-16-
<PAGE>
have the power to indemnify such person against such expense, liability or loss
under the provisions of this Article or applicable law.
Section 5. Definition of Certain Terms.
(a) For purposes of this Article, references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, fiduciary, employee or agent of the Corporation
which imposes duties on, or involves services by, such director, officer,
fiduciary, employee or agent with respect to an employee benefit plan, its
participants or its beneficiaries.
(b) For the purposes of this Article and the Law, a person who acted in
good faith and in a manner such person reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interest of the
Corporation."
ARTICLE VI - CONTRACTS; BANK ACCOUNTS
Section 1. Execution of Contracts.
Except as provided otherwise in these By-Laws, the Board may from time to
time authorize any officer, employee, agent or representative of the
Corporation, in the name and on behalf of the Corporation, to enter into any
contract or execute and deliver any instrument. Such authorization may be
general or confined to specific instances. Unless so authorized by the Board or
these By-Laws, no officer, employee, agent or representative shall have any
power or authority to bind the Corporation by any contract or engagement, to
pledge its credit or to render it pecuniarily liable for any purpose or to any
amount.
Section 2. Checks; Drafts; Notes.
All checks, drafts and other orders for the payment of moneys out of the
funds of the Corporation and all notes or other evidences of indebtedness of the
Corporation shall be signed in the name and on behalf of the Corporation in the
manner authorized from time to time by the Board.
Section 3. Deposits.
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in the banks, trust companies or
other depositories selected from time to time by the Board or by an officer,
employee, agent or representative of the Corporation to whom such authority may
from time to time be delegated by the Board. For the purpose of making such a
deposit, any officer, employee, agent or representative to whom authority to
make such a deposit is delegated by the Board may endorse, assign and deliver
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<PAGE>
checks, drafts and other orders for the payment of moneys which are payable to
the order of the Corporation.
ARTICLE VII - SHARES; DIVIDENDS
Section 1. Certificates.
Every holder of record of a share or shares of capital stock of the
Corporation then outstanding shall be entitled to a duly signed certificate in
proper form certifying that he is the record holder of such share or shares.
Certificates for shares of capital stock and other securities of the Corporation
shall be issued in such forms as the Board may prescribe. Such certificates
shall be signed by the Chairman of the Board, the President or a Vice President
and by the Secretary or the Treasurer. The seal of the Corporation or a
facsimile thereof shall be affixed on such certificates, and such certificates
shall be countersigned and registered in such manner, if any, as the Board may
prescribe. The signatures of the officers upon such certificates may be
facsimiles. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon any certificate shall have ceased
to be such an officer, transfer agent or registrar before such certificate is
issued, such certificate may be issued with the same effect as if he were such
officer, transfer agent or registrar on the date of issuance of such
certificate.
Section 2. Transfers.
Transfers of shares of capital stock of the Corporation shall be made on
the records of the Corporation only upon authorization by the record holder of
such shares, in person or by his duly authorized attorney or legal
representative, upon surrender and cancellation of certificates therefor duly
endorsed or accompanied by duly executed stock powers (with such proof of
authenticity of signature as the Corporation or its agent may require) for a
like number of shares, upon payment of all taxes thereon and upon compliance
with any restrictions on transfer thereof. The person in whose name shares of
capital stock of the Corporation stand on the records of the Corporation shall
be deemed the owner of such shares for all purposes as regards the Corporation.
The Board may make such additional rules and regulations and take such action as
it may deem expedient, not inconsistent with the Certificate of Incorporation
and these By-Laws, concerning the issue, transfer and registration of
certificates or the issue of certificates in lieu of certificates claimed to
have been lost, destroyed, stolen or mutilated.
