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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 1997
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
incorporation or organization) (I.R.S. Employer
Identification Number)
31-00 47th Avenue 11101
Long Island City, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (718) 937-5765
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 [ ] No [ X ]
As of July 31, 1997, 9,969,731 shares of common stock, par value $.01 per share,
were outstanding.
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SCHICK TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheet as of March 31, 1997 and June
30, 1997 (unaudited) .................................................... Page 3
Consolidated Statement of Operations for the three months
ended June 30, 1996 and 1997 (unaudited) ................................ Page 4
Consolidated Statement of Cash Flows for the three months
ended June 30, 1996 and 1997 (unaudited) ................................ Page 5
Notes to Consolidated Financial Statements
(unaudited).............................................................. Page 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... Page 8
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings........................................................ Page 10
Item 2. Changes in Securities.................................................... Page 10
Item 6. Exhibits and Reports on Form 8-K......................................... Page 10
SIGNATURE.................................................................................. Page 11
INDEX TO EXHIBITS.......................................................................... Page E-1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Schick Technologies, Inc.
Consolidated Balance Sheet
Assets March 31, 1997 June 30, 1997
-------------- -------------
Current assets (unaudited)
Cash and cash equivalents $ 1,710,429 $ 656,090
Short-term investments 2,313,226 1,757,756
Accounts receivable, net of allowance for
doubtful accounts of $50,000 at March 31,
1997 and $70,000 at June 30, 1997 1,927,993 2,563,410
Inventories 2,510,959 4,694,263
Deferred offering costs --- 977,115
Prepayments and other current assets 327,220 279,821
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Total current assets 8,789,827 10,928,455
Equipment, net 1,644,528 2,182,493
Investments 490,000 490,000
Other assets 135,727 164,488
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Total assets $11,060,082 $13,765,436
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Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 2,102,293 $ 5,020,185
Accrued salaries and commissions 540,061 808,419
Provision for warranty obligations 329,426 455,292
Deferred revenue 141,017 199,148
Deposits from customers 136,628 130,090
Capital lease obligations, current 22,200 23,155
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Total current liabilities 3,271,625 6,636,289
Notes payable 1,512,833 1,512,833
Accrued interest on notes payable 101,654 140,851
Capital lease obligations, long-term 86,991 80,809
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Total liabilities 4,973,103 8,370,782
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Commitments --- ---
Stockholders' equity
Preferred stock ($.01 par value; 2,500,000
shares authorized; none issued and outstanding) --- ---
Common stock ($.01 par value; 25,000,000 shares
authorized; 7,957,231 shares issued and
outstanding at March 31, 1997 and June 30, 79,572 79,572
1997)
Additional paid-in capital 7,562,766 7,567,813
Accumulated deficit (1,555,359) (2,252,731)
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Total stockholders' equity 6,086,979 5,394,654
Total liabilities and stockholders' equity $11,060,082 $13,765,436
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The accompanying notes are an integral part of these consolidated financial statements.
Schick Technologies, Inc.
Consolidated Statement of Operations
(unaudited)
Three months ended June 30,
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1996 1997
---- ----
Revenue, net $ 2,626,882 $ 6,040,031
Cost of sales 1,440,647 2,830,563
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Gross profit 1,186,235 3,209,468
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Operating expenses
Selling and marketing 871,990 1,795,583
General and administrative 386,202 877,664
Research and development 224,381 638,454
Patent litigation settlement --- 600,000
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Total operating expenses 1,482,573 3,911,701
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Loss from operations (296,338) (702,233)
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Other income (expense)
Interest income 4,705 48,437
Interest expense (25,269) (43,576)
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Total other income (expense) (20,564) 4,861
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Net loss $ (316,902) $ (697,372)
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Net loss per common share $ (0.04) $ (0.08)
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Weighted average shares outstanding 8,054,419 8,400,822
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The accompanying notes are an integral part of these consolidated financial statements.
Schick Technologies, Inc.
