UNITED STATES
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, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 (IRS Employer
incorporation or organization) Identification No.)
30-00 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
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. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes |X| No | |
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of September 30, 2004, the last business day of the registrant's
most recently completed second fiscal quarter, was approximately $106,388,387.
Such aggregate market value is computed by reference to the closing sale price
of the Common Stock on such date.
As of June 8, 2005, the number of shares outstanding of the Registrant's Common
Stock, par value $.01 per share, was 16,036,003.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
Table of Contents
Item of Form 10-K Page
Part I
Item 1 Business ................................................. 2
Item 2. Properties ............................................... 10
Item 3. Legal Proceedings ........................................ 10
Item 4. Submission of Matters to a Vote of Security Holders ...... 11
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters ...................................... 11
Item 6. Selected Financial Data .................................. 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk ................................................... 20
Item 8. Financial Statements and Supplementary Data .............. 20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ................. 20
Item 9A Controls and Procedures .................................. 20
Item 9B. Other Information ........................................ 22
Part III
Item 10. Directors and Executive Officers of the Registrant ....... 22
Item 11. Executive Compensation ................................... 26
Item 12. Security Ownership of Certain Beneficial Owners And
Management ............................................ 30
Item 13. Certain Relationships and Related Transactions ........... 32
Item 14. Principal Accountant Fees and Services ................... 32
Part IV
Item 15. Exhibits and Financial Statement Schedules ............... F-1
FORWARD-LOOKING STATEMENTS
This Form 10-K Annual Report contains forward-looking statements that
involve risk and uncertainties. All statements, other than statements of
historical facts, included in this Annual Report regarding the Company, its
financial position, products, business strategy and plans and objectives of
management of the Company for future operations, are forward-looking statements.
When used in this Annual Report, words such as "anticipate," "believe,"
"estimate," "expect," "intend," "objectives," "plans" and similar expressions,
or the negatives thereof or variations thereon or comparable terminology as they
relate to the Company, its products or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company's management, as well as assumptions made by and information currently
available to the Company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of various
factors, including, but not limited to, those contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this Annual Report and the "Risk Factors" set forth in Exhibit 99.1 to this
Annual Report. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by this paragraph.
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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, which
are based on proprietary digital imaging technologies, for the dental and
medical markets.
In the field of dentistry, the Company offers an integrated filmless
solution for the dental professional. The Company's suite of CDR(R) dental
imaging products includes:
(i) The CDR(R) digital imaging system;
(ii) CDR Wireless(TM);
(iii) CDR Dental Imaging Software;
(iv) USBCam(R);
(v) CDRPan(R);
(vi) CDRPanX(TM); and
(vii) SDX(TM).
The CDR(R), or Computed Dental Radiography system, has become a leading
product in the field over the past decade. It uses an intra-oral sensor to
produce instant, full size, high-resolution dental x-ray images on a color
computer monitor without the use of film or the need for chemical development.
Additionally, CDR dramatically reduces the radiation dose to which a patient may
be exposed -- by up to 80% as compared with conventional x-ray film. CDR
Wireless(TM), introduced in February 2003, is an innovative wireless instant
digital dental x-ray system that combines all of the advantages of digital
radiography with greater flexibility and ease of placement. The USBCam(R), the
first intra-oral dental camera to provide full motion video via a standard USB
port, was introduced by the Company in July 2002. It fully integrates with the
CDR system and eliminates the need for camera power supplies and video capture
cards. CDRPan(R), sold since September 1999, eliminates the need for x-ray film
in panoramic dental diagnostic procedures and can easily be retrofitted onto
existing panoramic dental x-ray machines. CDRPanX(TM) introduced by the Company
in November 2003, internationally, and December 2004, domestically, is an
integrated digital panoramic device, which allows for fully digital panoramic
dental diagnostic procedures. SDX(TM), introduced by the Company in February
2005, is a DC x-ray generator designed to optimize wired and wireless digital
radiography.
In addition, the Company is continuing to develop other products and
devices, as well as updated versions of its current products.
In the field of medical radiography, the Company manufactures and sells
the accuDEXA(R) bone densitometer, introduced by the Company in December 1997.
It is a low-cost and easy-to-operate device for the assessment of bone mineral
density and fracture risk.
The Company's core products are based primarily on its proprietary
complementary metal oxide semiconductor ("CMOS") active pixel sensor ("APS")
imaging technology. APS allows the cost-effective fabrication of imaging devices
with high resolution. APS technology was developed by the California Institute
of Technology and sublicensed to the Company for a range of health care
applications. In addition, certain of the Company's products are based upon its
proprietary enhanced charged-coupled-device ("CCD") imaging technology.
The Company's objective is to be the leading provider of innovative, high
resolution, cost effective digital radiography products. The Company's primary
focus is on the worldwide dental market. The Company plans to leverage its
technological advantage in the digital imaging field to penetrate a variety of
diagnostic imaging markets. The Company believes that its proprietary
technologies and expertise in electronics, imaging software and advanced
packaging may enable it to compete successfully in these markets. Key elements
of the Company's strategy include (i) innovating products; (ii) leveraging brand
recognition; (iii) expanding market leadership in dental digital radiography;
(iv) enhancing international distribution channels; and (v) broadening product
offerings.
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The Company's business was founded in 1992 and it was incorporated in
Delaware in 1997. 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.
Under generally accepted accounting principles, the Company operates in
one reportable segment: digital radiographic imaging systems. Note 1 to the
Company's Consolidated Financial Statements summarizes, by percentage, the
Company's revenues from its principal products.
The Company's offices are located at 30-00 47th Avenue, Long Island City,
New York 11101. The Company's telephone number is (718) 937-5765, and its
website address is http://www.schicktech.com.
PRODUCTS / INDUSTRY
Digital Imaging
X-ray imaging, or radiography, is widely used as a basic diagnostic
technique in a broad range of 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 time,
expense, inconvenience and uncertainty associated with film processing, as well
as the cost and environmental impact resulting from the disposal of waste
chemicals. Furthermore, the radiation dosage levels required to ensure adequate
image quality in conventional film may 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 certain x-ray scanning systems can convert x-rays into digital form, they
add to the time and expense resulting from the use of conventional film and do
not eliminate the drawbacks associated with 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.
Dental Imaging
In contrast to physicians, who often operate within highly-specialized
fields, dentists typically perform their own radiology work. They utilize a
significant volume of radiographic products and operate a substantial quantity
of radiographic equipment. The Company believes that there is a potential market
for over one million digital dental radiography devices worldwide. According to
the American Dental Association, as of 2002, there were 156,921 active private
practitioners in the United States. The Company believes that each of them, on
average, operates 2.5 radiological units, creating a current potential market of
over 390,000 digital dental radiography devices in the United States alone.
According to the World Health Organization, as of 2004, there were 1,138,957
practicing dentists throughout the world; of these, the Company believes that at
least 600,000 practice in the world's major healthcare markets outside of the
United States and that each of them operates 1.25 radiological units, on
average, creating a potential market of 750,000 additional devices. As reported
in March 2005 by Dental Products Report, only 22% of dentists who responded to
its survey use a direct digital x-ray system in their practice.
The Company believes that 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 diagnoses and treatment plans to
patients and to easily store and display patients' previous dental x-ray images,
which the Company believes have the potential to increase the rate of patients'
treatment acceptance and resulting revenues. Finally, the radiation
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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 80% through the
use of digital radiography.
The Company's principal revenue-generating product is its CDR(R) computed
dental radiography imaging system. The Company's CDR(R) system is easy to
operate and can be used with any dental x-ray generator. To produce a digital
x-ray image using CDR(R), 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 that is displayed on the computer monitor within five seconds and
automatically stored as part of the patient's clinical records. CDR(R) system
software provides the dentist with a variety of tools for advanced analysis of
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-ray exposures is
greatly diminished. The process is easy and intuitive, enabling nearly any
member of the dental staff to operate the CDR(R) system with minimal training.
The Company manufactures wired digital sensors in three sizes which
correspond to the three standard sizes of conventional dental x-ray film. Size 0
is designed for pediatric use; size 1 is designed for taking anterior dental
images; and size 2 is designed for taking bitewing images. All of the Company's
CDR(R) sensors can be disinfected using cold solutions or gas. The typical
CDR(R) configuration includes a computer, display monitor, size 2 digital
sensor, imaging software and a USB remote module.
In February 2003, the Company announced the introduction of CDR
Wireless(TM), which the Company believes to be the world's first wireless
instant dental x-ray system. It allows dentists to produce high-quality instant
radiographs with low radiation dosage and without the need for a cable between
the intra-oral sensor and computer. The Company currently manufactures Size 1
and Size 2 wireless sensors.
In April 2002, the Company introduced the USBCam(R), an innovative
intra-oral camera which fully integrates with the CDR(R) system to provide color
video images of the structures of the mouth. The Company believes that the
USBCam was the world's first intra-oral camera with a direct USB interface.
Since their introduction in 1991, intra-oral cameras have become widely accepted
in dentistry as a diagnostic, communication and presentation tool.
In March 1999, the Company commenced the sale of its digital panoramic
imaging device, the CDRPan(R). This device, which is designed to be retrofitted
into conventional panoramic dental x-ray machines, replaces film with electronic
sensors and a computer. This obviates the need for film and provides
instantaneous images, thus offering substantial savings in terms of time and
costs. Additionally, the CDRPan(R) easily integrates with practice management
and other computer software applications.
In November 2003 and December 2004, respectively, the Company introduced
an integrated digital panoramic machine, marketed under the CDRPanX(TM) name, to
the international and U.S. markets. It is a stand-alone device that performs
digital panoramic imaging for use in dentistry and maxillofacial surgery.
In February 2005, the Company introduced the SDX(TM), a DC dental x-ray
generator designed to optimize wired and wireless digital radiography. The SDX
integrates with the other products in the Company's suite of CDR(R) dental
imaging products.
Bone Mineral Density / Fracture Risk Assessment
The Company's accuDEXA(R) device, sold since December 1997, is an
innovative bone mineral density ("BMD") assessment device which helps physicians
diagnose low bone density and predict fracture risk. Based on APS technology,
accuDEXA(R) 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 that
is virtually automatic, requires no external x-ray generator or computer, and
exposes the patient to less than 1% of the radiation of a single conventional
chest x-ray.
MANUFACTURING
The Company's manufacturing facility is located at its headquarters in
Long Island City, New York. At this facility, which is subject to periodic
inspection by the United States Food and Drug Administration ("FDA"), the
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Company manufactures certain of its products and components, and performs the
majority of the final assembly and quality assurance testing process. In
addition, the Company outsources the fabrication and testing of certain final
assemblies and subassemblies.
The Company purchases various components for its products from a number of
outside suppliers. While the Company strives to maintain multiple sources of
supply for each such component, certain highly specialized components, including
semiconductor wafers used in the assembly of sensors, are primarily provided by
a single supplier. In these cases, the Company strives to maintain sufficient
inventory so as to provide extra time in which to locate an acceptable alternate
supplier in the event of a supply interruption. The Company believes that it
would be able to locate an acceptable alternate supplier in such event; however,
the need to replace a supplier could cause a disruption in the Company's ability
to timely deliver its products or increase the Company's costs.
The Company's quality assurance program includes various quality control
measures, from inspection of raw materials, purchased parts and assemblies
through in-process and final inspection, and conforms to the guidelines of the
International Quality Standard, ISO 9001. In August 1998, the Company was
granted ISO 9001 certification and, in September 2003, was granted ISO 9001:2000
certification. Since August 1998, the Company has been subject to semi-annual
audits to reaffirm its ongoing eligibility to maintain such certification.
DEPENDENCE ON CUSTOMERS
During fiscal 2005, 2004 and 2003, respectively, North American sales of
approximately $31.8 million (or 61% of total annual sales), $21.6 million (or
55% of total annual sales) and $15.4 million (or 52% of total annual sales) were
made to Patterson Dental Company ("Patterson"). During fiscal 2005, 2004 and
2003, respectively, sales of approximately $13.9 million, $9.9 million and $6.2
million were made to international 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 issued
United States patents for an `Intra-Oral Sensor for Computer Aided Radiography',
U.S. Patent No. 5,434,418, which expires on October 16, 2012; a `Large Area
Image Detector', U.S. Patent No. 5,834,782, which expires on November 20, 2016;
a `Method and Apparatus for Measuring Bone Density', U.S. Patent No. 5,852,647,
which expires on September 24, 2017; an `Apparatus for Measuring Bone Density
Using Active Pixel Sensors', U.S. Patent No. 5,898,753, which expires on June 6,
2017; a `Dental Imaging System with Lamps and Method', U.S. Patent No.
5,908,294, which expires on June 12, 2017; an `X-Ray Detection System Using
Active Pixel Sensors', U.S. Patent No. 5,912,942, which expires on June 6, 2017;
a `Dental Imaging System with White Balance Compensation', U.S. Patent No.
6,002,424, which expires on June 12, 2017; `Dental Radiography Using an
Intraoral Linear Array Sensor,' U.S. Patent No. 5,995,583, which expires on
November 13, 2016; a `Method for Reading Out Data from an X-Ray Detector,' U.S.
Patent No. 6,069,935, which expires on November 2, 2018; a `Filmless Dental
Radiography System Using Universal Serial Bus Port', U.S. Patent No. 6,134,298,
which expires on August 7, 2018; a 'Wireless Dental Camera', U.S. Patent No.
6,761,561, which expires on June 7, 2022; an 'Intraoral Wireless Sensor', U.S.
Design Patent No. D493,892, which expires on August 18, 2018; and 'Dental X-Ray
Positioning Using Adhesives', U.S. Patent No. 6,811,312, which expires on
February 8, 2022. The Company is also a licensee of U.S. Patent No. 5,179,579,
for a `Radiograph Display System with Anatomical Icon for Selecting Digitized
Stored Images', under a worldwide, non-exclusive, fully paid license.
Additionally, the Company has two recently allowed U.S. Patents as well as
another six U.S. patent applications currently pending. The Company also seeks
foreign patent protection when it deems it to be warranted.
The Company is the exclusive sub-licensee for use in medical radiography
applications of certain patents, patent applications and other know-how
(collectively, the "Intellectual Property") related to complementary metal oxide
semiconductor ("CMOS") active pixel sensor technology (the "APS Technology"),
which was developed by
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the California Institute of Technology and sublicensed to the Company. The
Company's exclusive rights to such technology are subject to government rights
to use, noncommercial educational and research rights to use by California
Institute of Technology and the Jet Propulsion Laboratory, 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, except
for such third party's exercise of its right to obtain a nonexclusive license to
use APS Technology in a field other than medical radiography, 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.
The Company has granted several non-exclusive licenses on certain of its
patents and intends to grant additional patent licenses in the future as and
when it deems it appropriate.
Trademarks
The Company has obtained trademark registrations from the United States
Patent and Trademark Office for the marks (i) "CDR" for its digital dental
radiography product; (ii) "USBCam" for its intra-oral camera (iii) "QuickZoom"
(both textual and stylized) for a viewing feature in its digital dental
radiography product; (iv) "accuDEXA" for its BMD assessment product; and (v)
"CDRPan" for its panoramic digital dental radiography product. In addition, the
Company has common law trademark rights in several other names it uses
commercially in connection with its products.