Notwithstanding the preceding paragraph of this Section, for a period of
180 days from the date of a final prospectus included or incorporated by
reference in a registration statement filed by the Corporation with the
Securities and Exchange Commission relating to a firm commitment underwritten
initial public offering of the Corporation's common stock (the "Restriction
Period"), no shares of the Corporation's common stock held immediately prior to
the date of such final prospectus may be, directly or indirectly, offered for
sale, sold or otherwise disposed of without the prior written consent of the
Board of Directors of the Corporation, whose consent may be withheld for any
reason. A legend to such effect shall be placed on certificates representing the
Corporation's common stock during such Restriction Period. Upon the
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<PAGE>
conclusion of the Restriction Period, this paragraph shall automatically be
deemed deleted from these By-Laws.
Section 3. Lost or Destroyed Certificates.
The Corporation may issue a new certificate for shares of capital stock of
the Corporation in order to replace any certificate theretofore issued by it
alleged to have been lost, stolen or destroyed, and the Corporation may require
the holder of the lost, stolen or destroyed certificate, or his legal
representative, to give to the Corporation a bond or other security to indemnify
it against all losses, liabilities and expenses (including attorney's fees and
expenses) incurred in connection with investigating, defending and settling any
claim that may be made against it on account of the alleged loss, theft or
destruction of such certificate or the issuance of such new certificate.
Section 4. Fractions of a Share.
The Corporation shall have the authority to issue (but shall not be
obligated, under these By-Laws, to issue) fractions of a share of any class or
series of capital stock of the Corporation. In lieu of issuing a fraction of a
share of any class or series of capital stock of the Corporation, the
Corporation may (i) make such payments as may be determined using such equitable
method as the officer of the Corporation may select and/or (ii) issue that
number of whole shares of such class or series of capital stock of the
Corporation as may be determined using such equitable method for rounding
fractions to integers as the officers of the Corporation may select, as the
Board may determine or the Certificate of Incorporation may require.
Section 5. Dividends.
Subject to the provisions of the Certificate of Incorporation and to the
extent permitted by the Law, the Board may declare dividends on shares of any
class or series of capital stock of the Corporation at such times and in such
amounts as, in its opinion, the conditions of the business of the Corporation
render advisable. Before payment of any dividend or making any distribution of
profits, the Board may set aside out of the surplus or net profits of the
Corporation such sum or sums as the Board may from time to time, in its absolute
discretion, deem proper as a reserve fund to meet contingencies or for
equalizing dividends, for repairing or maintaining any property of the
Corporation or for such other purposes as the Board may from time to time deem
to be in the best interests of the Corporation.
ARTICLE VIII - CORPORATE SEAL
The Board may adopt a corporate seal of the Corporation which shall be in
such form as the Board may from time to time determine. When authorized by these
By-Laws or by the Board, a facsimile of the corporate seal may be affixed in
lieu of the corporate seal.
ARTICLE IX - FISCAL YEAR
The fiscal year of the Corporation shall be fixed from time to
time by the Board.
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<PAGE>
ARTICLE X - AMENDMENTS
These By-Laws, in whole or in part, may be amended or repealed
and new By-Laws, in whole or in part, may be adopted as (but only as) provided
in the Certificate of Incorporation.
EXHIBIT 11
Schick Technologies, Inc.
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Weighted
Days Average
Shares Outstanding Shares
------ ----------- ------
<S> <C> <C> <C>
Year ended March 31, 1998
- -------------------------
Shares outstanding at April 1,1997 7,957,231 365 7,957,231
Sale and issuance of common stock 2,012,500 274 1,510,753
Issuance of common stock upon exercise of warrants 11,200 177 5,431
1,867 131 670
359 33 32
1,731 27 128
1,796 20 98
1,085 13 39
1,809 4 20
Issuance of common stock upon exercise of options 1,642 32 144
837 19 44
----------
Weighted average shares outstanding 9,474,590
Net income for the year ended March 31, 1998 $2,360,959
----------
Net income per share 0.25
----------
Earnings Per Share assuming dilution
Weighted average shares outstanding 9,474,590
Stock options and warrants considered to be 335,483 365 335,483
common stock equivalents
Exercise of warrants during fiscal 1998 19,847 (4,153)
Options issued during fiscal 1998 92,060 8,308
Exercise of options during fiscal 1998 2,479 (174)
----------
Weighted average shares outstanding assuming dilution 9,814,054
Net income for the year ended March 31, 1998
assuming dilution $2,360,959
----------
Net income per share assuming dilution $ 0.24
==========
</TABLE>
<PAGE>
Schick Technologies, Inc.