Consolidated Statement of Cash Flows
(unaudited)
Three months ended June 30,
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1996 1997
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Net cash flows from operating activities
Net loss $ (316,902) $ (697,372)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation 50,568 125,248
Amortization 27,500 ---
Stock and option grant compensation --- 5,047
Accrued interest on investments --- 14,482
Changes in assets and liabilities
Accounts receivable 90,135 (635,417)
Inventories (209,566) (2,183,304)
Prepayments and other current assets (23,729) 47,399
Other assets (47,607) (28,761)
Accounts payable and accrued expenses 501,225 3,312,116
Deferred revenue 36,676 58,131
Deposits from customers 1,631 (6,538)
Accrued interest on notes payable --- 39,197
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Net cash provided by operating activities 109,931 50,228
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Cash flows from investing activities
Purchases of held-to-maturity investments --- (101,272)
Proceeds from maturities of held-to-maturity investments --- 642,260
Capital expenditures (127,402) (663,213)
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Net cash used in investing activities (127,402) (122,225)
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Cash flows from financing activities
Deposits on common stock and warrant subscriptions 1,465,000 ---
Deferred offering costs --- (977,115)
Principal payments on capital lease obligations (5,479) (5,227)
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Net cash provided by financing activities 1,459,521 (982,342)
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Net increase (decrease) in cash and cash equivalents 1,442,050 (1,054,339)
Cash and cash equivalents at beginning of period 524,917 1,710,429
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Cash and cash equivalents at end of period $1,966,967 $ 656,090
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The accompanying notes are an integral part of these consolidated financial statements.
Schick Technologies, Inc.
Notes to Consolidated Financial Statements (unaudited)
1. Basis of Presentation
The consolidated financial statements of Schick Technologies, Inc. and its
subsidiary (collectively the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial
information and the rules of the Securities and Exchange Commission (the
"SEC") for quarterly reports on Form 10-Q and do not include all of the
information and footnote disclosures required by generally accepted
accounting principles for complete financial statements. These statements
should be read in conjunction with the audited financial statements and
notes thereto for the year ended March 31, 1997, included in the Company's
Prospectus dated July 1, 1997 forming a part of the Company's Registration
Statement on Form S-1, as amended ("Form S-1"), which was initially filed
with the SEC on May 13, 1997.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments (consisting of normal,
recurring adjustments) necessary for a fair presentation of results of
operations for the interim periods. The results of operations for the three
months ended June 30, 1997 are not necessarily indicative of the result of
operations to be expected for the full year ending March 31, 1998.
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,
Schick Technologies, Inc. ("Schick Delaware" or "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 Schick Delaware, the Predecessor Corporation and STI),
Schick Delaware 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 Schick
Delaware. 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 Schick
Delaware (based on the same ratio of exchange, 2.8 shares for 1 share,
applicable to the common stock exchange). Schick Delaware's articles of
incorporation also authorize 2,500,000 shares of preferred stock, $.01 par
value.
The 1996 Stock Option Plan of the Predecessor Corporation was amended by
Schick Delaware and the shares available for issuance pursuant to the Plan
were adjusted to 470,000. Schick Delaware 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.
The consolidated financial statements of the Company, subsequent to the
restructuring, include the accounts of Schick Delaware and its wholly owned
subsidiary, Schick New York. All significant intercompany balances have
been eliminated.
3. New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued 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") by all entities that have
publicly traded common stock or potential common stock (options, warrants,
convertible securities or contingent stock arrangements). FAS 128 also
requires presentation of earnings per share by an entity that has made a
filing or is in the process of filing with a regulatory agency in
preparation for the sale of those securities in a public market. 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. The statement is effective for
both interim and annual periods ending after December 15, 1997. The effect
on the Company's earnings per share resulting from the adoption of FAS 128
is not expected to be significant.
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 statement 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 circumstances from nonowner
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.