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, Non-Solicitation, Non-Competition and Inventions Agreements,
and, to a limited degree, employment agreements with appropriate individuals.
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,
but not limited to, marketing clearance by the U.S. Food and Drug
Administration. 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 marketing 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 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 USBCam(R) 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. CDR(R), CDR Wireless(TM), CDRPan(R),
CDRPanX(TM), SDX(TM) and accuDEXA(R) have been classified as Class II devices.
6
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 class require pre-market 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 timely response, or that it will 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 the FDA will approve a PMA
application.
In January 1994, the FDA cleared the Company's 510(k) application for
general use and marketing of the CDR(R) system; in October 2002, cleared the
Company's expanded 510(k) application for the CDR Wireless product; and in June
2004, cleared the Company's 510(K) application in connection with a modification
of the CDR system for optimization for use with the SDX(TM) product. In November
1996, the FDA cleared the Company's 510(k) application for general use and
marketing of CDRCam (USBCam(R)). In December 1997, the FDA cleared the Company's
510(k) application for general use and marketing of accuDEXA(R). The FDA granted
the Company additional clearances in connection with the accuDEXA(R), on June 4,
1998, to market accuDEXA(R) as a predictor of fracture risk, and on May 26,
2000, to further clarify issues regarding the collection of the normative
database. In December 1998 and May 2003, the FDA cleared the Company's 510(k)
applications for CDRPan(R) and CDRPanX(TM), respectively.
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. Furthermore, the FDA generally
requires that medical devices not cleared for marketing in the United States
receive FDA marketing clearance before they are exported, unless an export
certification has been granted.
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
7
enforces additional regulations regarding the safety of equipment utilizing
x-rays. Various states also impose their own regulations.
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 before marketing a new medical device, are potentially very
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.
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 its future products, as necessary. There can be no assurance
that the Company will file such 510(k) applications and/or will obtain
pre-market clearance for any 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-market clearance,
if obtained, may be subject to conditions on marketing or manufacturing, which
could impede the Company's ability to manufacture and/or market the product
and/or adversely affect its profitability. If the Company is unable to obtain
regulatory clearance for and market new products and enhancements to existing
products, it will have a material adverse effect on the Company.
The Company's CDR(R) wireless product complies with the relevant technical
standards established by the U.S. Federal Communications Commission ("FCC"), as
set forth in FCC Rule 15.249. CDR Wireless(TM) is not subject to any wireless or
transmission licensing requirements.
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 discussed above, 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.
The Company's dental products bear the "CE Mark," a European Union symbol
of compliance with quality assurance standards and with the European Union's
Medical Device Directive ("MDD"). In order to market the Company's products in
the member countries of the European Union, it is necessary that those products
conform to these standards and the MDD. It is also necessary that the Company's
products comply with any revisions which may be made to the standards or the
MDD. To date, the Company has maintained such compliance on its core products.
The Company has developed and implemented a quality assurance program in
accordance with the guidelines of the International Quality Standard, ISO 9001.
In August 1998, the Company was granted ISO 9001
8
certification. The Company's products also comply with the requirements for the
"UL" 60601-1 (formerly UL 2601-1) (U.S.A.) and "CSA" C22.2 No. 601-1 (Canada)
standards, the applicable standards for obtaining North American safety marking
from an "NRTL" (Nationally Recognized Testing Lab). All of the Company's current
products either bear an NRTL marking or are in the process of obtaining such
marking.
PRODUCT LIABILITY 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 maintained or that it will be available on commercially
acceptable terms, or at all.
RESEARCH AND DEVELOPMENT
During fiscal 2005, 2004 and 2003, research and development expenses were
$4.9 million, $3.3 million and $2.6 million, respectively.
BACKLOG
The backlog of orders was approximately $1.0 million at June 6, 2005, $0.8
million at June 10, 2004, and $0.5 million at June 3, 2003. Orders included in
backlog may generally be cancelled or rescheduled by customers without
significant penalty.
EMPLOYEES
As of June 1, 2005, the Company had 139 full-time employees, engaged in
the following capacities: sales and marketing (44); general and administrative
(23); operations (44); and research and development (28). 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 April 2000, the Company and Patterson Dental Company entered into an
exclusive distribution agreement covering the United States and Canada; as of
May 1, 2000, the Company began marketing and selling its CDR(R) dental products
in the United States and Canada through Patterson. The Company believes that
Patterson has the largest direct sales force in the dental industry, totaling
nearly 1,300 sales representatives and equipment/software specialists serving
the United States and Canada.
The Company has 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.
The Company currently has 16 area sales manager ("ASM") territories
located throughout the United States and one in Canada to interface with and
assist Patterson in its sales effort; two individuals manage the ASM staff. In
addition, a sales and marketing support staff of seven, based at the Company's
offices in New York and at other locations throughout the United States,
supports the sales managers and the ASMs by planning events and product seminars
and developing promotional and marketing materials.
In the international market, the Company sells the CDR(R) system via
independent regional distributors. There are currently approximately 65
independent CDR(R) dealers, covering about 57 countries. A dedicated in-house
staff, as well as four individuals based in Europe, Asia and Latin America,
provide the foreign distributors with materials, sales support, technical
assistance and training, both in New York and abroad.
9
Our goal is to develop and introduce new technologies and products while
maintaining market leadership in our core domestic business, strengthening and
expanding our international distribution network and securing as many productive
sales channels as possible.
BMD / Fracture Risk Assessment
The Company currently sells the accuDEXA(R) primarily through a network of
manufacturer representatives. To date, accuDEXA(R) sales have taken place
primarily within the United States, with a relatively small number of sales
abroad. The primary end-users for accuDEXA(R) are primary care physicians,
including OB/GYN practices, and osteopathic and geriatric specialists.
COMPETITION
Competition relating to the Company's current products is intense and
includes various companies, both within and outside of the United States. Many
of the Company's competitors are large companies with financial, sales and
marketing, and other resources that are substantially greater than those of 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 of the Company or that would
otherwise render the Company's products obsolete or noncompetitive.
Dental Products
A number of companies currently sell intra-oral digital dental sensors
under various brand names. These include Eastman Kodak Co. ("Trophy"), Gendex
Dental Systems ("Visualix"), Dentrix Dental Systems, Inc. ("ImageRAYi"),
Provision Dental Systems, Inc. ("Dexis"), Sirona Dental Systems ("Sidexis") and
Suni Medical Imaging, Inc. In addition, Gendex, Air Techniques and Soredex
Corporation sell storage-phosphor based intra-oral dental systems. The Company
believes that its CDR 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 Gendex,
Henry Schein, Inc., Digital Doc and Air Techniques. Several companies, including
Kodak, Sirona, Instrumentarium Imaging, Panoramic Corporation and Planmeca,
manufacture digital panoramic dental devices.
BMD / Fracture Risk Assessment
Several companies including General Electric, Lunar, Hologic, Inc.,
Sunlight, Inc. and Norland are marketing competitive equipment, such as
peripheral ultrasound devices. A number of other companies market devices that
assess hand densitometry.
ITEM 2. PROPERTIES
The Company presently leases approximately 50,000 square feet of space in
Long Island City, New York. That lease expires in June 2007. The leased space
houses our executive offices, sales and marketing headquarters, research and
development laboratories and production and shipping facilities. The Company
believes that such space will be adequate for its needs for the foreseeable
future and that, if such space proves to be inadequate, it will be able to
procure additional or replacement space that will be adequate for its needs.
ITEM 3. LEGAL PROCEEDINGS
The Company and/or certain of its former officers are involved in the
matters described below:
In August 1999, the Company, through its outside counsel, contacted the
Division of Enforcement of the Securities and Exchange Commission ("SEC") to
advise it of certain matters related to the Company's restatement of earnings
for interim periods of fiscal 1999. The SEC subsequently conducted an
investigation of the Company and certain individuals, including current and
former officers and employees of the Company, pursuant to a Formal Order of
Investigation. The Company cooperated with the SEC staff throughout the course
of the investigation.
10
The Company has been informed that since January 2002 the SEC and/or the
United States Attorney's Office for the Southern District of New York have
served subpoenas upon and/or contacted certain individuals, including current
and former officers and employees of the Company, and a current Director, in
connection with this matter. On June 13, 2002, the Company was advised by
counsel to David Schick, the Company's former chief executive officer, that the
United States Attorney's Office for the Southern District of New York had
notified such counsel that Mr. Schick was a target of the United States
Attorney's investigation of this matter. The Company has cooperated with the SEC
staff and U.S. Attorney's Office.
On November 14, 2003, the SEC filed a civil action in the United States
District Court for the Eastern District of New York against the Company, its
former chief executive officer, and its former vice president of sales &
marketing. The SEC complaint alleges fraud, and books and records and reporting
violations under Sections 10(b), 13(a) and 13(b)(2) of the Securities Exchange
Act and various rules promulgated thereunder in connection with the financial
statements included in the Company's reports on Form 10-Q for the quarters ended
June 30, September 30 and December 31, 1998. The SEC complaint seeks to enjoin
the Company from future violations of those provisions of the Exchange Act and
the rules thereunder, as well as disgorgement of any allegedly ill-gotten gains,
which the Company does not believe to be material in amount. With respect to the
other defendants, the complaint seeks injunctive relief, civil penalties,
disgorgement and an officer/director bar.
The Company has had discussions with the Enforcement Staff of the SEC's
northeast regional office in an effort to resolve the complaint against the
Company, and the Company intends to continue such discussions. On May 4, 2005,
the Court ordered that discovery in this case be suspended until June 18, 2005
to permit the consideration of settlement proposals. Any settlement would
require approval by the Commission before it could become effective. There can
be no assurance that settlement discussions will continue and/or will be
successful.
During the three months ended December 31, 2004, the insurance coverage
available to the Company for legal fee reimbursements and indemnification costs
was fully depleted. If this matter remains unresolved, the Company will continue
to incur significant legal fees and may incur indemnification costs. However,
the Company believes that the magnitude of such expenditures will not adversely
affect its ongoing business operations.
The Company could become a party to a variety of legal actions (in
addition to that referred to above), such as employment and employment
discrimination-related suits, employee benefit claims, breach of contract
actions, tort claims, shareholder suits and intellectual property related
litigation. In addition, because of the nature of its business, the Company is
potentially subject to a variety of legal actions relating to its business
operations. Recent court decisions and legislative activity may increase the
Company's exposure for any of these types of claims. In some cases, substantial
punitive damages could be sought. The Company currently has insurance coverage
for some of these potential liabilities. Other potential liabilities may not be
covered by insurance, insurers may dispute coverage, or the amount of insurance
may not be sufficient to cover the damages awarded. In addition, certain types
of damages, such as punitive damages, may not be covered by insurance and
insurance coverage for all or certain forms of liability may become unavailable
or prohibitively expensive in the future.
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, 2005.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since January 30, 2002, the Company's Common Stock has been traded on the
over-the-counter Bulletin Board under the symbol "SCHK".
The following table sets forth, for the periods indicated, the high and
low bid prices of the Company's Common Stock as quoted on the over-the-counter
Bulletin Board for each of the fiscal quarters during the years ended March 31,
2005 and 2004.
11
Fiscal Year Ended March 31, 2005 High Low
-------------------------------- ------ -----
First Quarter ............................................ $13.95 $9.65
Second Quarter ........................................... $13.90 $8.55
Third Quarter ............................................ $16.50 $9.50
Fourth Quarter ........................................... $19.20 $14.90
Fiscal Year Ended March 31, 2004 High Low
-------------------------------- ------ -----
First Quarter ............................................ $8.80 $4.30
Second Quarter ........................................... $8.58 $6.85
Third Quarter ............................................ $8.40 $6.50
Fourth Quarter ........................................... $12.15 $7.05
On June 8, 2005, the closing bid and asked prices per share of the
Company's Common Stock, as quoted on the over-the-counter Bulletin Board, were
$19.20 and $19.35 per share, respectively. Such prices represent quotations
between dealers, without dealer mark-up, markdown or commission, and may not
represent actual transactions. On June 8, 2005, there were one hundred
forty-three (143) holders of record of the Company's Common Stock. However, the
Company believes that the number of beneficial owners of such stock is
substantially higher.
To date, the Company has retained its earnings to finance the growth and
development of the Company's business, and has not paid any dividends on its
Common Stock. The Company may consider paying dividends in the future, but
currently has no plans to do so. 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.
Equity Compensation Plan Information
The following table sets forth the following information, as of March 31,
2005, with respect to compensation plans (including individual compensation
arrangements) under which equity securities of the Company are authorized for
issuance: the number of securities to be issued upon the exercise of outstanding
options, warrants and rights; the weighted-average exercise price of such
options, warrants and rights; and, other than the securities to be issued upon
the exercise of such options, warrants and rights, the number of securities
remaining available for future issuance under the plan:
------------------------------------------------------------------------------------------------------------
(a) (b) (c)
------------------------------------------------------------------------------------------------------------
Plan category Number of Weighted-average Number of securities
securities to be exercise price remaining available
issued upon of outstanding for future issuance
exercise of options, under equity
outstanding warrants and compensation plans
options, rights (excluding
warrants and securities reflected
rights in column (a) )
------------------------------------------------------------------------------------------------------------
Equity compensation plans approved 2,728,747 $5.52 968,753
by security holders
------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved
by security holders -- -- --
------------------------------------------------------------------------------------------------------------
Total 2,728,747 $5.52 968,753
------------------------------------------------------------------------------------------------------------
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 15 of this
Report.
12
Schick Technologies, Inc.
Selected Financial Data
Year ended March 31,
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
(in thousands, except per share data)
Statement of Operations Data:
Revenue, net $ 52,418 $ 39,393 $ 29,817 $ 24,399 $ 21,252
Total cost of sales 14,857 11,495 9,628 8,832 10,306
-------- -------- -------- -------- --------
Gross profit 37,561 27,898 20,189 15,567 10,946
Operating expenses:
Selling and marketing 7,107 6,118 5,911 5,291 5,314
General and administrative 6,851 6,291 5,041 4,148 4,161
Research and development 4,812 3,301 2,598 2,176 2,220
Bad debt expense (recovery) -- 105 -- (93) (454)
Abandonment of leasehold -- -- -- 118 275
-------- -------- -------- -------- --------
Total operating expenses 18,770 15,815 13,550 11,640 11,516
-------- -------- -------- -------- --------
Income (loss) from operations 18,791 12,083 6,639 3,927 (570)
Total other income (expense) 468 109 (174) (839) (1,068)
-------- -------- -------- -------- --------
Income (loss) before income taxes 19,259 12,192 6,465 3,088 (1,638)
Income tax provision(benefit) 7,187 (5,917) (5,360) -- --
-------- -------- -------- -------- --------
Net income (loss) $ 12,072 $ 18,109 $ 11,825 $ 3,088 $ (1,638)
======== ======== ======== ======== ========
Basic earnings (loss) per share $ 0.78 $ 1.69 $ 1.17 $ 0.30 $ (0.16)
======== ======== ======== ======== ========
Diluted earnings (loss) per share $ 0.70 $ 1.07 $ 0.78 $ 0.26 $ (0.16)
======== ======== ======== ======== ========
As of March 31,
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
Balance Sheet Data:
Cash and cash equivalents $ 39,725 $ 20,734 $ 7,100 $ 1,622 $ 2,167
Working capital / (deficiency) 47,109 27,400 9,157 1,133 (1,586)
Total assets 57,534 42,743 22,610 11,957 12,646
Long-term obligations -- -- -- 2,039 4,080
Total liabilities 8,285 7,715 7,747 9,057 12,835
Retained earnings (accumulated deficit) 2,324 (9,748) (27,857) (39,682) (42,770)
Stockholders' equity 49,249 35,028 14,863 2,900 (189)
13
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 99.1 to this Report.
