SECURITIES AND EXCHANGE COMMISSION
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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, 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 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 [X] No [_]
As of August 5, 1998, 9,992,566 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 June 30, 1998 and
March 31, 1998 ............................................ Page 1
Consolidated Statement of Operations for the three months
ended June 30, 1998 and 1997 .............................. Page 2
Consolidated Statement of Cash Flows for the three
months ended June 30, 1998 and 1997 ....................... Page 3
Notes to Consolidated Financial Statements ................ Page 4
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations ........................ Page 6
PART II. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds ................ Page 8
Item 6. Exhibits and Reports on Form 8-K .......................... Page 8
SIGNATURE ............................................................... Page 9
EXHIBIT 27 .............................................................. Page 10
PART I. Financial Information
Item 1. Financial Statements
Schick Technologies, Inc.
Consolidated Balance Sheet
(In thousands , except share amounts)
Assets June 30, 1998 March 31, 1998
----------- --------------
(unaudited)
Current assets
Cash and cash equivalents $ 1,649 $ 6,217
Short-term investments 13,933 14,022
Accounts receivable, net of allowance for doubtful
accounts of $330 and $200, respectively 14,450 10,173
Inventories 13,303 12,152
Prepayments and other current assets 531 746
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Total current assets 43,866 43,310
Equipment, net 6,458 5,801
Investments 1,000 1,000
Other assets 1,265 1,214
Deferred tax asset 120 349
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Total assets $52,709 $51,674
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Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 6,265 $ 7,010
Accrued salaries and commissions 1,516 1,473
Provision for warranty obligations 258 245
Income taxes payable 292 144
Deferred revenue 339 362
Deposits from customers 442 331
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Total current liabilities 9,112 9,565
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; 9,992,566 and 9,992,057 shares issued
and outstanding) 100 100
Additional paid-in capital 41,208 41,204
Retained earnings 2,289 805
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Total stockholders' equity 43,597 42,109
Total liabilities and stockholders' equity $52,709 $51,674
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
1
Schick Technologies, Inc.
Consolidated Statement of Operations
(In thousands, except per share amounts)
(unaudited)
Three months ended June 30,
---------------------------
1998 1997
---- ----
Revenues, net $15,980 $ 6,040
Cost of sales 7,217 2,831
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Gross profit 8,763 3,209
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Operating expenses
Selling and marketing 4,157 1,795
General and administrative 1,350 878
Research and development 1,033 638
Patent litigation settlement -- 600
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Total operating expenses 6,540 3,911
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Income (loss) from operations 2,223 (702)
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Other income (expense)
Interest income 243 48
Interest expense -- (43)
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Total other income (expense) 243 5
Income (loss) before income taxes 2,466 (697)
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Provision for income taxes 983 --
Net income (loss) $ 1,483 $ (697)
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Basic earnings (loss) per share $ 0.15 $ (.09)
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Diluted earnings (loss) per share $ 0.14 $ (.09)
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The accompanying notes are an integral part of these consolidated financial
statements.
2
Schick Technologies, Inc.
Consolidated Statement of Cash Flows
(In thousands)
(unaudited)
Three months ended June 30,
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1998 1997
---- ----
Net cash flows from operating activities:
Net income (loss) $ 1,483 $ (697)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities
Depreciation and amortization 431 125
Stock and option grant compensation -- 5
Accrued interest on investments (182) 14
Changes in assets and liabilities:
Accounts receivable (4,277) (635)
Inventories (1,151) (2,183)
Prepayments and other current assets 266 47
Other assets (96) (29)
Deferred income taxes 229 --
Accounts payable and accrued expenses (689) 3,312
Income taxes payable 148 --
Deferred revenue (23) 58
Deposits from customers 112 (6)
Accrued interest on notes payable -- 39
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Net cash (used in) provided by operating activities (3,749) 50
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Cash flows from investing activities:
Capitalization of software development costs (50) --
Purchases of held-to-maturity investments (1,196) (101)
Proceeds from maturities of held-to-maturity investments 1,466 642
Capital expenditures (1,043) (663)
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Net cash used in investing activities (823) (122)
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Cash flows from financing activities:
Proceeds from exercise of common stock options 4 --
Deferred offering costs -- (977)
Principal payments on capital lease obligations -- (5)
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Net cash provided by (used in) financing activities 4 (982)
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Net decrease in cash and cash equivalents (4,568) (1,054)
Cash and cash equivalents at beginning of period 6,217 1,710
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Cash and cash equivalents at end of period $ 1,649 $ 656
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The accompanying notes are an integral part of these consolidated financial
statements.