4. Inventories
Inventories at March 31, 1997 and June 30, 1997 are comprised of the
following:
March 31 June 30
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Raw materials $1,671,010 $3,161,491
Work-in-process 421,863 439,924
Finished goods 418,086 1,092,848
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Total inventories $2,510,959 $4,694,263
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5. Subsequent Events
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 $37,231,250 and net proceeds, after underwriting discounts and
commissions and estimated offering expenses payable by the Company, of
approximately $33,731,250.
In July 1997, upon the declaration of the effectiveness of the Form S-1
filed in connection with the IPO, the Company repaid, as required by the
note agreement, a secured note payable in the principal amount of
$1,512,833 and accrued interest thereon in the amount of $144,296.
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 for
a payment by the Company of $600,000. The Company has recorded an accrued
liability and expensed the license fee in the quarter ended June 30, 1997.
In July 1997, the Company entered into a letter of intent to purchase
certain assets of Keystone X-Ray, Inc., a manufacturer of x-ray equipment
for the medical and dental radiology field, for $1.5 million. The Company
expects to complete this transaction within 90 days.
Management's Discussion and
Analysis of Financial Condition
and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results,
events and circumstances could differ materially from those set forth in such
statements due to various factors. Such factors include the changing economic
and competitive conditions in the dental digital radiography market, regulatory
approvals, including approvals related to accuDEXA(TM), technological
developments and other risks and uncertainties, including those detailed in the
Company's other filings with the Securities and Exchange Commission.
References herein to the Company include Schick New York.
General
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The Company designs, develops and manufactures digital imaging systems and
devices 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 of osteoporosis, which is
scheduled to be introduced in the second half of 1997, pending FDA marketing
clearance. In addition, the Company is developing large-area radiographic
imaging devices for digital mammography.
Results of Operations
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Net revenue for the three months ended June 30, 1997 increased $3,413,149 (130%)
to $6,040,031 from $2,626,882 for the comparable period of 1996. The increase
was attributable principally to an increase in the number of CDRTM products
sold, including sales of the Company's CDRCamTM which was introduced in February
1997. The number of products sold was positively affected by the Company's
increased expenditures on sales and marketing, personnel recruiting, sales
events and other promotional activities.
Cost of sales for the three months ended June 30, 1997 increased $1,389,915
(96%) to $2,830,563 (46.9% of net revenue) from $1,440,647 (54.8% of net
revenue) for the comparable period of 1996. The increase was due to the increase
in sales of the Company's CDRTM products. The decrease as a percentage of net
revenue was primarily due to increased manufacturing efficiencies, increased
production yields and economies of scale generated by an increase in the number
of CDRTM products sold.
Selling and marketing expenses for the three months ending June 30, 1997
increased $923,593 (106%) to $1,795,583 (29.7% of net revenue) from $871,990
(33.1% of net revenue) for the comparable period of 1996. The increase in
dollars 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.
General and administrative expenses for the three months ended June 30, 1997
increased $491,462 (127%) to $877,664 (14.5% of net revenue) from $386,202
(14.7% of net revenue) for the comparable period of 1996. The increase was
primarily attributable to the hiring of administrative personnel and legal fees
associated with patent infringement litigation.
Research and development expenses for the three months ended June 30, 1997
increased $414,073 (184%) to $638,454 (10.6% of net revenue) from $224,381 (8.5%
of net revenue) for the comparable period of 1996. The increase was attributable
to the expenses associated with the development of a bone mineral density
assessment device, enhancements to the Company's products and initial
development of a mammography system.
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 for a payment by the Company of
$600,000. The Company has recorded an accrued liability and expensed the license
fee in the quarter ended June 30, 1997.
Interest income increased to $48,437 in the three months ended June 30, 1997
from $4,705 in the comparable period of 1996 due to higher cash balances and
investments in interest-bearing securities which were purchased with the
proceeds of the May 1996 equity private placement. Interest expense increased to
$43,576 for the three-month period ended June 30, 1997 from $25,269 in the
comparable period of 1996. Interest expense was attributable principally to the
Merck Loan (as defined below).