Overview
The Company designs, develops and manufactures digital imaging systems for
the worldwide dental and medical markets. In the field of dentistry, the Company
currently manufactures and markets a variety of digital imaging products
including an intra-oral digital radiography system (CDR(R) and CDR
Wireless(TM)), a digital panoramic radiography sensor (CDRPan(R)) and integrated
device (CDRPanX(TM)), an intra-oral camera system (USBCam(R)), and a DC dental
x-ray generator (SDX(TM)). The Company also manufactures and sells a bone
mineral density assessment device (accuDEXA(R)) which it developed to assist in
the diagnosis and treatment of osteoporosis. The Company's revenues during
fiscal 2005 were derived primarily from sales of its CDR(R) system.
The Company records sales revenue upon shipment to international dealers
and to end-users in the U.S. In the case of sales made to Patterson, revenue
arising from inventory in Patterson's possession is recorded in deferred
revenue, and revenue is recognized upon shipment from Patterson's distribution
centers. 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
period of up to two years. The Company utilizes Patterson as the exclusive
distributor for non-governmental sales of its dental products within the United
States and Canada. The Company's accuDEXA(R) product is sold through a network
of independent sales representatives in the United States. International sales
of the Company's products are made primarily through a network of independent
foreign distributors. In fiscal 2005, 2004, and 2003, sales to customers within
North America were approximately 73%, 75% and 78% of total revenues,
respectively. The Company's international sales are principally made to
distributors in Europe and Asia. The Company's sales are primarily denominated
in United States dollars.
Cost of sales consists of raw materials, manufacturing labor, facilities
overhead, product support, and warranty costs. Excess and obsolete inventory
expense relates to the overstocking or obsolescence of various dies and/or
obsolete x-ray inventory that the Company may not use or otherwise salvage.
Operating expenses include selling and marketing expenses, general and
administrative expenses and research and development expenses, and bad debt
expense. 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. Bad debt expense is a result of
product shipments that were determined to be uncollectible or not collected. Bad
debt recovery is a result of the receipt, in cash, for shipments previously
deemed uncollectible.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the Company to make
estimates and assumptions that affect amounts reported in the accompanying
consolidated financial statements and related footnotes. These estimates and
assumptions are evaluated on an ongoing basis based on historical developments,
market conditions, industry trends and other information the Company believes to
be reasonable under the circumstances. There can be no assurance that actual
results will conform to the Company's estimates and assumptions, and that
reported results of operations will not be materially adversely affected by the
need to make accounting adjustments to reflect changes in these estimates and
assumptions from time to time. The following policies are those that the Company
believes to be the most sensitive to estimates and judgments. The Company's
significant accounting policies are more fully described in Note 1 to the
consolidated statements.
14
Revenue recognition
The Company recognizes revenue when each of the following four criteria
are met: 1) a contract or sales arrangement exists; 2) products have been
shipped and title has been transferred or services have been rendered; 3) the
price of the products or services is fixed or determinable; and 4)
collectibility is reasonably assured. Revenues from sales of the Company's
hardware and software products are recognized at the time of shipment to
customers, and when no significant obligations exist and collectibility is
reasonably assured. The Company provides its exclusive domestic distributor with
a 30-day return policy but allows for an additional 15 days, and accordingly
recognizes allowances for estimated returns pursuant to such policy at the time
of shipment. Revenue from shipments to foreign customers is recognized at the
time of shipment in accordance with foreign sales orders. With respect to
products shipped to its exclusive domestic distributor, the Company defers
revenue until Patterson ships such inventory from its distribution centers.
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. Deferred revenues relate to extended warranty fees paid by
customers prior to the performance of extended warranty services, and to certain
shipments to Patterson, as described above.
Accounts receivable
The Company primarily sells on open credit terms to Patterson and to the
U.S. Government, and upon signed purchase orders to hospitals and universities.
The Company's international sales are generally prepaid, guaranteed by
irrevocable letter of credit or underwritten by credit insurance. In a limited
number of cases, international dealers are granted open credit terms. Warranty
shipments are prepaid. Revenue from customers is subject to agreements allowing
limited rights of return. Accordingly, the Company reduces revenue recognized
for estimated future returns. The estimate of future returns is adjusted
periodically based upon historical rates of return. The Company provides an
allowance for doubtful accounts based upon its analysis of aged accounts
receivable.
Inventories
Inventories are stated at the lower of cost or market. The cost of
inventories is determined principally on the standard cost method for
manufactured goods and on the average cost method for other inventories, each of
which approximates actual cost on the first-in, first-out ("FIFO") method. The
Company establishes reserves for inventory estimated to be obsolete,
unmarketable or slow moving inventory equal to the difference between the cost
of inventory and estimated market value based upon assumptions about future
demand and market conditions. If actual market conditions are less favorable
than those anticipated or if changes in technology affect the Company's
products, additional inventory reserves could be required.
Goodwill and other long-lived assets
Effective April 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and other Intangible
Assets". This statement requires that the amortization of goodwill be
discontinued and instead an annual impairment approach be applied. The
impairment tests were performed upon adoption and are performed annually
thereafter (or more often if adverse events occur) and will be based upon a fair
value approach rather than an evaluation of undiscounted cash flows. If the
asset has been impaired, the resulting charge reflects the excess of the asset's
carrying value over the recalculated goodwill. Impairment tests performed in
August 2002, March 2003, March 2004 and April 2005 indicated that goodwill had
not been impaired.
Other long-lived assets, such as patents and property and equipment, are
amortized or depreciated over their estimated useful lives. These assets are
reviewed for impairment whenever events or circumstances provide evidence that
suggest that the carrying amount of the asset may not be recoverable, with
impairment being based upon an evaluation of the identifiable undiscounted cash
flows. If the asset has been impaired, the resulting charge reflects the excess
of the asset's carrying cost over its fair value.
If market conditions become less favorable, future cash flows, the key
variable in assessing the impairment of these assets, may decrease and as a
result the Company may be required to recognize impairment charges.
15
Deferred tax asset and income taxes
Income taxes are determined in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), which requires recognition of
deferred income tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income tax liabilities and assets are
determined based on the difference between financial statements and tax bases of
liabilities and assets using enacted tax rates in effect for the year in which
the differences are expected to reverse. SFAS 109 also provides for the
recognition of deferred tax assets if it is more likely than not that the assets
will be realized in future years. Through March 31, 2003, a valuation allowance
of $11.4 million was established for deferred tax assets for which it was not
more likely than not that the deferred tax asset would be realized. During the
year ended March 31, 2003 the Company reduced its valuation allowance by $5.8
million. At March 31, 2004, the Company reduced its valuation allowance to zero,
because it determined that it was more likely than not that the total deferred
tax asset would be realized. During fiscal 2005, 2004, and 2003, the Company's
utilization of its net operating losses resulted in a reduction of current taxes
in the amount of $6.8 million, $4.8 million and $2.7 million, respectively. In
assessing the valuation allowance, the Company considered future taxable income
and ongoing tax planning strategies and determined that it was more likely than
not that the deferred tax asset would be realized.
Warranty obligations
Products sold are generally covered by a warranty against defects in
material and workmanship for a period of up to two years. The Company accrues a
warranty reserve for estimated costs to provide warranty services. The Company
estimates costs to service warranty obligations based on historical experience
and expectation of future conditions. To the extent the Company experiences
increased warranty claim activity or increased costs associated with servicing
those claims, warranty accrual will increase, resulting in decreased gross
profit.
Stock-based compensation
Stock based compensation is accounted for under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. In February 2000, an executive was
awarded 75,000 shares of the Company's common stock, subject to a risk of
forfeiture, which vested as to 25,000 shares on each of December 31, 2000, 2001
and 2002. Upon the sale of any such vested shares, the employee is required to
pay the Company $1.32 per share sold within six months following such sale. The
Company recorded a note receivable, which is presented as a reduction of Paid in
Capital amounting to $99, relating to the stock issuance. The charge to
operations relating to this stock award is not material to the financial
statements. The Company determines the fair value of options issued based on the
intrinsic value method.
Litigation and contingencies
The Company and its subsidiary are from time to time parties to lawsuits
and regulatory administrative proceedings arising out of their respective
operations. The Company records liabilities when a loss is probable and can
reasonably be estimated. The Company believes it has estimated appropriately in
the past; however court decisions and/or other unforeseen events could cause
liabilities to be incurred in excess of estimates.
Contractual Obligations and Commercial Commitments
The following table summarizes contractual obligations and commercial
commitments at March 31, 2005:
================================================================================
PAYMENTS DUE BY PERIOD (in thousands)
-----------------------------------------------
Less
CONTRACTUAL than 1 1-3 4-5 After 5
OBLIGATIONS Total year years years years
--------------------------------------------------------------------------------
Operating leases $1,169 $ 506 $ 663 $ -- $ --
--------------------------------------------------------------------------------
Employment agreements 1,067 593 474 -- --
--------------------------------------------------------------------------------
Purchase obligations 850 850 -- -- --
--------------------------------------------------------------------------------
Consulting agreement 751 340 411 -- --
--------------------------------------------------------------------------------
Total Contractual
Cash Obligations $3,837 $2,289 $1,548 $ -- $ --
================================================================================
16
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,
2005 2004 2003
------ ------ ------
Revenue, net 100.0% 100.0% 100.0%
------ ------ ------
Total cost of sales 28.3% 29.2% 32.3%
------ ------ ------
Gross profit 71.7% 70.8% 67.7%
Operating expenses:
Selling and marketing 13.6% 15.5% 19.8%
General and administrative 13.1% 16.0% 16.9%
Research and development 9.2% 8.4% 8.7%
Bad debt expense -- 0.3% --
------ ------ ------
Total operating costs 35.8% 40.1% 45.4%
------ ------ ------
Operating income 35.8% 30.7% 22.3%
Other income (expense), net 0.9% 0.3% (0.6%)
------ ------ ------
Income before tax expense (benefit) 36.7% 30.9% 21.7%
------ ------ ------
Income tax expense (benefit), net 13.7% (15.0%) (18.0%)
------ ------ ------
Net income 23.0% 46.0% 39.7%
====== ====== ======
Fiscal Year Ended March 31, 2005 as Compared to Fiscal Year Ended March 31, 2004
We design, manufacture and sell innovative digital products for the dental
market. Our primary products are sensors that replace film in the x-ray process.
Growing acceptance of these products have resulted in double-digit revenue
growth in domestic and international markets. In fiscal 2005, we introduced the
SDX(TM), a DC x-ray generator designed to optimize wired and wireless digital
radiography.
During fiscal 2005, consolidation of the dental products market continued
with Danaher Corporation's February 2005 acquisition of Dexis, a seller of
dental digital radiography products. Previously, in March 2004, Danaher had
acquired Kavo, a manufacturer of capital dental equipment, and in February 2004,
it had acquired Gendex, a division of Dentsply International, Inc. which
manufactures dental imaging products. In addition, during fiscal 2004, Eastman
Kodak Company entered the digital dental market when it acquired PracticeWorks,
a practice management software company with a digital sensor manufacturing and
marketing subsidiary located in France. Management believes that the trend
towards consolidation in the marketplace is likely to continue into the
foreseeable future. The Company will consider acquisitions whenever appropriate.
Management believes that the consolidation of the market did not significantly
affect the Company's revenues or operating margins in fiscal 2005.
For the fiscal year ended March 31, 2005, the Company's domestic dental
product revenues increased 39% to $33.3 million, or 64% of revenue. Foreign
dental product revenues, principally from Europe and Asia, increased 41% to
$13.9 million, or 26% of revenue. Management believes that wider acceptance of
the Company's products as well as continued expansion of sales through our
exclusive domestic distributor and improvements in our international
distribution network are the primary factors underlying our improved
performance.
Operating expenses, with the exception of expenses related to compliance
with new internal control reporting requirements and expenses related to
research and development activity, declined as a percent of revenue as the
Company leveraged its fixed expense advantage. Income tax expense increased
significantly because of increasing profits and the prior year reduction of the
reserve for deferred income tax assets to zero. At
17
year end the Company had utilized all of its net operating loss carryover.
Total revenue increased $13.0 million (33%) to $52.4 million in fiscal
2005, from $39.4 million in fiscal 2004. The revenue increase was due to higher
sales of CDR(R) dental radiography products principally through expansion of
sales through the Company's exclusive domestic distributor, Patterson Dental
Company ("Patterson") and through foreign distributors, principally in Europe
and Asia. Total domestic revenues increased $9.0 million (31%) to $38.5 million
(73% of revenue) from $29.4 million (75% of revenue) in fiscal 2004. Total
international revenues increased $4.0 million (40%) to $13.9 million (27% of
revenue) from $9.9 million (25% of revenue) in fiscal 2004.
CDR(R) product revenue increased $13.4 million (40%) to $47.1 million (90%
of revenue) during fiscal 2005 from $33.7 million (86% of revenue) during fiscal
2004. AccuDEXA(R) product revenue decreased to $0.4 million from $0.6 million
(1% of revenue during each of fiscal 2005 and fiscal 2004, respectively) as a
result of a decline in the Company's sales of the product in fiscal 2005.
Warranty revenues decreased $0.2 million (4%) to $4.9 million (9% of revenue)
during fiscal 2005 from $5.1 million (13% of revenue) during fiscal 2004. This
decrease in warranty revenues results primarily from the continued transition of
Pre-Patterson legacy customers to Patterson for their service and warranty
needs.
Patterson revenue amounted to 61% and 55% of total revenue in fiscal 2005
and 2004, respectively. No other individual customer exceeded 10% of total
revenue. Overall sales returns remained under 1% of revenue in fiscal 2005 and
2004.
Total cost of sales for fiscal 2005 increased $3.4 million (29%) to $14.9
million (28% of revenue) from $11.5 million (29% of revenue) in fiscal 2004. The
relative cost of sales declined as a result of the Company's improved operating
efficiency and its ability to leverage relatively fixed overhead. This overall
improvement is net of lower gross margins from the Company's newest product
offerings as the Company seeks to expand its product base.
Selling and marketing expense for fiscal 2005 increased $1.0 million (16%)
to $7.1 million (14% of revenue) from $6.1 million (16% of revenue) in fiscal
2004. Increased sales and sales activities resulted in higher payroll and
commission expenses.
General and administrative expense for fiscal 2005 increased $0.6 million
(9%) to $6.9 million (13% of revenue) from $6.3 million (16% of revenue) in
fiscal 2004. Increases are principally the result of fees incurred to comply
with Sarbanes-Oxley Act internal control reporting requirements.
Research and development expense in fiscal 2005 increased $1.5 million
(46%) to $4.8 million (9% of revenue) from $3.3 million (8% of revenue) in
fiscal 2004. The increase is the result of higher payroll and research-materials
expenses that related to new and ongoing projects and to charges relating to the
Company's three-year consulting agreement with a former executive, who is a
current shareholder, entered into in May 2004.