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Weighted
Days Average
Shares Outstanding Shares
------ ----------- ------
<S> <C> <C> <C>
Year ended March 31, 1997
- -------------------------
Shares outstanding at April 1, 1996 7,052,870 365 7,052,870
Issuance of common stock upon conversion of
notes payable 56,000 364 55,847
32,480 343 30,522
92,400 244 61,769
133,966 214 78,544
22,400 213 13,072
11,200 194 5,953
28,000 168 12,888
Issuance and sale of common stock 424,953 244 284,078
2,800 238 1,826
42,442 214 24,884
14,000 168 6,444
33,600 103 9,482
Shares issued as placement fee in private
placement 2,520 244 1,685
3,450 214 2,023
1,568 168 722
1,137 167 520
Issuance of compensatory common stock to
an employee 1,445 45 178
Weighted average shares outstanding 7,643,307
Net loss for the year ended March 31, 1997 $ (351,977)
----------
Net loss per common share $ (0.05)
==========
Earnings Per Share assuming dilution
Weighted average shares outstanding assuming dilution 7,643,307
Net loss for the year ended March 31, 1997 $ (328,611)
Net loss per common share assuming dilution $ (0.04)
==========
</TABLE>
Exhibit 21
Subsidiaries of the Registrant
1. Schick Technologies, Inc., incorporated under the laws of the State of New
York, and
2. Schick X-Ray Corporation, incorporated under the laws of the State of
Delaware.
CONSENT OF INDEPENDENT ACCOUNTANT
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-46825) of Schick Technologies, Inc. of our report
dated June 9, 1998 appearing on page F-2 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
New York, New York
June 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 6,217,000
<SECURITIES> 14,022,000
<RECEIVABLES> 10,373,000
<ALLOWANCES> 200,000
<INVENTORY> 12,152,000
<CURRENT-ASSETS> 43,310,000
<PP&E> 7,107,000
<DEPRECIATION> 1,306,000
<TOTAL-ASSETS> 51,674,000
<CURRENT-LIABILITIES> 9,565,000
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> 41,204,000
<TOTAL-LIABILITY-AND-EQUITY> 51,674,000
<SALES> 0
<TOTAL-REVENUES> 38,451,000
<CGS> 17,658,000
<TOTAL-COSTS> 19,215,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,000
<INCOME-PRETAX> 2,689,000
<INCOME-TAX> 328,000
<INCOME-CONTINUING> 2,361,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,361,000
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.24
</TABLE>
Exhibit 99
CAUTIONARY STATEMENT
The statements contained in this Form 10-K include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 ("PSLRA"). When used in this Form 10-K and in the future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, presentations to securities analysts or investors, or in oral
statements made by or with the approval of an executive officer of the Company,
the words or phrases "believes," "may," "will" likely result," "estimates,"
"projects" or similar expressions and variations thereof are intended to
identify such forward-looking statements. Any forward-looking statement involves
risks and uncertainties that may have a material adverse effect on the business,
results of operation, financial condition or prospects, financial or other, of
the Company and may cause the Company's actual results to differ materially from
historical results or the results discussed in the forward-looking statements.
The following discussions contain cautionary statements regarding the
Company's business that investors and others should consider. This discussion is
intended to take advantage of the "safe harbor" provisions of the PSLRA. In
making these cautionary statements, the Company is not undertaking to address or
update each factor in future filings or communications regarding the Company's
business or results.