As a result of increases in selling and marketing expenses, general and
administrative expenses, research and development expenses, and the settlement
of the litigation described above, the Company sustained a net loss of $697,372,
or $0.08 per share for the three months ended June 30, 1997 as compared to
a loss of $316,902, or $0.04 per share, in the comparable quarter in 1996.
Liquidity and Capital Resources
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As of June 30, 1997 the Company had an accumulated deficit of $2,252,731 and has
not yet generated positive cash flow from operations in any fiscal year. At June
30, 1997, the Company had $656,090 in cash and cash equivalents, $1,757,756 in
short-term investments and $3,315,051 in working capital compared to $1,710,429
in cash and cash equivalents, $2,313,226 in short term-investments and
$5,518,302 in working capital at March 31, 1997. The decrease in working capital
for the three months ended June 30, 1997 is primarily attributable to capital
expenditures, in the amount of approximately $663,000, and $977,000 of deferred
offering costs incurred 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 $29,215,170 after deducting estimated expenses. In addition, on
July 10, 1997, the Company received approximately $4,516,080, 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 debt due Merck & Co. in the principal amount of $1,512,833 and
interest of $144,296 (the "Merck Loan"). The remaining proceeds will be used (i)
to expand the Company's research and development capabilities, (ii) to expand
its sales and marketing effort and (iii) for working capital and general
corporate purposes. Pending such uses, the Company intends to invest the net
proceeds in investment-grade, interest-bearing securities. From time to time,
the Company may evaluate potential acquisitions of 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 proceeds of the IPO.
In July 1997, the Company entered into a letter of intent to purchase certain
assets of Keystone X-Ray, Inc., a manufacturer of x-ray equipment for the
medical and dental radiology field, for $1.5 million.
The Company expects to complete such transaction within 90 days.
The Company had no material cash requirement for income taxes in the quarter
ending June 30, 1997. At June 30, 1997, the Company's net operating loss
carryforward was approximately $955,000, portions of which begin to expire in
2008.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
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The Company had been sued by Radworks Corp. ("Radworks") and
the Board of Regents of the University of Texas. That suit, filed in December
1996 in the United States District Court for the Western District of Texas,
alleged that the Company's CDR(TM) system infringed United States Patent No.
5,179,579 (the "'579 patent"). The `579 patent is directed to a display system
for digital dental radiographs. Radworks and the Board of Regents of the
University of Texas were seeking a permanent injunction and unspecified damages,
including enhanced damages for the Company's purported willful infringement and
an award of attorney fees.
The Company reached a settlement of the litigation between the Company
and Radworks and the Board of Regents of the University of Texas in July 1997.
Terms of the settlement consist of an aggregate $600,000 payment to Radworks and
the Board of Regents of the University of Texas in exchange for a fully paid,
worldwide, non-exclusive license under the `579 Patent.
Item 2. Changes in Securities
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During the three months ended June 30, 1997, pursuant to certain
provisions contained in the Company's By-Laws which are described in the
Company's Form 8-A dated June 10, 1997, restrictions were imposed on the sale or
other disposition of certain shares of common stock, which restrictions expire
on December 27, 1997.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
The exhibits listed in the following table have been filed as
part of this Quarterly Report on Form 10-Q:
Exhibit Number
(11) Statement re: Computation of Per Share Earnings.
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
No Report on Form 8-K was filed during the Quarter for which
this Quarterly Report on Form 10-Q is filed.
SCHICK TECHNOLOGIES, INC.
SIGNATURE
Pursuant to the requirement 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.
SCHICK TECHNOLOGIES, INC.
Date: August 13, 1997 By: /s/ David B. Schick
----------------------------------
David B. Schick
President and
Chief Executive Officer
By: /s/ David B. Spector
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David B. Spector
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
SCHICK TECHNOLOGIES, INC.
INDEX TO EXHIBITS
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
11 Statement re: computation of per share earnings
27 Financial Data Schedule
E-1