Interest expense in fiscal 2005 decreased to zero from $0.2 million in
fiscal 2004 due to the Company's June 2003 prepayment of the outstanding balance
of its loan from Greystone Funding Corporation ("Greystone"). Interest income in
fiscal 2005 increased $0.3 million to $0.5 million as the Company increased the
amount of cash equivalents it held in short-term investments.
Income before income taxes in fiscal 2005 increased $7.1 million (58%) to
$19.3 million (37% of revenue) from 12.2 million (31% of revenue) in fiscal 2004
as a result of the items discussed above.
During fiscal 2005, income tax expenses increased $13.1 million to $7.2
million from a tax benefit of $5.9 million in fiscal 2004. In fiscal 2004, the
deferred tax valuation allowance was reduced to zero, more than offsetting that
year's current and deferred income tax charges. Consequently, net income for the
year ended March 31, 2004 was $11.4 million ($0.67 per diluted share) higher
than would otherwise have been reported if such reduction had not been recorded.
During fiscal 2005, the Company's utilization of its net operating losses
resulted in a reduction of current taxes of $6.9 million. At March 31, 2005, the
Company used all of its net operating loss carryforward. Tax credits
approximating $2.4 million are available to offset future income taxes.
As a result of all of the foregoing items, the Company's net income in
fiscal 2005 decreased by $6.0 million
18
(33%) to $12.1 million from $18.1 million in fiscal 2004.
Fiscal Year Ended March 31, 2004 as Compared to Fiscal Year Ended March 31, 2003
In fiscal 2004, we introduced the first digital wireless sensor and a
fully integrated digital panoramic machine. Continued acceptance of these and
other digital products is important to our success.
During fiscal 2004, Eastman Kodak Company entered the digital dental
market when it acquired PracticeWorks, a practice management software company
with a digital sensor manufacturing and marketing subsidiary located in France.
The entry of Kodak into the market did not adversely affect the Company's
revenues or operating margins in fiscal 2004.
Domestic dental product revenues increased 30% to $23.9 million, or 61% of
revenue. Foreign dental product revenues, principally from Europe and Asia,
increased 64% to $9.8 million, or 25% of revenue. Management believes that
continued improvement in the international distribution network and wider
acceptance of the Company's products were the key elements of improving
performance. The pace of our international revenue increase far exceeded the 15%
decline in the value of the U.S. dollar during the year.
Operating expenses, with the exception of legal fees, which are
principally related to the SEC/US attorney investigation and SEC civil action,
declined as a percent of revenue as the Company leveraged its fixed expense
advantage. After several years of increasingly profitable operations, the
Company reduced the reserve for deferred income taxes to zero and recorded a
$6.6 million tax benefit at March 31, 2004.
Total revenue increased $9.6 million (32%) to $39.4 million in fiscal 2004
from $29.8 million in fiscal 2003. The revenue increase was due to higher sales
of CDR(R) dental radiography products principally through expansion of sales
through its exclusive domestic distributor, Patterson, and through foreign
distributors, principally in Europe and Asia. Total domestic revenues increased
$5.8 million (24%) to $29.4 million (75% of revenue) from $23.6 million (79% of
revenue) in fiscal 2003. Total international revenues increased $3.8 million
(62%) to $9.9 million (25% of revenue) from $6.2 million (21% of revenue) in
fiscal 2003.
CDR(R) product revenue increased $9.3 million (38%) to $33.7 million (86%
of revenue) during fiscal 2004 from $24.4 million (82% of revenue) during fiscal
2003. AccuDEXA(R) product revenue was unchanged at $0.6 million (1% and 2% of
revenue during fiscal 2004 and fiscal 2003, respectively). Warranty revenues
increased $0.3 million (6%) to $5.1 million (13% of revenue) during fiscal 2004
from $4.8 million (16% of revenue) during fiscal 2003.
Patterson revenue amounted to 55% and 52% of total revenue in fiscal 2004
and 2003, respectively. No other individual customer exceeded 10% of total
revenue. Overall sales returns remained under 0.5% of revenue in fiscal 2004 and
2003.
Total cost of sales for fiscal 2004 increased $1.8 million (19%) to $11.5
million (29% of revenue) from $9.7 million (32% of revenue) in fiscal 2003. The
relative cost of sales declined as a result of the Company's improved operating
efficiency. The Company leveraged fixed overhead over the increase in revenue
while improved product mix resulted in higher margins. Additionally, product
improvements resulted in an overall reduction of expense in support of its
warranty obligations. The Company's provision for excess and obsolete inventory
decreased to 0.5% of net revenue in fiscal 2004 from 0.9% in fiscal 2003.
Selling and marketing expense for fiscal 2004 increased $0.2 million (3%)
to $6.1 million (16% of revenue) from $5.9 million (20% of revenue) in fiscal
2003. Increased sales and sales activities resulted in higher payroll and
commission expenses.
General and administrative expense for fiscal 2004 increased $1.3 million
(25%) to $6.3 million (16% of revenue) from $5.0 million (17% of revenue) in
fiscal 2003. Increases were principally the result of legal fees incurred in
connection with the SEC/US attorney investigation and other corporate business,
other professional fees, a non-cash payroll charge, higher payroll expense,
corporate governance costs and insurance expenses.
19
Research and development expense in fiscal 2004 increased $0.7 million
(27%) to $3.3 million (8% of revenue) from $2.6 million (9% of revenue) in
fiscal 2003. The increase was the result of higher payroll and
research-materials expenses related to new and ongoing projects.
Interest expense in fiscal 2004 decreased $0.1 million (44%) to $0.2
million from $0.3 million in fiscal 2003 due to the Company's June 2003
prepayment of the outstanding balance of its loan from Greystone. The prepayment
resulted in the write-off of $0.2 million of deferred interest expense in fiscal
2004. Interest income in fiscal 2004 increased $0.1million to $0.2 million as
the Company increased investment in bank certificates of deposit.
During fiscal 2004, the Company reduced its deferred tax valuation
allowance to zero and recorded a $6.6 million income tax benefit. The Company
reduced the valuation allowance because it believed it more likely than not that
the net operating loss carryforward would be realized. During fiscal 2004, the
Company's utilization of its net operating losses resulted in a reduction of
current taxes in the amount of $4.8 million.
As a result of all of the foregoing items, the Company's net income in
fiscal 2004 increased by $6.3 million (53%) to $18.1 million from $11.8 million
in fiscal 2003.
Liquidity and Capital Resources
At March 31, 2005, the Company had $39.7 million in cash and cash
equivalents, and working capital of $47.1 million, compared to $20.7 million in
cash and cash equivalents, and $27.4 million in working capital, at March 31,
2004. The increase in working capital is primarily attributable to the Company's
increased operating profit during fiscal 2005.
During fiscal 2005, cash provided by operations increased $5.2 million
(37%) to $19.0 million, as compared to $13.8 million during fiscal 2004.
Accounts receivable increased to $5.7 million at March 31, 2005, as compared to
$4.0 million at March 31, 2004, due to increased sales activity. The allowance
for doubtful accounts decreased $81, to $57, at March 31, 2005 from $138 at
March 31, 2004, due to a settlement between the Company and the single account
that had disputed the amount it owed to the Company. The amount due from
Patterson which was included in accounts receivable ($2.8 million at March 31,
2005) was fully collected after year-end. Inventories increased to $3.5 million
at March 31, 2005 compared to $3.1 million at March 31, 2004 due to products
introduced in fiscal 2005. The Company's capital expenditures increased to $0.6
million in fiscal 2005 from $0.3 million in fiscal 2004. The Company's capital
expenditures in fiscal 2005 and 2004 primarily consisted of tooling costs and
computer upgrades.
Management believes that its existing capital resources and other
potential sources of credit are adequate to meet its current cash requirements.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet financing arrangements or interests
in so-called special purpose entities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included as a separate section of this Annual
Report on Form 10-K, beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DATA
None.
20
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and
principal accounting officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a and 15d-15(e) under the
Securities and Exchange Act of 1934), as of March 31, 2005. Based upon this
evaluation, our chief executive officer and principal accounting officer
concluded that, as of March 31, 2005, the Company's disclosure controls and
procedures: (1) were designed to ensure that material information relating to
the Company, including our consolidated subsidiary, is made known to our chief
executive officer and principal accounting officer by others within those
entities, particularly during the period in which this report was being
prepared, and (2) were effective, in that they provide reasonable assurance that
information required to be disclosed by the Company in the reports we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over the Company's financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act). Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Our management assessed the effectiveness of the Company's internal
control over financial reporting as of March 31, 2005. In making this
assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment, management believes that,
as of March 31, 2005, our internal control over financial reporting is effective
based on those criteria.
The independent registered public accounting firm which audited the
Company's financial statements included in this Form 10-K has issued an
attestation report on management's assessment of the Company's internal control
over financial reporting. The attestation report appears below.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Schick Technologies, Inc.
We have audited management's assessment, included in the accompanying
Management's Annual Report on Internal Control over Financial Reporting, that
Schick Technologies, Inc. and subsidiary (the "Company") maintained effective
internal control over financial reporting as of March 31, 2005, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the Company's internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A Company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
21
accordance with accounting principles generally accepted in the United States of
America. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate.
In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of March 31, 2005, is
fairly stated, in all material respects, based on the COSO criteria. Also in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2005, based on the COSO
criteria.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of the Company as of March 31, 2005 and 2004 and the related consolidated
statements of income, changes in stockholder's equity and cash flows for each of
the three years in the period ended March 31, 2005 and financial statement
schedule as of and for the three years ended March 31, 2005 of the Company, and
our report dated May 13, 2005 expressed an unqualified opinion on those
financial statements and financial statements schedule.
/s/ Grant Thornton LLP
New York, New York
May 13, 2005
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in
rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
quarter ended March 31, 2005 that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The Directors of the Company are as follows:
Euval Barrekette, Ph.D. Age 74, has served as a Director of the Company since April 1992 and as a member
of the Executive Compensation Committee of the Board of Directors since November
2002. Dr. Barrekette's current term on the Board expires at the Company's Annual
Meeting of Stockholders in 2005. Dr. Barrekette is a licensed Professional
Engineer in New York State. Since 1986 Dr. Barrekette has been a consulting
engineer and physicist. From 1984 to 1986 Dr. Barrekette was Group Director of
Optical Technologies of the IBM Large Systems Group. From 1960 to 1984 Dr.
Barrekette was employed at IBM's T.J. Watson Research Center in various
capacities, including Assistant Director of Applied Research, Assistant Director
of Computer Science, Manager of Input/Output Technologies and Manager of Optics
and Electrooptics. Dr. Barrekette holds an A.B. degree from
22
Columbia College, a B.S. degree from Columbia University School of Engineering,
an M.S. degree from its Institute of Flight Structures and a Ph.D. from the
Columbia University Graduate Faculties. Dr. Barrekette is a fellow of the
American Society of Civil Engineers, a Senior Member of the Institute of
Electrical & Electronics Engineers, and a member of The National Society of
Professional Engineers, The New York State Society of Professional Engineers,
The Optical Society of America and The New York Academy of Science. Dr.
Barrekette is the brother-in-law of Dr. Allen Schick.
William K. Hood Age 81, has served as Chairman of the Board of Directors since June 2004, as a
Director of the Company and as Chairman of the Audit Committee of the Board of
Directors since February 2002, as a member of the Executive Compensation
Committee of the Board of Directors since November 2002, as a member of the
Special Litigation Committee of the Board of Directors since September 2003, and
as a member of the Nominating Committee of the Board of Directors since
September 2004. Mr. Hood's current term on the Board expires at the Company's
Annual Meeting of Stockholders in 2007. From 1989 to 1996, Mr. Hood served as a
consultant to Harlyn Products, Inc. and as a member of its Board of Directors.
From 1983 to 1988, he was Senior Vice-President of American Bakeries Company.
From 1981 to 1983, Mr. Hood served as Dean of the Chapman University School of
Business and Management. From 1972 to 1980, he was President and Chief Executive
Officer of Hunt-Wesson Foods, Inc. Mr. Hood is currently a Trustee of Chapman
University.
Arthur D. Kowaloff Age 58, has served as a Director of the Company since October 2004 and as a
member of the Audit Committee of the Board of Directors, the Executive
Compensation Committee of the Board of Directors, and Chairman of the Special
Litigation Committee of the Board of Directors since November 2004. Mr.
Kowaloff's current term on the Board expires at the Company's Annual Meeting of
Stockholders in 2005. From 1998 to 2003, Mr. Kowaloff served as a Managing
Director of BNY Capital Markets, Inc. From 1991 to 1998, he was Chief Operating
Officer and Senior Managing Director of Patricof & Company Capital Corporation.
Prior to that, Mr. Kowaloff was an attorney at the New York City firm of Willkie
Farr & Gallagher, where he served as Senior Partner and Executive Committee
Member and specialized in corporate and securities law and mergers and
acquisitions. Mr. Kowaloff is currently President and Director of the PBP
Foundation of New York and a Director of the Orange County Capital Development
Corporation. Mr. Kowaloff holds a Juris Doctor degree from Yale Law School.
Curtis M. Rocca III Age 42, has served as a Director of the Company and as a member of the Audit
Committee of the Board of Directors since May 2002, as Chairman of the Executive
Compensation Committee of the Board of Directors since November 2002, as a
member of the Special Litigation Committee of the Board of Directors since
September 2003 and as a member of the Nominating Committee of the Board of
Directors since September 2004. Mr. Rocca's current term on the Board expires at
the Company's Annual Meeting of Stockholders in 2007. Since 2000, Mr. Rocca has
been the Managing Partner of Douglas, Curtis & Allyn, LLC. From 1998 to 2000, he
served as Chief Executive Officer of Dental Partners, Inc. From 1990 to 1998,
Mr. Rocca was Chairman and Chief Executive Officer of Bio-Dental Technologies
Corp. (NASDAQ: BDTC).
Allen Schick, Ph.D. Age 70, has served as a Director of the Company since April 1992, and as a
member of the Executive Compensation Committee of the Board of Directors since
November 2002. Dr. Schick's current term on the Board expires at the Company's
Annual Meeting of Stockholders in 2006. Since 1981, Dr. Schick has been a
professor at the University of Maryland and, in 2000, was elected "Distinguished
University Professor", a title reserved for fewer than 2% of the faculty. Since
23
1988, Dr. Schick has been a Visiting Fellow at the Brookings Institution. Dr.
Schick holds a Ph.D. degree from Yale University. Dr. Schick is the
brother-in-law of Dr. Barrekette.
Jeffrey T. Slovin Age 40, has served as the Company's Chief Executive Officer since June 2004 and
as its President since December 1999. Mr. Slovin has also served as a Director
of the Company since December 1999. In addition, from November 2001 to June 15,
2004, Mr. Slovin served as the Company's Chief Operating Officer. Mr. Slovin's
current term on the Board expires at the Company's Annual Meeting of
Stockholders in 2007. Since November 2002, Mr. Slovin has been a member of the
Board of Directors of Electronic Global Holdings Ltd. From 1999 to November
2001, Mr. Slovin was a Managing Director of Greystone & Co., Inc. From 1996 to
1999, Mr. Slovin served in various executive capacities at Sommerset Investment
Capital LLC, including Managing Director, and as President of Sommerset Realty
Investment Corp. During 1995, Mr. Slovin was a Manager at Fidelity Investments
Co. From 1991 to 1994, Mr. Slovin was Chief Financial Officer of Sports Lab USA
Corp. and, from 1993 to 1994, was also President of Sports and Entertainment
Inc. From 1987 to 1991, Mr. Slovin was an associate at Bear Stearns & Co., Inc.,
specializing in mergers and acquisitions and corporate finance. Mr. Slovin holds
an MBA degree from Harvard Business School.