DEPENDENCE ON CDR(TM)
To date the Company's revenues are primarily generated from sales of its
CDR(TM) system and, to a lesser extent, the CDRCam(TM), accuDEXA(TM) and the CDR
Discovery 60/70 DC(TM). There can be no assurance that any of these devices will
not be rendered obsolete or inferior as a result of technological change,
changing customer needs or new product introductions, each of which would have a
material adverse effect on the Company. There can be no assurance that the
Company's competitors will not succeed in developing or marketing technologies
and products that are more commercially attractive than the CDR(TM) system,
CDRCam(TM) or accuDEXA(TM). The Company's success will depend in part on its
ability to improve and enhance its products in a timely manner. While the
Company is actively engaged in research and development to improve and enhance
the CDR(TM) system and CDRCam(TM), there can be no assurance that the Company
<PAGE>
will be successful. The failure to enhance any of the Company's products in a
timely manner could have a material adverse effect on the Company.
DEPENDENCE ON DEVELOPING AND MARKETING NEW PRODUCTS AND ENHANCEMENTS TO EXISTING
PRODUCTS
The Company is currently developing new products for the dental and medical
markets. The Company expects to file 510(k) applications with the FDA in
connection with the digital mammography sensors currently under development by
the Company, and other future products. There can be no assurance that the
Company will obtain pre-market clearance for the digital mammography sensors or
any other future products, or that in order to obtain 510(k) clearance, the
Company will not be required to submit additional data or meet additional FDA
requirements that may substantially delay the 510(k) process and result in
substantial additional expense. Moreover, such pre-marketing clearance, if
obtained, may be subject to conditions on the marketing or manufacturing of the
digital mammography sensors which could impede the Company's ability to
manufacture and/or market the product. In addition, while the Company intends to
distribute the digital mammography sensors through a direct sales force and
other established independent distributors and manufacturers of medical and
radiological equipment, there can be no assurance that the Company will be able
to successfully develop any such distribution channel. While the Company is
actively engaged in research and development to develop digital mammography
sensors and other new products, there can be no assurance that the Company will
be successful in such endeavors. There can be no assurance that the digital
mammography sensors or any other products to be developed by the Company will be
approved by or receive marketing clearance from applicable governmental
authorities. If the Company is unable to develop, obtain regulatory approval for
and market new products and enhancements to existing products, it will have a
material adverse effect on the Company.
RAPID AND SIGNIFICANT TECHNOLOGICAL CHANGE
The market for the Company's products is characterized by rapid and
significant technological change, evolving industry standards and new product
introductions. The Company's products require significant planning, design,
development and testing which require significant capital commitments and
investment by the Company. There can be no assurance that the Company's products
or proprietary technologies will not become uncompetitive or obsolete as a
result of technological change, evolving industry standards or new product
introductions or that the Company will be able to generate any economic return
on its investment in product development. If the Company's products or
technologies become uncompetitive or obsolete, it will have a material adverse
effect on the Company.
RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGY; RISK OF PATENT INFRINGEMENT
The Company currently has an issued United States patent for an 'Intra-Oral
Sensor For Computer Aided Radiography,' which expires on October 16, 2012, and
an allowed United States patent application for a 'Large Area Image Detector'
which will expire on November 20,
<PAGE>
2016. The Company also has five additional patent applications currently pending
before the United States Patent and Trademark Office (the 'PTO').
The Company is the licensee in certain fields of biomedical radiology of
certain patents, patent applications and other know-how related to APS
technology (collectively, the 'APS Technology'), which was developed by the
California Institute of Technology. The Company has been advised by the licensor
of the APS Technology that the Company's rights to such technology are subject
to government rights to use, noncommercial educational rights to use by
California Tech and the right of a third party to obtain a nonexclusive license
from the California Institute of Technology with respect to such technology. The
Company believes that, as of the date of this filing, except for such third
party's exercise of its right to obtain a nonexclusive license to use APS
Technology in a field other than biomedical radiology, none of the foregoing
parties have given notice of their exercise of any of their respective rights to
the APS Technology. There can be no assurance that this will continue to be the
case, and any such exercise could have a material adverse effect on the Company.
