SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
Amendment No. 1
{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 11-3347812
(State of 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)
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
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
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 9,999,057.
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.
Part II, Item 7 of the Form 10-K for the fiscal year ended March 31, 1998
is amended to read as follows :
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.
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. Approximately 90% and
64% of the Company's revenues during its fiscal year ended March 31, 1998, and
the quarter ended June 30, 1998, respectively, were related to its sale of the
CDR system. 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
is phasing out its use and sale of CCD-based sensors, which are being replaced
by APS-based sensors. This phase-out commenced in March, 1998, and is expected
to be completed by the end of calendar 1998, except for the Company's use of
replacement parts. 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 CCD supplier. The interruption in supply resulted in
manufacturing and product shipment delays and therefore lower revenues than
anticipated during the fourth quarter of 1998. This reduction in revenue
amounted to approximately $2.5 million. The Company believes that this
interruption in supply will have no impact on its future sales, as the delayed
revenue was recovered in the subsequent quarter and, since experiencing the
supply interruption, the Company has arranged for a second supplier to provide
it with APS semiconductor wafers. Future 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.
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.
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 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.
Three Months Ended
----------------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1996 1996 1996 1997 1997 1997 1997 1998
-------- --------- -------- -------- -------- --------- -------- --------
(In thousands, unaudited)
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
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 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.
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."
SIGNATURES
Pursuant to the requirements of 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 December 16, 1998.
SCHICK TECHNOLOGIES, INC
By: /s/ DAVID B. SCHICK
-------------------------
David B. Schick
Chairman of the Board, Chief Executive
Officer and President