(b) The following table shows the names and ages of all executive officers of
the Company, the positions and offices held by such persons and the period
during which each such person has served as an officer. The term of office of
each person is generally not fixed since each person serves at the discretion of
the Board of Directors of the Company.
Officer
Name Age Position Since
---- ----- ------------ -------
Jeffrey T. Slovin........ 40 Chief Executive Officer, President 1999
and Director
Michael Stone............ 52 Executive Vice-President of Sales 2000
and Marketing
Stan Mandelkern.......... 45 Vice President of Engineering 1999
Ari Neugroschl........... 34 Vice President of Management 2000
Information Systems
Zvi N. Raskin............ 42 Secretary and General Counsel 1992
Will Autz................ 51 Vice President of Manufacturing 2003
Ronald Rosner............ 58 Director of Finance and
Administration 2000
The business experience of each of the executive officers who is not a
Director is set forth below.
MICHAEL STONE has served as the Company's Executive Vice President of Sales and
Marketing since September 2000 and as the Company's Vice President of Sales and
Marketing from January 2000 to September 2000. From September 1993 to January
2000, Mr. Stone was General Manager of the Dental Division of Welch-Allyn
Company, and from October 1989 to September 1993 was Director of Marketing for
Welch-Allyn. Mr. Stone holds an MBA degree from the University of Rochester.
STAN MANDELKERN has served as the Company's Vice President of Engineering since
November 1999. From 1998 to 1999, Mr. Mandelkern was the Company's Director of
Electrical Engineering, and was a Senior Electrical Engineer at the Company from
1997 to 1998. From 1996 to 1997, Mr. Mandelkern was employed at Satellite
Transmission Systems as Project Leader for the Digital Video Products Group.
From 1989 to 1996, Mr. Mandelkern held various design and management positions
at Loral Corp. Mr. Mandelkern holds an M.S. Degree in electrical engineering
from Syracuse University.
24
ARI NEUGROSCHL has served as the Company's Vice President of Management
Information Systems since July 2000. From November 1997 to July 2000, Mr.
Neugroschl was the Company's Director of Management Information Systems, and
from February 1996 to November 1997 he served as the Company's Director of
Customer Service and Support. Mr. Neugroschl holds a B.S. in Economics from
Yeshiva University.
ZVI N. RASKIN has served as Secretary of the Company since April 1992 and as
General Counsel of the Company since September 1995. From April 1992 to May
1996, Mr. Raskin was a Director of the Company. Mr. Raskin is admitted to
practice law before the Bars of the State of New York, the United States
District Courts for the Southern and Eastern Districts of New York and the
United States Court of Appeals for the Second Circuit. From 1992 to 1995, Mr.
Raskin was a senior associate at the New York law firm of Townley & Updike. Mr.
Raskin holds a J.D. degree from Yale Law School.
WILL AUTZ has served as the Company's Vice President of Manufacturing since
January 2003. From January 2000 to December 2002, Mr. Autz was the Company's
Director of Manufacturing. From 1996 to 1999, Mr. Autz was the Manager of
Manufacturing Engineering at Trident International Inc., a division of Illinois
Tool Works Inc. From 1991 to 1996, Mr. Autz was the Director of Manufacturing &
Manufacturing Engineering at General Signal Networks, a division of General
Signal Inc. Mr. Autz holds a BS in Electromechanical Technology from the New
York Institute of Technology and is a member of the American Society of
Manufacturing Engineers.
RONALD ROSNER has served as the Company's Director of Finance and Administration
since August 2000. From March 1999 to August 2000, Mr. Rosner served the Company
in several senior accounting and financial capacities. From October 1998 to
February 1999, Mr. Rosner was a Consultant at Mercantile Ship Corporation, and
from April 1997 to October 1998 was the CFO at Coast MFG. Mr. Rosner holds a
B.S. degree in Accounting from Brooklyn College and has been a Certified Public
Accountant in the State of New York since May 1972. Prior to 1999, for a period
of approximately four years, Mr. Rosner was an audit manager with the
predecessor to Ernst & Young LLP.
(c) Not applicable.
(d) Family Relationships
See Item 10(a).
(e) Business Experience
See Items 10(a) and 10(b).
(f) Involvement in Certain Legal Proceedings
There are no legal proceedings involving any of the Company's Directors or
Officers which are reportable hereunder.
Audit Committee Financial Experts
The Company's Board of Directors has determined that three members of the
Audit Committee, Mr. Hood, Mr. Rocca and Mr. Kowaloff, are "independent
directors" and "audit committee financial experts," as those terms are defined
by the Securities and Exchange Commission.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Commission. Such executive officers and
directors and greater than 10% beneficial owners are required by the regulations
of the Commission to furnish the Company with copies of all Section 16(a)
reports they file.
Based solely on a review of the copies of such reports furnished to the
Company and/or written representations from executive officers and directors,
the Company believes that all Section 16(a) filing
25
requirements applicable to its executive officers and directors and greater than
10% beneficial owners were complied with.
Code of Ethics
On June 2, 2004, by resolution of its Board of Directors, the Company
adopted a code of ethics governing the conduct of Company personnel, including
its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions. A
copy of the current code of ethics is available on the Company's Internet
website at http://www.schicktech.com. In addition, a copy of the code may be
obtained by shareholders upon request by contacting Michael Friedlander,
Associate General Counsel, at 718-937-5765.
In the event that any amendment is made to the code of ethics, and such
amendment is applicable to the Company's principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, the Company shall disclose the nature of any such
amendment on its Internet website within five business days following the date
of the amendment. In the event that the Company grants a waiver, including an
implicit waiver, from a provision of the code of ethics, to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, the Company shall disclose
the nature of any such waiver, including the name of the person to whom the
waiver is granted and the date of such waiver, on its Internet website within
five business days following the date of the waiver. The Company's Internet
website address is http://www.schicktech.com.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
received for the fiscal years ended March 31, 2005, 2004 and 2003 by the
Company's chief executive officer and each of the four most highly compensated
executive officers of the Company whose total salary and other compensation
exceeded $100,000 (the "Named Executives") for services rendered in all
capacities (including service as a director of the Company) during the year
ended March 31, 2005.
Summary Compensation Table
Annual Long-Term
Compensation Compensation Awards
------------ -------------------
Other
Annual Securities All Other
Name and Principal Fiscal Compensa- Underlying Compensa-
Position Year Salary ($) Bonus ($) tion (1) Options (2) tion($) (3)
--------------------------------------------------------------------------------------------------------------
Jeffrey T. Slovin 2005 313,561 243,750 -- 400,000 13,519
Chief Executive Officer 2004 266,378 100,000 -- 7,318 5,128
and President 2003 246,646 90,463 -- 8,502 6,710
-----------------------------------------------------------------------------------------------------------
Michael Stone 2005 243,578 187,500 -- 150,000 5,146
Executive Vice President of 2004 224,700 68,552 -- 6,851 5,023
Sales and Marketing 2003 212,487 45,232 -- 7,439 5,894
-----------------------------------------------------------------------------------------------------------
Zvi N. Raskin, Esq. 2005 195,152 17,198 -- 5,800 4,605
General Counsel and 2004 235,532 13,530 -- 7,111 5,068
Secretary 2003 222,690 28,025 -- 7,793 5,078
-----------------------------------------------------------------------------------------------------------
Stan Mandelkern 2005 189,166 98,448 -- 38,000 5,162
Vice President of 2004 172,895 35,031 -- 6,606 5,057
Engineering 2003 163,241 5,952 -- 7,240 4,081
-----------------------------------------------------------------------------------------------------------
Ronald Rosner 2005 164,884 14,558 -- 6,000 4,346
Director of Finance 2004 160,538 8,968 -- 4,726 4,146
and Administration 2003 143,846 5,287 -- 6,420 3,596
-----------------------------------------------------------------------------------------------------------
David B. Schick 2005 72,739(4) -- -- -- 270,986(5)
Former Chief Executive Officer 2004 266,185 100,000 -- 7,379 5,121
and Former Chairman of the Board 2003 246,540 90,463 -- 8,572 6,708
-----------------------------------------------------------------------------------------------------------
26
(1) Does not include other compensation if the aggregate amount thereof does
not exceed the lesser of either $50,000 or 10% of the total annual salary
and bonus for the named officer.
(2) Represents options to purchase shares of Common Stock granted during
fiscal 2005, 2004 and 2003, pursuant to the Company's 1996 Employee Stock
Option Plan.
(3) Reflects amounts contributed by the Company in the form of matching
contributions to the Named Executive's Savings Plan account during fiscal
2005, 2004 and 2003, as well as consulting fees paid by the Company, in
the case of Mr. Schick. See Note 5, below.
(4) Salary in the amount of $72,739 was paid to Mr. Schick during the period
of April 1, 2004 through June 15, 2004, when he was the Company's CEO.
(5) Consulting fees in the amount of $269,167 were paid to Mr. Schick during
the period of June 16, 2004 through March 31, 2005, pursuant to the
Consulting and Non-Competition Agreement with the Company, as described
below. See "Employment Agreements and Termination of Employment
Arrangements."
Employment Agreements and Termination of Employment Arrangements
In June, 2004, the Company entered into a three-year employment agreement
with Jeffrey T. Slovin. Pursuant to the Agreement, Mr. Slovin is employed as the
Company's Chief Executive Officer and President. Mr. Slovin's annual base salary
is $325,000, $337,000 and $350,000, respectively, during each year of the
initial 3-year term of the Agreement. In addition to base salary, Mr. Slovin is
eligible to receive a yearly bonus payment based on the Company's year-over-year
Earnings-Per-Share growth, as defined in the Agreement. Pursuant to the
Agreement, Mr. Slovin was also awarded 400,000 employee stock options which vest
in equal monthly increments over a period of 48 months. Additionally, under the
Agreement, all Company stock options held by Mr. Slovin will immediately vest in
the event that the Company has a change in control or is acquired by another
company or entity, or, under certain circumstances, if Mr. Slovin is terminated
from employment without cause. In addition, if Mr. Slovin is terminated without
cause, the Agreement provides that he shall receive severance payments equal to
12 months' salary and, if applicable, a pro-rated bonus.
In June, 2004, the Company entered into a two-year employment agreement
with Michael Stone. Pursuant to the Agreement, Mr. Stone is employed as the
Company's Executive Vice President of Sales and Marketing. Mr. Stone's annual
base salary is $250,000 and $260,000, respectively, during each year of the
2-year term of the Agreement. In addition to base salary, Mr. Stone is eligible
to receive a yearly bonus payment based on the Company's year-over-year
Earnings-Per-Share growth, as defined in the Agreement. Pursuant to the
Agreement, Mr. Stone was also awarded 150,000 employee stock options which vest
in equal monthly increments over a period of 48 months. Additionally, under the
Agreement, all Company stock options held by Mr. Stone will immediately vest in
the event that the Company has a change in control or is acquired by another
company or entity, or, under certain circumstances, if Mr. Stone is terminated
from employment without cause. In addition, if Mr. Stone is terminated without
cause, the Agreement provides that he shall receive severance payments equal to
12 months' salary and, if applicable, a pro-rated bonus.
27
In May 2004, the Company entered into a Consulting and Non-Competition
Agreement with David Schick, effective upon Mr. Schick's resignation in June
2004 as the Company's Chief Executive Officer and Chairman of the Board. The
Agreement provided for the termination of Mr. Schick's previous employment
agreement with the Company, and for Mr. Schick to act as a consultant to the
Company for a period of three years. The Agreement provides that Mr. Schick is
responsible for performing certain specified duties, including the exploration
and evaluation of new product ideas and enhancements, evaluating technical
issues relating to potential products or entity acquisitions, conducting
research and development projects, and providing advice with respect to
intellectual property issues. The Agreement also provides that during the term
of the Agreement, and for a period of two years thereafter, Mr. Schick may not
compete with the Company or solicit Company employees, customers or vendors. In
addition, Mr. Schick is required to maintain the confidentiality of the
Company's proprietary information. Pursuant to the Agreement, Mr. Schick is
compensated, as full payment for the consulting services rendered to the Company
and for his non-competition and other covenants contained in the Agreement, in
the amount of $28,333 per month for the term of the Agreement. In addition, the
Agreement provides that 66,307 unvested employee stock options held by Mr.
Schick remain eligible for continued vesting.
Compensation of Directors
Directors who are also paid employees of the Company are not separately
compensated for any services they provide as directors. In fiscal 2005, each
director of the Company who was not a paid employee received an annual retainer
of $10,000 as well as $1,000 for each Board meeting attended in person and
$1,000 for each Audit Committee meeting attended in person. In addition to the
foregoing payments, each chairman of the Audit, Executive Compensation and
Special Litigation Committees received an annual retainer of $5,000; each member
of the Audit Committee received an annual retainer of $5,000; and the Chairman
of the Board of Directors received an annual retainer of $30,000. The Company
was permitted to, but did not, pay such fees in Common Stock. Moreover,
directors who are not paid employees of the Company are eligible to receive
annual grants of stock options under the Company's Directors Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee reviews and makes recommendations
regarding the compensation of top management and key employees of the Company,
including salaries and bonuses. The members of the Executive Compensation
Committee during the fiscal year ended March 31, 2005 were Euval Barrekette,
Jonathan Blank (who resigned from the Board in February 2005), William K. Hood,
Arthur D. Kowaloff (who was appointed to serve as a Member of the Executive
Compensation Committee in November 2004), Uri Landesman (who resigned from the
Board in February 2005), Curtis M. Rocca, who serves as Chairman, and Allen
Schick. None of such persons is an officer or employee, or former officer or
employee, of the Company or any of its subsidiaries. Mr. Schick and Mr.
Barrekette are brothers-in-law. No interlocking relationship existed during the
fiscal year ended March 31, 2005, between the members of the Company's Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company, nor had any such interlocking relationship
existed in the past.
Stock Option Grants
The following table sets forth information regarding grants of options to
purchase Common Stock made by the Company during the year ended March 31, 2005
to each of the Named Executives.
28
Option Grants in Fiscal 2005 (1)
Individual Grants
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration Grant Date
Name Granted Fiscal 2005 (2) ($/Share) Date Value (3)
---- ---------- --------------- --------- ---- ---------
Jeffrey T. Slovin 400,000 53.0% $10.50 6/9/14 $2,360,000
Michael Stone 150,000 19.9% $10.50 6/9/14 $888,000
Stan Mandelkern 38,000 5.0% (4) (4) $224,960
Zvi N. Raskin 5,800 .8% $10.36 11/4/14 $34,336
Ronald Rosner 6,000 .8% $10.36 11/4/14 $35,520
(1) One "Named Executive", the Company's Former CEO, David Schick, was not
granted any options during fiscal 2005.
(2) The Company granted employees options to purchase a total of 755,000
shares of Common Stock in fiscal 2005.