There can be no assurance that any of the Company's patents, any of the
patents of which the Company is a licensee or any patents which may issue to the
Company or which the Company may license in the future, will provide the Company
with a competitive advantage or afford the Company protection against
infringement by others, or that the patents will not be successfully challenged
or circumvented by competitors of the Company.
The Company is also the owner of certain trade secrets, which it protects
by, among other things, entering into non-disclosure, confidentiality,
non-solicitation and non-competition agreements. However, there can be no
assurance that the duties imposed by these agreements, such as the duty to
maintain confidentiality and the duty not to compete, will not be breached, or
that such breaches will not have a material adverse effect on the Company.
There also can be no assurance that the technology practiced by the Company
will not infringe upon the patents of others. The Company's CDR(TM) system is
currently the subject of litigation regarding the patent rights of others. In
the event that any such infringement claim is successful, there can be no
assurance that the Company would be able to negotiate with the patent holder for
a license, in which case the Company could be prevented from practicing the
subject matter claimed by such patent. In addition, there can be no assurance
that the Company would be able to redesign its products to avoid infringement.
The inability of the Company to practice the subject matter of patents claimed
by others or to redesign its products to avoid infringement could have a
material adverse effect on the Company.
LITIGATION
The Company is a named defendant in two lawsuits instituted by Trophy
Radiologie, S.A. ('Trophy S.A.'). One lawsuit was instituted in France and the
other in the United States.
The French lawsuit was filed in November 1995, in the tribunal de Grande
Instance de Bobigny, the French patent court, and originally alleged that the
Company's CDR(TM) system infringes French Patent No. 2,547,495, European Patent
No. 129,451 and French Certificate of
<PAGE>
Addition No. 2,578,737. These patents, all of which are related, are directed to
a CCD-based intra-oral sensor. Since filing its lawsuit, Trophy S.A. has
withdrawn its allegation of infringement with respect to the Certificate of
Addition. Trophy S.A. is seeking a permanent injunction and unspecified damages,
including damages for its purported lost profits.
The lawsuit in the United States was filed in March 1996 by Trophy S.A.,
Trophy Radiology, Inc., a United States subsidiary of Trophy S.A. ('Trophy
Inc.') and the named inventor on the patent in suit, Francis Mouyen, a French
citizen. The suit was brought in the United States District Court for the
Eastern District of New York, and alleges that the Company's CDR(TM) system
infringes United States Patent No. 4,593,400 (the ' '400 patent'), which is
related to the patents in the French lawsuit. Trophy S.A., Trophy Inc. and
Mouyen are seeking a permanent injunction and unspecified damages, including
damages for purported lost profits, enhanced damages for the Company's purported
willful infringement and an award of attorney fees.
In addition, the Company has counter-sued Trophy S.A. and Trophy Inc. for
infringement of United States Patent No. 4,160,997, a recently expired patent
which was exclusively licensed to the Company by its inventor, Dr. Robert
Schwartz, and for false advertising and unfair competition. The Company believes
that its counter-suits are meritorious, and is vigorously pursuing them.
On September 12, 1997, the Company served two motions for summary judgment
seeking dismissal of the action pending in the United States District Court for
the Eastern District of New York, on the grounds of non-infringement and the
"best mode" defense. Those motions are currently pending.
While the Company believes such suits against it are without merit, there
can be no assurance that the Company will be successful in its defense of any of
these actions, or in its counter-suits. If the Company is unsuccessful in its
defense of any of these actions, it could have a material adverse effect upon
the Company.