3
Schick Technologies, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except share and per share amounts)
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1. Basis of Presentation
The consolidated financial statements of Schick Technologies, Inc. and its
subsidiaries (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 consolidated financial
statements and notes thereto for the year ended March 31, 1998, included in
the Company's Annual report on form 10-K.
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, 1998, are not necessarily indicative of the results
to be expected for the full year ending March 31, 1999.
The consolidated financial statements of the Company, at June 30, 1998,
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany balances have been eliminated.
2. Inventories
Inventories at June 30, 1998 and March 31, 1998 are comprised of the
following:
June 30, 1998 March 31, 1998
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Raw materials ......................... $ 6,904 $ 7,108
Work-in-process ....................... 4,648 3,466
Finished goods ........................ 1,751 1,578
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Total inventories ................. $13,303 $12,152
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3. Initial Public Offering
In July 1997, the Company completed its initial public offering (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.
4. Patent Litigation Settlement
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. The Company expensed the license fee in
the quarter ended June 30, 1997.
4
Schick Technologies, Inc.
Notes to Consolidated Financial Statements (unaudited)
(In thousands, except share and per share amounts)
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5. 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. Earnings per share for the three-month period ended June 30,1997
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 for the period ended
June 30, 1997.
The computation of basic earnings per share and diluted earnings per share
for the three-month periods ended June 30, 1998 and 1997 are as follows:
Three months ended June 30,
---------------------------
1998 1997
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Net Income (loss) available to
common stockholders $ 1,483 $ (697)
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Weighted average shares outstanding
for basic earnings (loss) per 9,992,477 7,957,231
share
Dilutive effect of stock options and
warrants
383,023 --
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Weighted average shares outstanding
for diluted earnings (loss) per 10,375,500 7,957,231
share
Basic earnings (loss) per share $ 0.15 $ (.09)
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Diluted earnings (loss) per share $ 0.14 $ (.09)
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6. Subsequent Event
On July 14, 1998, the Company invested an additional $250 in Photobit
Corporation, a developer of complementary metal-oxide semiconductor
("CMOS"), active-pixel ("APS") imaging technology. As of July 1998 the
Company's investment in Photobit Corporation amounts to $1,250. The Company
is the exclusive licensee of the APS technology for medical applications
and utilizes the technology in both its bone-mineral density assessment
device and certain components of its computed dental x-ray imaging system.
5
Item 2. 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 medical and dental digital radiography market,
regulatory approvals, technological developments, protection of technology
utilized by the Company, patent infringement claims and other litigation, and
further risks and uncertainties, including those detailed in Exhibit 99 hereto
and in the Company's other filings with the Securities and Exchange Commission.
General
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 was
introduced in December of 1997. The Company is also developing large-area
radiographic imaging devices for digital mammography.
Results of Operations
Net revenue for the three months ended June 30, 1998, increased $10.0 million
(165%) to $16.0 million from $6.0 million during the comparable period of fiscal
1998. The strong growth is attributable to increased sales of the company's
CDRTM dental products due to increased market awareness, broadening sales
distribution, and increased demand in foreign markets combined with sales of the
Company's AccudexaTM bone mineral density assessment device which was introduced
in December 1997.
Cost of sales for the three months ended June 30, 1998, increased $4.4 million
(155%) to $7.2 million (45.2% of net revenue) from $2.8 million (46.9% of net
revenue) for the comparable period of fiscal 1998. The decrease in Costs of
Sales as a percentage of revenue is attributable primarily to lower costs of
semiconductor wafers and decreased warranty costs.