(3) The Company uses the Black-Scholes valuation model to determine the grant
date value. Assumptions used to calculate the grant date value include:
Volatility 70%
Risk-free interest rate 1.11%
Dividend yield None
Time of exercise 4 years
(4) 8,000 of Mr. Mandelkern's options listed in the above table have an
exercise price of $10.36 per share, and an expiration date of November 4,
2014. The remaining 30,000 of his listed options have an exercise price of
$10.50 per share, and an expiration date of June 9, 2014.
Option Exercises and Year-End Value Table
The following table sets forth information regarding the exercise of stock
options during fiscal 2005 and the number and value of unexercised options held
at March 31, 2005 by each Named Executive.
Aggregated Option Exercises in Fiscal 2005 and Fiscal 2005
Year-End Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised "In-the-Money"
Options at Options at
Shares March 31, 2005 March 31, 2005
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized ($) Unexercisable Unexercisable(1)
---- ----------- ------------ ------------- ----------------
Jeffrey T. Slovin -- -- 261,080/334,740 $3,474,422/2,308,907(2)
Michael Stone -- -- 193,762/130,735 2,861,839/926,708
Stan Mandelkern -- -- 74,059/46,575 1,073,995/358,421
Zvi N. Raskin -- -- 32,690/15,031 202,307/148,475
Ronald Rosner -- -- 42,809/11,685 666,965/106,934
David B. Schick 166,840 1,070,299 0/9,820 0/110,753
(1) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set
forth represent the difference between $17.25 per share, the closing price
per share on March 31, 2005, and the exercise price of the option,
multiplied by the applicable number of options.
29
(2) This chart does not include warrants issued to Mr. Slovin as designee of
Greystone. Such warrants are discussed in Item 12 below.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 8, 2005 by (i) each person
who is known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each director, (iii) each Named Executive of the Company and (iv)
all directors and executive officers of the Company as a group. Unless otherwise
noted, the stockholders listed in the table have sole voting and investment
powers with respect to the shares of Common Stock owned by them.
Number of Shares Percentage of
Name Beneficially Owned (1) Outstanding Shares
---- ---------------------- ------------------
Euval S. Barrekette 193,240(2) 1.2%
Greystone Funding Corp. (3) 4,527,716(4) 28.2%
William K. Hood 90,250(5) *
Arthur D. Kowaloff 15,000(6) *
Stan Mandelkern 81,260(7) *
Zvi N. Raskin 67,691(8) *
Curtis M. Rocca 40,000(9) *
Ronald Rosner 41,740(10) *
Allen Schick 497,484(11) 3.0%
David B. Schick 360,990(12) 2.2%
Jeffrey T. Slovin 1,090,144(13) 6.8%
Michael Stone 274,189(14) 1.7%
All current executive Officers
and Directors as a group (15) 2,601,490 15.4%
* Less than 1%
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes voting power and/or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable within
60 days of June 8, 2005 are deemed outstanding for computing the number
and the percentage of outstanding shares beneficially owned by the person
holding such options or warrants but are not deemed outstanding for
computing the percentage beneficially owned by any other person.
(2) Consists of 115,740 shares held by Dr. Barrekette; 2,500 shares issuable
upon the exercise of stock options granted to Dr. Barrekette in July,
1998; 30,000 shares issuable upon the exercise of stock options granted to
Dr. Barrekette in June, 2000, pursuant to the 1997 Directors Stock Option
Plan, 30,000 shares issuable upon the exercise of stock options granted to
Dr. Barrekette in December 2001, pursuant to the 1997 Directors Stock
Option Plan; and 15,000 shares issuable upon the exercise of stock options
granted to Dr. Barrekette in February 2004, pursuant to the 1997 Directors
Stock Option Plan.
(3) Greystone's address is 152 West 57th Street, New York, New York 10019.
(4) Consists of 3,975,216 restricted shares issued upon the cashless exercise
of 4,250,000 warrants in March 2004 and 552,500 restricted shares issued
upon the exercise, for cash, of 552,500 warrants in March 2004, all of
which are subject to a registration rights agreement.
(5) Consists of 30,250 shares held by Mr. Hood, 30,000 shares issuable upon
the exercise of stock options granted to Mr. Hood in February 2002,
pursuant to the 1997 Directors Stock Option Plan; 15,000 shares issuable
upon the exercise of stock options granted to Mr. Hood in February 2004,
pursuant to the 1997 Directors Stock Option Plan; and 15,000 shares
issuable upon the exercise of stock options granted to Mr. Hood in June
2004, pursuant to the 1997 Directors Stock Option Plan.
(6) Consists of 15,000 shares issuable upon the exercise of stock options
granted to Mr. Kowaloff in
30
November 2004, pursuant to the 1997 Directors Stock Option Plan.
(7) Consists of 1,000 shares held by Mr. Mandelkern; 2,000 shares issuable
upon the exercise of stock options granted to Mr. Mandelkern in April
1998; 5,000 shares issuable upon the exercise of stock options granted to
Mr. Mandelkern in July 1998; 2,560 shares issuable upon the exercise of
stock options granted to Mr. Mandelkern in March 1999; 29,120 shares
issuable upon the exercise of stock options granted to Mr. Mandelkern in
January 2000; 20,880 shares issuable upon the exercise of stock options
granted to Mr. Mandelkern in January 2001; 9,288 shares issuable upon the
exercise of stock options granted to Mr. Mandelkern in October 2001; 3,620
shares issuable upon the exercise of stock options granted to Mr.
Mandelkern in November 2002; 1,652 shares issuable upon the exercise of
stock options granted to Mr. Mandelkern in November 2003; and 7,500 shares
issuable upon the exercise of stock options granted to Mr. Mandelkern in
June 2004.
(8) Consists of 35,000 shares issued by the Company to Mr. Raskin on February
6, 2000, which were subject to restrictions on their sale or transfer
which have expired; 2,343 shares issuable upon the exercise of stock
options granted to Mr. Raskin in July 1997; 2006 shares issuable upon the
exercise of options granted to Mr. Raskin in April 1998; 5,000 shares
issuable upon the exercise of options granted to Mr. Raskin in July 1998;
10,000 shares issuable upon the exercise of options granted to Mr. Raskin
in October 1998, 3,306 shares issuable upon the exercise of options
granted to Mr. Raskin in October 2001; 6,250 shares issuable upon the
exercise of stock options granted to Mr. Raskin in December 2001; 2,008
shares issuable upon the exercise of options granted to Mr. Raskin in
November 2002; and 1,778 shares issuable upon the exercise of stock
options granted to Mr. Raskin in November 2003.
(9) Consists of 2,000 shares held by Mr. Rocca; 30,000 shares issuable upon
the exercise of stock options granted to Mr. Rocca in July 2002, pursuant
to the 1997 Directors Stock Option Plan; and 8,000 shares issuable upon
the exercise of stock options granted to Mr. Rocca in February 2004,
pursuant to the 1997 Directors Stock Option Plan.
(10) Consists of 15,000 shares issuable upon the exercise of stock options
granted to Mr. Rosner in March 2000; 15,000 shares issuable upon the
exercise of stock options granted to Mr. Rosner in January 2001; 7,348
shares issuable upon the exercise of stock options granted to Mr. Rosner
in October 2001; 3,210 shares issuable upon the exercise of stock options
granted to Mr. Rosner in November 2002; and 1,182 shares issuable upon the
exercise of stock options granted to Mr. Rosner in November 2003.
(11) Consists of 375,184 shares held jointly by Dr. Schick and his wife; 44,800
shares held by Dr. Schick as custodian for the minor children of David
Schick; 2,500 shares issuable upon the exercise of stock options granted
to Dr. Schick in July 1998; 30,000 shares issuable upon the exercise of
stock options granted to Dr. Schick in June, 2000, pursuant to the 1997
Directors Stock Option Plan; 30,000 shares issuable upon the exercise of
stock options granted to Dr. Schick in December 2001, pursuant to the 1997
Directors Stock Option Plan; and 15,000 shares issuable upon the exercise
of stock options granted to Dr. Schick in February 2004, pursuant to the
1997 Directors Stock Option Plan. Dr. Schick disclaims beneficial
ownership of the 44,800 shares held as custodian.
(12) Consists of 360,990 shares held by Mr. Schick, the former Chief Executive
Officer of the Company.
(13) Consists of 706,564 shares issued upon the cashless exercise of 750,000
warrants in November, 2004; 97,500 shares issuable upon the exercise of
warrants held by Mr. Slovin (which he received as designee of Greystone
Funding Corp.); 150,000 shares issuable upon the exercise of stock options
granted to Mr. Slovin in November 2001; 4,251 shares issuable upon the
exercise of stock options granted to Mr. Slovin in November 2002; 1,829
shares issuable upon the exercise of stock options granted to Mr. Slovin
in November 2003; 100,000 shares issuable upon the exercise of stock
options granted to Mr. Slovin in June 2004; and 30,000 shares issuable
upon the exercise of stock options granted to Mr. Slovin in June 2000 and
pursuant to the 1997 Directors Stock Option Plan .
(14) Consists of 71,050 shares held by Mr. Stone; 25,000 shares issuable upon
the exercise of stock options granted to Mr. Stone in January 2000; 25,000
shares issuable upon the exercise of stock options granted to Mr. Stone in
January 2001; 25,000 shares issuable upon the exercise of stock options
granted to Mr. Stone in December 2001; 10,207 shares issuable upon the
exercise of stock options granted to Mr. Stone in
31
October 2001; 75,000 shares issuable upon the exercise of stock options
granted to Mr. Stone in January 2002; 3,719 shares issuable upon the
exercise of stock options granted to Mr. Stone in November 2002; 1,713
shares issuable upon the exercise of stock options granted to Mr. Stone in
November 2003; and 37,500 shares issuable upon the exercise of stock
options granted to Mr. Stone in June 2004.
(15) Includes shares subject to options held by current officers and directors.
A table containing information, as of March 31, 2005, with respect to
compensation plans (including individual compensation arrangements) under which
equity securities of the Company are authorized for issuance is found above in
"Item 5 -- Market for Registrant's Common Equity and Related Stockholder Matters
-- Equity Compensation Plan Information."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 2004, the Company entered into a Consulting and Non-Competition
Agreement with David Schick, effective upon Mr. Schick's resignation in June
2004 as the Company's Chief Executive Officer and Chairman of the Board. The
Agreement provided for the termination of Mr. Schick's previous employment
agreement with the Company, and for Mr. Schick to act as a consultant to the
Company for a period of three years. Pursuant to the Agreement, Mr. Schick is
compensated, as full payment for the consulting services rendered to the Company
and for his non-competition and other covenants contained in the Agreement, in
the amount of $28,333 per month for the term of the Agreement. In addition, the
Agreement provides that 66,307 unvested employee stock options held by Mr.
Schick remain eligible for continued vesting. David Schick is the son of Dr.
Allen Schick and the nephew of Dr. Barrekette.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed by our auditors to date, for professional
services rendered for the audit of the Company's annual financial statements for
the years ended March 31, 2005 and, 2004, and for review of the financial
statements included in the Company's quarterly reports on Form 10-Q during those
fiscal years were $ 419,474 and $ 249,258, respectively. The audit fees billed
for the year ended March 31, 2005 included $150,000 for the attestation required
by Section 404 of the Sarbanes-Oxley Act.
Audit-Related Fees
For the years ended March 31, 2005 and 2004, the aggregate fees billed for
assurance and related services by our auditors that are reasonably related to
the performance of the audit or review of our financial statements were $8,778
and $9,210, respectively, relating to other services traditionally performed by
independent accountants.
Tax Fees
Fees billed by our auditors for the preparation of corporate income tax
returns were $3,732 and $29,380 for the years ended March 31, 2005 and 2004,
respectively.
All Other Fees
For the fiscal years ended March 31, 2005 and 2004, there were no fees
incurred by the Company for services rendered by the auditors to the Company,
other than the services reported above.
Pre-Approval Policies and Procedures
Prior to engaging our accountants to perform a particular service, our
Board of Directors obtains an estimate for the service to be performed. The
Audit Committee, in accordance with Company procedures and pursuant to its
Charter, approved all of the services described above.
32
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SCHICK TECHNOLOGIES, INC.
Index to Consolidated Financial Statements F-1
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of March 31, 2005 and 2004 F-3
Consolidated Statements of Income for the years ended
March 31, 2005, 2004 and 2003 F-4
Consolidated Statement of Changes in Stockholders' Equity
for the years ended March 31, 2005, 2004 and 2003 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 2005, 2004 and 2003 F-6
Notes to Consolidated Financial Statements F-7
Schedule II/Valuation and Qualifying Accounts F-19
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors
and Stockholders of Schick Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Schick
Technologies, Inc. and subsidiary (the "Company") as of March 31, 2005 and 2004,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended March 31,
2005. 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 in accordance with auditing standards of the Public
Accounting Company Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Schick
Technologies, Inc. and subsidiary as of March 31, 2005 and 2004, and the
consolidated results of their earnings and their consolidated cash flows for
each of the three years in the period ended March 31, 2005, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 4 of the consolidated financial statements, effective April
1, 2002, the Company changed its method for accounting for goodwill and
intangible assets upon the adoption of Statement of Accounting Standards 142,
"Goodwill and Other Intangible Assets".
Our Audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule II - Valuation and
Qualifying Accounts of Schick Technologies, Inc. and subsidiary for each of the
three years in the period ended March 31, 2005 is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of March 31, 2005, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our
report dated May 13, 2005 expressed an unqualified opinion thereon.