DEPENDENCE ON KEY SUPPLIERS; VOLATILITY OF SEMICONDUCTOR MARKET
Semiconductors are the most significant product components the Company
purchases. Since its inception, the Company has purchased virtually all of its
semiconductors principally
<PAGE>
from one supplier. The Company has entered into a 'blanket' purchase order with
such supplier to purchase a minimum number of semiconductors over the course of
one year. The availability and price of these components may be subject to
change due to interruptions in production, changing market conditions and other
events. There can be no assurance that, if the Company were to enter into
purchase arrangements with other suppliers, such suppliers would be able to
deliver such semiconductors at an acceptable price or in a timely manner. If the
Company were unable to develop reasonably-priced alternative sources in a timely
manner, or if the Company encountered delays or other difficulties in the supply
of such products and other materials from third parties, there could be a
material adverse effect on the Company. In past years, semiconductors have been
subject to significant price fluctuations. There can be no assurance that the
Company can mitigate the effect of future price increases on its results of
operations and financial condition.
PRODUCT WARRANTIES
The Company generally warrants each of its products against defects in
materials and workmanship for a period of one year from the date of shipment.
Costs associated with product returns, including servicing and/or repair of
products, during the warranty period, as a percentage of total revenues during
fiscal 1998, were less than 5%. Should the Company experience an increase in
product returns, there could be material adverse effect on the Company by, among
other things, requiring additional expenditures for parts and personnel as well
as damaging the Company's reputation and goodwill.
REGULATORY AND LEGISLATIVE RISKS
The Company must obtain certain approvals by and marketing clearances from
governmental authorities, including the FDA and similar health authorities in
foreign countries, to market and sell its products in those countries. The FDA
regulates the marketing, manufacturing, labeling, packaging, advertising, sale
and distribution of 'medical devices,' as do various foreign authorities in
their respective jurisdictions. The FDA enforces additional regulations
regarding the safety of equipment utilizing x-rays. Various states also impose
similar regulations. The Company's CDR(TM) system is currently regulated by such
authorities and certain of the Company's new products will require approval by
or marketing clearance from various governmental authorities, including the FDA.
The FDA review process typically requires extended proceedings pertaining
to the safety and efficacy of new products. A 510(k) application is required in
order to market a new or modified medical device. If specifically required by
the FDA, a pre-market approval ("PMA") may be necessary. Such proceedings, which
must be completed prior to marketing a new medical device, are potentially
expensive and time consuming. They may delay or hinder a product's timely entry
into the marketplace. Moreover, there can be no assurance that the review or
approval process for these products by the FDA or any other applicable
governmental authorities will occur in a timely fashion, if at all, or that
additional regulations will not be adopted or current regulations amended in
such a manner as will adversely affect the Company. The FDA also regulates the
content of advertising and marketing materials relating to medical devices.
Failure to comply with such regulations may result in a delay in obtaining
approval for the marketing of such products or the withdrawal of such approval
if previously obtained. There can
<PAGE>
be no assurance that the Company's advertising and marketing materials regarding
its products are and will be in compliance with such regulations. The Company is
also subject to other federal, state and local laws, regulations and
recommendations relating to safe working conditions, laboratory and
manufacturing practices. The extent of government regulation that might result
from any future legislation or administrative action cannot be accurately
predicted. Failure to comply with regulatory requirements could have a material
adverse effect on the Company. International sales of the Company's products are
subject to the regulatory agency product registration requirements of each
country in which the Company's products are sold. The regulatory review process
varies from country to country and may in some cases require the submission of
clinical data. The Company typically relies on its distributors in foreign
countries to obtain the required regulatory approvals. There can be no
assurance, however, that such approvals will be obtained on a timely basis, if
at all, or that the failure to obtain such approval by a distributor will not
have a material adverse effect on the Company. The Company's customers operate
in the health care industry, which is highly regulated. Both existing and future
governmental regulations could adversely impact the Company. Additionally,
cost-containment efforts by health maintenance organizations may adversely
affect the potential market for the Company's devices.
POTENTIAL FOR PRODUCT RECALL AND PRODUCT LIABILITY CLAIMS
Products such as those sold by the Company may be subject to recall for
unforeseen reasons. In addition, certain applications, including projected
applications, of the Company's products entail the risk of product liability
claims. Such risks will exist even with respect to those products that have
received, or in the future may receive, regulatory approval for commercial sale.