Selling and marketing expenses for the three months ending June 30, 1998,
increased $2.4 million (132%) to $4.2 million (26.0% of net revenue) from $1.8
million (29.7% of net revenue) for the comparable period of fiscal 1998. This
increase was attributable principally to the hiring and training of new sales
representatives as the Company continued to increase the size of its national
sales force and its promotional programs to obtain greater market awareness and
to develop market strategies for new products.
General and administrative expenses for the three months ended June 30, 1998,
increased $473 thousand (53.9%) to $1.4 million (8.5% of net revenue) from $878
thousand (14.5% of net revenue) for the comparable period of fiscal 1998. The
decrease as a percentage of sales was attributable primarily to increases in
sales of the Company's products partially offset by increased administrative
expenditures, primarily the hiring of administrative personnel.
Research and development expenses for the three months ended June 30, 1998,
increased $395 thousand (61.8%) to $1.0 million (6.5% of net revenue) from $638
thousand (10.6% of net revenue) for the comparable period of fiscal 1998. The
increase in spending reflects costs associated with research and development of
mammography and panoramic x-ray systems and the hiring of additional research
and development personnel.
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 thousand. The company expensed that license fee during the quarter ended
June 30, 1997.
6
Interest income increased to $243 thousand in the three months ended June 30,
1998 from $48 thousand in the comparable period of fiscal 1998. The increase is
attributable to higher cash balances and investments in short-term
interest-bearing securities that were purchased with the proceeds of the
Company's Initial Public Offering (the "IPO"). Interest expense of $43 thousand
for the three-month period ended June 30,1997 was principally attributable to a
loan from Merck & Co. Inc. that was repaid upon consummation of the IPO.
Liquidity and Capital Resources
Net proceeds from the July 1997 IPO were approximately $33.5 million. At June
30, 1998, the Company had $1.6 million in cash and cash equivalents, $13.9
million in short-term investments and $34.8 million in working capital compared
to $6.2 million in cash and cash equivalents, $14.0 million in short-term
investments and $33.7 million in working capital at March 31, 1998.
During the quarter ended June 30, 1998, cash used in operations was $3.7 million
compared to $50 thousand provided by operations during the comparable period of
fiscal 1998. The increased cash used in operations is primarily attributable to
increases in the Company's inventory and accounts receivable resulting from
increased levels of operations and the timing of shipments to customers during
the three months ended June 30, 1998.
The Company's capital expenditures during the quarter were $1.1 million. Capital
expenditures during the quarter included leasehold improvements, computers, and
production equipment. The Company's planned capital expenditures for the
remainder of fiscal 1999 are $2.0 million, primarily for computer equipment,
leasehold improvements and production equipment. Management currently believes
that existing capital resources are adequate to meet its current cash
requirements for 18-24 months. There can be no assurance, however, that changes
in the Company's plans or other events affecting the Company's operations will
not result in accelerated or unexpected cash requirements.
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 that 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.
7
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(d) 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") closed. 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. The aggregate offering price of 2,012,500 shares of Common
Stock registered for the account of the Company pursuant to the Offering
(inclusive of the Underwriters' Option) was $37,231.
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. During the period of
July 1, 1997 through June 30, 1998, such net proceeds have been applied as
follows: (i) $1,113 for leasehold improvements; (ii) $3,935 for property, plant,
and equipment; (iii) $1,450 to purchase certain assets of Keystone Dental X-Ray
Corp.; (iv) $1,000 to purchase a 5% interest in Photobit, Inc.; (v) $1,513 to
pay the notes payable and the interest thereon to Merck & Co., Inc.; (vi)
$10,520 to short term investments; (vii) $756 to money market investments; and
(viii) the remaining $13,221 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. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
8
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, 1998 By: /s/ David B. Schick
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David B. Schick
President and
Chief Executive Officer
By: /s/ Thomas E. Rutenberg
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Thomas E. Rutenberg
Director of Finance
(Principal Financial Officer)
9