/s/ GRANT THORNTON LLP
New York, New York
May 13, 2005
F-2
Schick Technologies, Inc. and Subsidiary
Consolidated Balance Sheets
(In thousands, except share amounts)
*
March 31,
---------
2005 2004
---- ----
Assets
Current assets
Cash and cash equivalents $ 39,725 $ 20,734
Accounts receivable, net of allowance for doubtful accounts of $57
and $138, respectively 5,663 3,982
Inventories 3,545 3,057
Prepayments and other current assets 780 861
Deferred income taxes 5,681 6,481
-------- --------
Total current assets 55,394 35,115
-------- --------
Property and equipment, net 1,317 1,405
Goodwill, net 266 266
Deferred income taxes 270 5,679
Other assets 287 278
-------- --------
Total assets $ 57,534 $ 42,743
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 1,903 $ 1,456
Accrued salaries and commissions 1,590 1,390
Income taxes payable -- 142
Deposits from customers 30 13
Warranty obligations 446 210
Deferred revenue 4,316 4,504
-------- --------
Total current liabilities 8,285 7,715
-------- --------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock ($0.01 par value; 2,500,000
shares authorized; none issued and outstanding) -- --
Common stock ($0.01 par value; 50,000,000 shares authorized:
16,034,230 and 15,026,470 shares issued and outstanding,
at March 31, 2005 and 2004, respectively) 160 150
Additional paid-in capital 46,765 44,626
Retained earnings / (accumulated deficit) 2,324 (9,748)
-------- --------
Total stockholders' equity 49,249 35,028
-------- --------
Total liabilities and stockholders' equity $ 57,534 $ 42,743
======== ========
----------
* The accompanying notes are an integral part of these financial statements
F-3
Schick Technologies, Inc. and Subsidiary
Consolidated Statements of Income
(In thousands, except share and per share amounts)
*
Year ended March 31,
2005 2004 2003
---- ---- ----
Revenue, net $ 52,418 $ 39,393 $ 29,817
Total cost of sales 14,857 11,495 9,628
----------- ----------- -----------
Gross profit 37,561 27,898 20,189
----------- ----------- -----------
Operating expenses:
Selling and marketing 7,107 6,118 5,911
General and administrative 6,851 6,291 5,041
Research and development 4,812 3,301 2,598
Bad debt expense -- 105 --
----------- ----------- -----------
Total operating expenses 18,770 15,815 13,550
----------- ----------- -----------
Income from operations 18,791 12,083 6,639
----------- ----------- -----------
Other income (expense)
Other income -- 138 51
Gain on sale of investment -- -- 45
Interest income 468 153 52
Interest expense -- (182) (322)
----------- ----------- -----------
Total interest and other income (expense) 468 109 (174)
----------- ----------- -----------
Income before income taxes 19,259 12,192 6,465
Income tax expense (benefit) 7,187 (5,917) (5,360)
----------- ----------- -----------
Net income $ 12,072 $ 18,109 $ 11,825
=========== =========== ===========
Basic earnings per share $ 0.78 $ 1.69 $ 1.17
=========== =========== ===========
Diluted earnings per share $ 0.70 $ 1.07 $ 0.78
=========== =========== ===========
Weighted average common shares (basic) 15,389,110 10,710,742 10,148,991
=========== =========== ===========
Weighted average common shares (diluted) 17,317,719 16,864,488 15,143,999
=========== =========== ===========
----------
* The accompanying notes are an integral part of these financial statements
F-4
Schick Technologies, Inc. and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
(In thousands, except share amounts)
*
(Accumulated
Common Stock Additional Deficit) Total
------------ Paid -in Retained Stockholders'
Shares Amount Capital Earnings Equity
---------- ---------- ---------- ---------- ----------
Balance at March 31, 2002 10,138,325 $ 101 $ 42,481 $ (39,682) $ 2,900
Issuance of common stock 68,100 1 62 -- 63
Tax benefit of stock options
exercised -- -- 75 -- 75
Net income -- -- -- 11,825 11,825
---------- ---------- ---------- ---------- ----------
Balance at March 31, 2003 10,206,425 102 42,618 (27,857) 14,863
Issuance of common stock 4,820,045 48 790 -- 838
Tax benefit of stock options
exercised -- -- 463 -- 463
Appreciation of variable stock
grant -- -- 655 -- 655
Other -- -- 100 -- 100
Net income -- -- -- 18,109 18,109
---------- ---------- ---------- ---------- ----------
Balance at March 31, 2004 15,026,470 150 44,626 (9,748) 35,028
Issuance of common stock 1,007,760 10 627 -- 637
Tax benefit of stock options
exercised -- -- 642 -- 642
Appreciation of variable stock
grant -- -- 870 -- 870
Net income -- -- -- 12,072 12,072
---------- ---------- ---------- ---------- ----------
Balance at March 31, 2005 16,034,230 $ 160 $ 46,765 $ 2,324 $ 49,249
========== ========== ========== ========== ==========
----------
* The accompanying notes are an integral part of these financial statements
F-5
Schick Technologies, Inc. and Subsidiary
Consolidated Statements of Cash Flows
*(In thousands)
Year ended March 31,
2005 2004 2003
---- ---- ----
Cash flows from operating activities
Net income $ 12,072 $ 18,109 $ 11,825
Adjustments to reconcile net income to
net cash provided by operating activities
Deferred tax asset 6,209 (6,630) (5,530)
Tax benefit of stock options exercised 642 463 75
Depreciation and amortization 736 1,063 1,289
Gain from repayment of long-term debt -- (50) --
Provision for bad debts -- 105 --
Provisions for excess and obsolete inventory 122 185 259
Amortization of deferred finance charge -- 150 135
Gain on sale of investment -- -- (45)
Non-cash compensation 870 433 222
Other -- -- 150
Changes in assets and liabilities:
Accounts receivable (1,681) (1,055) (220)
Inventories (610) (203) (493)
Prepayments and other current assets 81 (430) (115)
Other assets (33) (103) (58)
Accounts payable and accrued expenses 647 620 804
Income taxes payable (142) 138 4
Deposits from customers 17 (43) 1
Warranty obligations 236 179 (16)
Deferred revenue (188) 899 26
-------- -------- --------
Net cash provided by operating activities 18,978 13,830 8,313
-------- -------- --------
Cash flows from investing activities
Proceeds of short-term investments -- 712 431
Purchase of short-term investments -- -- (671)
Proceeds from sale of investment -- -- 169
Property and equipment expenditures, net (624) (292) (476)
-------- -------- --------
Net cash provided by (used in) investing
activities (624) 420 (547)
-------- -------- --------
Cash flows from financing activities
Proceeds of common stock 637 837 63
Payment of long-term debt -- (1,453) (2,351)
-------- -------- --------
Net cash provided by (used in) financing
activities 637 (616) (2,288)
-------- -------- --------
Net increase in cash and cash equivalents 18,991 13,634 5,478
Cash and cash equivalents at beginning of period 20,734 7,100 1,622
-------- -------- --------
Cash and cash equivalents at end of period $ 39,725 $ 20,734 $ 7,100
======== ======== ========
Interest paid -- $ 32 $ 196
======== ======== ========
Income taxes paid $ 525 $ 111 $ 91
======== ======== ========
See Note 14 for supplemental cash flow disclosure.
----------
* The accompanying notes are an integral part of these financial statements
F-6
Schick Technologies, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Amounts In thousands, except share and per share amounts)
1. Organization and Business
Schick Technologies, Inc. (the "Company") designs, develops, manufactures
and markets innovative digital radiographic 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's
products are sold worldwide.
The Company operates in one reportable segment -- digital radiographic
imaging systems. The Company's principal products include its suite of CDR(R)
dental imaging products.
The Company's revenues from its principal products (including warranty
revenue related to each such product) were 99%, 99% and 98% of total revenues
during fiscal 2005, 2004 and 2003, respectively. AccuDEXA(R) revenues were 1%,
1% and 2% of total revenues during fiscal 2005, 2004 and 2003, respectively.
2. Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Schick New York. All material
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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. These estimates and assumptions relate to
the allowance for doubtful accounts, allowances for estimated sales returns,
estimated costs of initial warranties, and the valuation allowance on deferred
tax assets. Management has exercised reasonable judgment in deriving these
estimates. However, actual results could differ from these estimates.
Consequently, an adverse change in conditions could affect the Company's
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. At March 31, 2005, cash balances in excess of FDIC insurance approximates
$39.6 million.
Accounts Receivable
The Company reports accounts receivable net of an allowance for
uncollectible accounts. The largest of the Company's accounts receivable (49%
and 58%, at March 31, 2005 and 2004, respectively) is due from its exclusive
domestic distributor, Patterson Dental Company, Inc. ("Patterson"). Other
accounts receivable are due from international distributors and agencies of the
US military. Credit is extended to distributors on varying terms between 30 and
90 days and is made without collateral. Most international credit is
underwritten by credit insurance. The Company provides an allowance for doubtful
accounts based upon analysis of the accounts receivable aging. The Company
writes off accounts receivable when they become uncollectible. Subsequently
received payments are credited to operations.
F-7
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market value. Cost is determined principally on the standard
cost method for manufactured goods and on the average cost method for other
inventories, each of which approximates actual cost on the first-in, first-out
method. The Company establishes reserves for inventory estimated to be obsolete,
unmarketable or slow moving inventory equal to the difference between the cost
of inventory and estimated market value based upon assumptions about future
demand and market conditions. If actual market conditions are less favorable
than those anticipated or if changes in technology affect the Company's
products, additional inventory reserves may be required.
Property and Equipment
Property and equipment is stated at cost. The cost of additions and
substantial improvements to equipment is capitalized. The cost of maintenance
and repairs of equipment and leaseholds is charged to operating expenses.
Depreciation and amortization are provided on the straight-line method over the
lesser of the estimated useful lives of the related assets ranging from five to
ten years. Leasehold improvements are amortized over the shorter of the useful
life of the asset or the lease term.
Revenue Recognition
The Company recognizes revenue when each of the following four criteria is
met: 1) a contract or sales arrangement exists; 2) products have been shipped
and title has been transferred or services have been rendered; 3) the price of
the products or services is fixed or determinable; and 4) collectibility is
reasonably assured. Revenues from sales of the Company's hardware and software
products are recognized at the time of shipment to customers, and when no
significant obligations exist and collectibility is probable. The Company
provides its exclusive domestic distributor with a 30-day return policy but
allows for an additional 15 days, and accordingly recognizes allowances for
estimated returns pursuant to such policy at the time of shipment. Revenue from
shipments to foreign customers is recognized at the time of shipment in
accordance with foreign sales orders. With respect to products shipped to its
exclusive domestic distributor, the Company defers revenue until Patterson ships
such inventory from its distribution centers. Amounts received from customers in
advance of product shipment are classified as deposits from customers. The
Company records as revenue shipping and handling charges invoiced to customers.
The cost of shipping and handling is recorded in cost of sales. 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 a
period of up to two years. Deferred revenues relate to extended warranty fees
paid by customers prior to the performance of extended warranty services and to
certain shipments to Patterson, as described above.
Advertising Costs
Advertising costs included in selling and marketing expenses are expensed
as incurred and were $520, $437 and $568, for the years ended March 31, 2005,
2004, and 2003, respectively.
Warranties
The Company records a liability for an estimate of costs that it expects
to incur under its basic limited warranty when product revenue is recognized.
Factors affecting the Company's warranty liability include the number of units
sold and historical and anticipated rates of claims and costs per claim. The
Company periodically assesses the adequacy of its warranty liability based on
changes in these factors.
The Company records revenues on extended warranties on a straight-line
basis over the term of the related warranty contracts (generally up to two
years). Deferred revenues related to extended warranty were $2.2 million and
$2.4 million at March 31, 2005 and 2004, respectively. Services costs are
expensed as incurred.
F-8
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.
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 the entire
deferred tax asset will not be realized.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to the relatively short maturity
associated with the Company's cash, accounts receivable and accounts payable.
Goodwill and Other Intangible Assets
Goodwill represents the cost of acquired companies in excess of the fair
value of the net assets acquired. At the date of acquisition, goodwill is
allocated to reporting units based on net assets assigned to that unit.
Effective April 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", which
established financial accounting and reporting for acquired goodwill and other
intangible assets and superseded Accounting Principles Board Opinion ("APB") No.
17, "Intangible Assets". Under SFAS No. 142 goodwill and indefinite-lived
purchased intangible assets are no longer amortized but are reviewed at least
annually for impairment. The Company has elected to perform this review annually
as of February 28.
Identifiable intangible assets that have finite lives continue to be
amortized over their estimated useful lives. Other intangible assets include
costs incurred to secure patents and are included in other assets. Finite-lived
purchased intangible assets are amortized principally by the straight-line
method over their expected period of benefit. Costs incurred to secure patents
and deferred financing costs are amortized by the straight-line method over
periods of five years and over the term of the loan, respectively.
Long-lived assets and intangibles are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of the assets to the future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
Stock-based compensation
At March 31, 2005, the Company has stock-based compensation plans which
are described more fully in Note 13. As permitted by SFAS No. 123, "Accounting
for Stock Based Compensation", the Company accounts for stock-based compensation
arrangements with employees under the recognition and measurement principles of
APB Opinion No. 25, "Accounting for Stock Issued to Employees, and related
Interpretations". The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation.
F-9
Year ended March 31,
2005 2004 2003
-------- -------- --------
Net income, as reported $ 12,072 $ 18,109 $ 11,825
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects 708 359 476
-------- -------- --------
Pro forma net income $ 11,364 $ 17,750 $ 11,349
-------- -------- --------
Earnings per share:
Basic-as reported $ 0.78 $ 1.69 $ 1.17
-------- -------- --------
Basic-pro forma $ 0.74 $ 1.66 $ 1.12
-------- -------- --------
Diluted-as reported $ 0.70 $ 1.07 $ 0.78
-------- -------- --------
Diluted-pro forma $ 0.65 $ 1.05 $ 0.75
-------- -------- --------
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to the current presentation.
3. Recently Issued Accounting Standards
Stock-Based Compensation
In December 2004 the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 123 (revised 2004) ("FAS 123R") "Share-Based Payment". The
statement supersedes APB Opinion No. 25 "Accounting for Stock Issued to
Employees" and establishes fair-value-based measurement in accounting for
share-based payment transactions with employees. FASB 123R is effective for
public companies for years beginning after December 31, 2005. The Company is
currently evaluating the effect of FAS 123R on its consolidated financial
position, results of operations and cash flows.
Inventory Costs
In November 2004 the Financial Accounting Standards Board issued FASB
Statement No. 151 ("FASB 151") "Inventory Costs". The statement amends ARB No.
43, Chapter 4, "Inventory Pricing" and requires that unallocated overhead be
recognized as an expense in the period in which it is incurred. FASB 151 is
effective for fiscal years beginning after June 15, 2005. The Company believes
that its current method of inventory pricing complies with the requirements of
the statement. Accordingly, the adoption of FASB 151 will not have a material
impact on the Company's consolidated financial position, results of operations
or cash flows.
Income Taxes
In December 2004 the Financial Accounting Standards Board issued FASB
Staff Position on Statement 109 ("FSP FAS109-1") ("FSP") "Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004" (the "Act"). The FSP states that the new tax rate reductions created in
the Act should be treated as special deductions when accounting for income
taxes. Consequently, deferred tax assets reflect statutory tax rates without
giving effect to those reductions. The Tax Act is effective for years beginning
after December 31, 2004. The Company is evaluating the potential effect of the
FSP since the Act replaces other income tax incentives, which will no longer be
available to the Company. These incentives have been treated in a similar manner
for financial accounting purposes.
F-10
4. Accounting for Business Combinations, Intangible Assets and Goodwill
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations" and SFAS 142, "Goodwill and Other Intangible
Assets". The new standards require that all business combinations initiated
after June 30, 2001 must be accounted for under the purchase method. In
addition, all intangible assets acquired that are obtained through contractual
or legal right, or are capable of being separately sold, transferred, licensed,
rented or exchanged, shall be recognized as assets apart from goodwill. Goodwill
and intangibles with indefinite lives will no longer be subject to amortization,
but will be subject to at least an annual assessment for impairment by applying
a fair value based test.
In August 2002, the Company performed a transitional fair value based
impairment test and in, March 2005 and 2004, performed annual fair value
impairment tests. These tests indicate that the fair value is greater than the
recorded value of goodwill. Therefore the Company's goodwill was not impaired
during the year ended March 31, 2005, 2004 and 2003.
5. Earnings Per Share
Basic earnings per share ("Basic EPS") is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share ("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 following table is the reconciliation from basic to diluted shares
for the years ended March 31, 2005, 2004 and 2003.
March 31,
2005 2004 2003
---------- ---------- ----------
Basic shares 15,389,110 10,710,742 10,148,991
Dilutive:
Options 1,395,275 1,381,554 940,381
Warrants 533,334 4,772,192 4,054,627
---------- ---------- ----------
Diluted shares 17,317,719 16,864,488 15,143,999
========== ========== ==========
At March 31, 2005, 2004 and 2003, outstanding options and warrants to
purchase 66,425, 87,061 and 434,066 shares of common stock, respectively, at
exercise prices ranging from $4.91 to $27.72 per share have been excluded from
the computation of diluted earnings per share as they are antidilutive.