These claims may be made by consumers, distributors, wholesalers or others.
Although the Company has maintained insurance coverage related to product
liability claims, no assurance can be given that product liability insurance
coverage will continue to be available or, if available, that it can be obtained
in sufficient amounts or at reasonable cost or that it will be sufficient to
cover any claims that may arise. The Company does not maintain any insurance
relating to potential recalls of its products. Costs associated with potential
product recalls or product liability claims could have a material adverse effect
on the Company.
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
Third-party payors, including government health administration authorities,
private health care insurers and other organizations regulate the reimbursement
of fees related to certain diagnostic procedures or medical treatments.
Third-party payors are increasingly challenging the price and cost-effectiveness
of medical products and services. While the Company cannot predict what effect
the policies of government entities and other third-party payors will have on
future sales of the Company's products, there can be no assurance that such
policies would not have a material adverse effect on the Company.
INTENSE COMPETITION
Competition relating to the Company's current products is intense and
includes various companies, both within and outside of the United States. The
Company anticipates that
<PAGE>
competition for its future products will also be intense and include various
companies, both within and outside of the United States. Many of the Company's
competitors are large companies with substantially greater financial, sales and
marketing, and technical resources, larger and more experienced research and
development staffs, more extensive physical facilities and substantially greater
experience in obtaining regulatory approvals and in marketing products than the
Company. In addition, there can be no assurance that the Company's competitors
are not currently developing, or will not attempt to develop, technologies and
products that are more effective than those being developed by the Company or
that would otherwise render the Company's existing and new technology and
products obsolete or uncompetitive. No assurance can be given that the Company
will be able to compete successfully. The inability of the Company to compete
successfully or the development by the Company's competitors of technology and
products that are more effective than those being developed by the Company would
have a material adverse effect on the Company.
DEPENDENCE ON THIRD-PARTY DISTRIBUTORS
The Company markets and distributes a significant portion of its CDR(TM)
systems overseas through third-party independent distributors. From time to
time, a limited number of distributors account for a significant portion of the
Company's revenues. In 1996, one distributor, Dental Computer/Dental
Technologies, accounted for 18.0% of the Company's sales. In general, these
distributors could discontinue marketing the Company's products with little or
no notice. Certain of the Company's distributors also could market products
which compete with the Company's products. Additionally, the Company intends to
market its current and future products in the United States and its future
products overseas through independent third-party distributors. The loss of, or
a significant reduction in sales volume through, one or more of the Company's
distributors could have a material adverse effect on the Company.
UNCERTAINTIES ASSOCIATED WITH INTERNATIONAL MARKETS
In fiscal 1998, 1997 and 1996, international sales accounted for 18%, 24%
and 31% respectively, of the Company's revenues, and the Company anticipates
that international sales will continue to account for a significant percentage
of the Company's revenues. International revenues are subject to a number of
uncertainties, including the following: agreements may be difficult to enforce
and receivables difficult to collect; foreign customers and distributors may
have longer payment cycles, foreign countries may impose additional withholding
taxes or otherwise tax the Company's foreign income, impose tariffs or adopt
other restrictions on foreign trade; fluctuations in exchange rates may affect
product demand in relation to foreign competitors that may achieve advantageous
pricing based on the comparative strength of the United States dollar; United
States export licenses may be difficult to obtain; and intellectual property
rights in foreign countries may be difficult to enforce. Moreover, many foreign
countries have their own regulatory approval requirements for the sale of the
Company's products. As a result, the Company's introduction of new products into
international markets could be costly and time-consuming, and there can be no
assurance that the Company will be able to obtain the required regulatory
approvals on a timely basis, if at all. There can be no assurance that any of
these factors will not have a material adverse effect on the Company.
<PAGE>
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is dependent, in part, upon its ability to hire
and retain management, sales and research personnel who are in high demand and
are often subject to competing employment opportunities. The inability of the
Company to hire or retain key management, sales or research personnel could have
a material adverse effect on the Company. In addition, the development of the
Company's business has been primarily dependent upon the efforts of David B.
Schick, the Company's President and Chief Executive Officer. Although the
Company has expanded the depth of the expertise of its personnel, the loss of
Mr. Schick or turnover in other management positions could have a material
adverse affect on the Company. The Company does not have employment agreements
with any of its employees, including Mr. Schick, and there can be no assurance
that he or any other key employee will continue to be active with the Company.
The Company maintains and is the named insured party under a $1,000,000 life
insurance policy on Mr. Schick. There is no assurance that such insurance can be
maintained or will be adequate to meet the Company's future needs.
RECENT RAPID GROWTH; ABILITY TO MANAGE GROWTH
There can be no assurance that the growth experienced by the Company will
continue or that the Company will be able to achieve the growth contemplated by
its business strategy. Furthermore, there are significant risks, expenses and
difficulties associated with managing the operation and sustaining the
development of an expanding business. The Company's growth has placed, and will
continue to place, significant demands on the Company's financial and other
resources. The Company will be required to continually improve operating,
financial, and other systems, as well as to train, motivate, and manage its
employees. If the Company's management is unable to manage growth effectively or
new employees are unable to achieve appropriate levels of performance, it could
have a material adverse effect on the Company.
CONTROL OF THE COMPANY BY CERTAIN STOCKHOLDERS
Currently, the executive officers and directors of the Company collectively
beneficially own approximately 39.3% of the outstanding shares of Common Stock.
Accordingly, they may effectively have the ability to elect all of the directors
of the Company and determine the outcome of all other matters submitted for the
approval of the stockholders. In particular, David B. Schick and members of his
immediate family beneficially own approximately 26.8% of the outstanding shares
of Common Stock and, accordingly, may be able to exert significant influence
over the Company.
PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The Company's Common Stock is currently listed on The Nasdaq National
Market. The stock market historically has experienced volatility which has
affected the market price of securities of many companies and which has
historically been unrelated to the operating performance of such companies. The
market prices for securities of medical technology companies have historically
been highly volatile. Future technological innovations or new commercial
products, results of clinical testing, changes in regulation, litigation and
public
<PAGE>
concerns as to product safety as well as period-to-period fluctuations in
financial performance and fluctuations in securities markets generally could
cause the market price of the Common Stock to fluctuate substantially. In
addition, the stock market prices of many medical technology companies have
experienced substantial fluctuations. Such price fluctuations have often been
unrelated to the operating performance of the affected companies. These broad
market fluctuations may adversely affect the market price of the Common Stock.
POTENTIALLY SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
Several factors may significantly affect the Company's revenues, expenses
and results of operations from quarter to quarter, including the timing of new
product introductions by the Company or its competitors, developments regarding
new treatments for osteoporosis, developments in government reimbursement
policies, product mix, the ability to supply products to meet customer demand
and fluctuations in manufacturing costs. In addition, the Company's CDR(TM)
products are subject to seasonal variations. Historically, the Company has
experienced higher sales growth rates in its first and third fiscal quarters
than in its second and fourth fiscal quarters. Consequently, quarterly results
of operations can be expected to fluctuate. Such fluctuations in quarterly
results of operation could adversely affect the market price of the Common
Stock.
NEED FOR ADDITIONAL FINANCING
The Company may require additional outside financing to expand its core
technology and develop new products, for working capital and for capital
expenditures. There can be no assurance that such financing will be available on
acceptable terms or at all. The inability of the Company to obtain such
financing could have a material adverse effect on the Company. In addition, the
Company may issue additional shares of Common Stock or other securities, whether
through public or private offerings. Such offerings would have a dilutive effect
on the percentage of ownership in the Company of any holder of shares of Common
Stock. In the event the Company is unable to raise necessary additional
financing in the future, it may have to curtail its expansion activities.