6. Inventories
Inventories at March 31, 2005 and 2004, net of provisions for excess and
obsolete inventories, are comprised of the following:
2005 2004
------- -------
Raw materials $ 2,171 $ 2,088
Work-in-process 218 246
Finished goods 1,156 723
------- -------
Total inventories $ 3,545 $ 3,057
======= =======
7. Property and Equipment
Property and equipment at March 31, 2005 and 2004 is comprised of the
following:
2005 2004
------- -------
Production equipment $ 5,984 $ 5,751
Computer and communications equipment 1,202 2,493
Demonstration equipment 221 944
Leasehold improvements 1,986 1,907
Other equipment 150 137
------- -------
Total property and equipment 9,543 11,232
Less accumulated depreciation and amortization 8,226 9,827
------- -------
Property and equipment, net $ 1,317 $ 1,405
======= =======
F-11
8. Accounts payable and accrued expenses
Accounts payable and accrued expenses are summarized as follows at March
31, 2005 and 2004:
2005 2004
------- -------
Advertising and marketing expenses $ 133 $ 103
Inventory 626 435
Professional fees 265 290
Refunds payable 94 95
Royalties 181 120
Travel and entertainment 194 118
Other 410 295
------- -------
Accounts payable and accrued expenses $ 1,903 $ 1,456
------- -------
9. Income Taxes
The following table provides detail of the income tax expense (benefit)
for the years ended March 31, 2005, 2004 and 2003:
March 31,
2005 2004 2003
---- ---- ----
Current expense
Federal $ 743 $ 250 $ 95
State 235 -- --
-------- -------- --------
Total current expense 978 250 95
-------- -------- --------
Deferred tax expense
Federal 5,374 4,087 2,415
State 835 1,101 591
-------- -------- --------
Total deferred tax benefit 6,209 5,188 3,006
-------- -------- --------
Tax expense 7,187 5,438 3,101
Deferred tax asset reserve reversal -- (11,355) (8,461)
-------- -------- --------
Net tax expense (benefit) $ 7,187 ($ 5,917) ($ 5,360)
======== ======== ========
The reconciliation between the U.S. federal statutory rate and the
Company's effective tax rate is as follows:
Year Ended March 31,
2005 2004 2003
------- ------- -------
Tax benefit at Federal statutory rate 35.0% 34.2% 34.0%
State income tax expense, net of
Federal tax benefit 5.6% 5.3% 5.2%
Permanent differences -1.0% -0.9% -1.0%
Research and development tax credit -1.2% -1.4% -2.3%
Deferred tax valuation allowance reversal -- -85.7% -118.9%
Effect of rate change -1.2% -- --
Other 0.1% -- 0.1%
------- ------- -------
Effective tax rate 37.3% -48.5% -82.9%
======= ======= =======
F-12
Significant components of the Company's deferred tax assets (liabilities)
at March 31, 2005, 2004 and 2003 are as follows:
March 31,
--------------------------------
2005 2004 2003
-------- -------- --------
Net operating loss carryforwards $ -- $ 6,885 $ 12,484
Reserves and allowances for inventory 1,229 1,155 1,238
Accounts receivable and warranties 1,986 1,966 1,566
Tax credit and carryforwards 2,441 2,016 1,581
Depreciation and other 266 91 80
Other 29 47 (64)
-------- -------- --------
5,951 12,160 16,885
Valuation allowance -- -- (11,355)
-------- -------- --------
Net deferred tax asset $ 5,951 $ 12,160 $ 5,530
======== ======== ========
During fiscal 2005, 2004 and 2003 the Company's utilization of its net
operating losses resulted in a reduction of current taxes in the amount of $6.9
million, $4.8 million and $2.9 million, respectively.
At March 31, 2005, the Company no longer has a net operating loss
carryover.
10. Warranties
The Company records a liability for an estimate of costs that it expects
to incur under its basic limited warranty when product revenue is recognized.
Factors affecting the Company's warranty liability include the number of units
sold and historical and anticipated rates of claims and costs per claim. The
Company periodically assesses the adequacy of its warranty liability based on
changes in these factors.
The following table reconciles aggregate warranty liability as at March
31:
2005 2004
------- -------
Beginning balance ............................ $210 $56
Warranties issued in period .................. 2,652 2,439
Warranties paid in period .................... (2,416) (2,285)
------- -------
Balance end of period ........................ $446 $210
======= =======
The Company records revenues on extended warranties on a straight-line
basis over the term of the related warranty contracts (generally up to two
years). Deferred revenues related to extended warranties were $2.2 and $2.4
million at March 31, 2005 and 2004, respectively.
11. Concentration of Risks and Customer Information
The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from expectations include, but are
not limited to, dependence on key personnel, government regulation,
manufacturing disruptions, competition, reliance on certain customers and
vendors, absence of redundant facilities, credit risk, product liability and
other liability claims, adequacy of insurance coverage and litigation.
Substantially all of the Company's sales are to domestic and foreign
dentists, doctors, and distributors of dental and medical supplies and
equipment. Financial instruments that potentially
F-13
subject the Company to concentrations of credit risks are primarily accounts
receivable and cash equivalents. 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. The Company places its cash equivalents in short-term money market
instruments and high-grade commercial paper.
Approximately $13.9 million, $9.9 million and $6.2 million of the
Company's revenues in fiscal 2005, 2004 and 2003, respectively, were from
foreign customers. The majority of such foreign revenues were from customers in
Europe and Asia. Approximately $31.8 million, $21.6 million and $15.4 million of
the Company's revenues in fiscal 2005, 2004 and 2003, respectively, were from a
single customer, Patterson.
On April 6, 2000, the Company entered into an agreement with Patterson
Dental Company which granted Patterson exclusive rights to distribute the
Company's dental products in the United States and Canada effective May 1, 2000.
12. Commitments and Contingencies
Employment Agreements
The Company has employment agreements with certain executive officers. As
of March 31, 2005, aggregate minimum compensation obligations under these
employment agreements are $1,067 through the year ending March 31, 2008. In June
2004, the Company entered into a Consulting and Non-Competition Agreement with
its former CEO, which creates a minimum compensation obligation in the amount of
$751, consisting of $340 in fiscal 2006, $340 in fiscal 2007 and $71 in fiscal
2008.
In addition, certain of the Company's agreements provide for the issuance
of common stock and/or common stock options to executives, which generally vest
ratably over the term of the agreements (2-3 years). Additionally, certain
executives may earn bonus compensation based upon the specific terms of the
respective agreements.
Operating Leases
The Company leases its facilities under an operating lease agreement
expiring June 2007. Rent expense for the years ended March 31, 2005, 2004, and
2003 was $459, $646, and $367, respectively.
Future minimum payments on a fiscal year basis under non-cancelable
operating leases are as follows:
2006 506
2007 526
2008 137
------
$1,169
======
Product Liability
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 or other claims will not
exceed its insurance coverage limits, or that such insurance will continue to be
maintained or to be available on commercially acceptable terms, or at all.
SEC Investigation and Other
In August 1999, the Company, through its outside counsel, contacted the
Division of Enforcement of the Securities and Exchange Commission ("SEC") to
advise it of certain matters related to the
F-14
Company's restatement of earnings for interim periods of fiscal 1999. The SEC
subsequently conducted an investigation of the Company and certain individuals,
including current and former officers and employees of the Company, pursuant to
a Formal Order of Investigation. The Company cooperated with the SEC staff
throughout the course of the investigation.
In addition, since January 2002 the United States Attorney's Office for
the Southern District of New York has served subpoenas upon and/or contacted
certain individuals, including current and former officers and employees of the
Company, and a current Director, in connection with this matter. On June 13,
2002, the Company was advised by counsel to David Schick, the Company's former
chief executive officer, that the United States Attorney's Office for the
Southern District of New York had notified such counsel that Mr. Schick was a
target of the United States Attorney's investigation of this matter. The Company
has cooperated with the U.S. Attorney's Office.
On November 14, 2003, the SEC filed a civil action in the United States
District Court for the Eastern District of New York against the Company, its
former chief executive officer, and its former vice president of sales &
marketing. The SEC complaint alleges fraud, and books and records and reporting
violations under Sections 10(b), 13(a) and 13(b)(2) of the Securities Exchange
Act and various rules promulgated thereunder in connection with the financial
statements included in the Company's reports on Form 10-Q for the quarters ended
June 30, September 30 and December 31, 1998. The SEC complaint seeks to enjoin
the Company from future violations of those provisions of the Exchange Act and
the rules thereunder, as well as disgorgement of any ill-gotten gains, which the
Company does not believe to be material in amount. With respect to the other
defendants, the complaint seeks injunctive relief, civil penalties, disgorgement
and an officer/director bar.
The Company has had discussions with the Enforcement Staff of the SEC's
northeast regional office in an effort to resolve the complaint against the
Company, and the Company intends to continue such discussions. On May 4, 2005,
the Court ordered that discovery in this case be suspended until June 18, 2005
to permit the consideration of settlement proposals. Any settlement would
require approval by the Commission before it could become effective. There can
be no assurance that settlement discussions will continue and/or will be
successful.
The Company cannot predict the potential outcome of these matters and
their impact on the Company and, therefore, has made no provision relating to
these matters in the accompanying consolidated financial statements.
Litigation
The Company may be a party to a variety of legal actions (in addition to
that referred to above), such as employment and employment
discrimination-related suits, employee benefit claims, breach of contract
actions, tort claims, shareholder suits and intellectual property related
litigation. In addition, because of the nature of its business, the Company is
subject to a variety of legal actions relating to its business operations.
Recent court decisions and legislative activity may increase the Company's
exposure for any of these types of claims. In some cases, substantial punitive
damages may be sought. The Company currently has insurance coverage for some of
these potential liabilities. Other potential liabilities, such as those based
upon the commission of fraud, may not be covered by insurance, insurers may
dispute coverage, or the amount of insurance may not be sufficient to cover the
damages awarded. In addition, certain types of damages, such as punitive
damages, may not be covered by insurance and insurance coverage for all or
certain forms of liability may become unavailable or prohibitively expensive in
the future.
13. 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 shares of the
Company's common stock may be granted to employees, directors and consultants.
In September 1998, the Plan was amended to increase the
F-15
number of shares of common stock issuable under the Plan from 470,400 to
1,000,000, and the Plan was further amended in November 2000 to increase the
number of shares of common stock issuable under the Plan to 3,000,000. The Board
of Directors determines exercise and vesting periods and the exercise price of
options granted under the Plan. The Plan stipulates that the exercise price of
non-qualified options granted under the Plan must equal or exceed 85% of the
fair market value of the Company's common stock as of the date of grant of the
option; however, the Company has never granted options having an exercise price
lower than the fair market value of the underlying common stock on the date of
grant. Additionally, no option may be exercisable after ten years from the date
of grant. Options granted under the Plan generally vest over a period of four
years.
In 1997, the Company adopted the Directors Plan. In November 2002, the
plan was amended to increase the number of shares of Common Stock issuable to
600,000. At March 31, 2005, 2004 and 2003, a total of 528,000, 468,000 and
310,000 options to purchase common stock pursuant to the Directors Plan were
outstanding, respectively. The plan stipulates that the exercise price of
non-qualified options granted under the plan must equal or exceed 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 generally vest over a period of two years. The
Company has never granted options at less than market on the date of grant.
The fair value of options granted to employees and directors during 2005,
2004 and 2003 has been determined on the date of the respective grant using the
Black-Scholes option-pricing model based on the following weighted-average
assumptions:
2005 2004 2003
-------- -------- --------
Dividend yield None None None
Risk-free interest rate on date of grant 3.08% 1.04%-1.29% 2.24%-3.03%
Forfeitures None None None
Expected life 4 years 4 years 4 years
Volatility 70% 75% 82%
Weighted average fair value per share $5.92 $4.10 $1.62
The following table summarizes information regarding stock options for
2005, 2004 and 2003:
2005 2004 2003
---------------------- --------------------- ---------------------
Shares Weighted Shares Weighted Shares Weighted
Under Average Under Average Under Average
Option Exercise Option Exercise Option Exercise
Price Price Price
--------- --------- --------- -------- --------- --------
Options outstanding,
beginning of year 2,124,264 $ 3.36 2,077,538 $ 2.54 1,840,426 $ 2.47
Options granted 815,000 10.46 362,997 7.41 332,862 2.69
Options exercised (301,196) 2.07 (292,328) 1.44 (68,100) 0.98
Options forfeited (6,821) 6.20 (23,943) 10.52 (27,650) 3.72
---------- ---------- ----------
Options outstanding,
end of year 2,631,247 $ 5.70 2,124,264 $ 3.36 2,077,538 $ 2.54
========== ========== ==========
Range of exercise Options outstanding Exercisable options Weighted average remaining
----------------- ------------------- ------------------- --------------------------
prices at March 31, 2005 at March 31, 2005 contractual life (years)
------ ----------------- ----------------- ------------------------
$ 0.50 to $ 1.56 962,548 961,173 6
$ 2.15 to $ 3.20 395,154 311,872 7
$ 4.91 to $ 8.25 372,120 153,053 8
$10.36 to $17.96 855,000 154,999 9
$20.88 to $25.20 46,425 46,425 1
At March 31, 2005, there are 998,753 options available for grant under our
option plans. The fair value of options granted was $4,822, $1,384 and $549
during fiscal 2005, 2004 and 2003, respectively.
F-16
Defined Contribution Plan
The Company has 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 $190, $190 and
$171, respectively, in fiscal 2005, 2004 and 2003.
14. Stockholders' Equity
In February 2000, an executive was awarded 75,000 shares of the Company's
common stock, subject to a risk of forfeiture, which vested as to 25,000 shares
on each of December 31, 2000, 2001 and 2002. Upon the sale of any such vested
shares, the employee is required to pay the Company $1.32 per share sold within
six months following such sale. The Company recorded a note receivable, which is
presented as a reduction of Paid in Capital amounting to $99, relating to the
stock issuance. The charge to operations relating to this stock award is not
material to the financial statements.
In December 1999, the Company issued warrants for 5,000,000 shares of
common stock, to Greystone Funding Corporation ("Greystone") in connection with
a financing transaction. Of those warrants, 750,000 were issued to a Greystone
employee as designee of Greystone. That individual became President of the
Company in December 1999 and Chief Executive Officer in June 2004. In November
2004, the Company's CEO exercised the 750,000 aforementioned outstanding
warrants under the grant's cashless provision and received 706,564 unregistered
shares of common stock. In March 2004, Greystone exercised all of its
outstanding warrants. In one transaction, Greystone paid $414 to acquire 552,500
unregistered shares of common stock. In a second transaction, Greystone
exercised under the cashless provision governing its grant of 4,250,000 warrants
and received 3,975,216 unregistered shares of common stock. The market price of
the Company's common stock was $11.60 at the date of exercise.
15. Unaudited selected quarterly financial data
The following is a summary of the Company's unaudited quarterly operating
results for the years ended March 31, 2005 and 2004:
Mar 31, Dec 31, Sep 30, Jun 30,
2005 2004 2004 2004
---- ---- ---- ----
Statement of Earnings Data:
Revenue, net $ 13,854 $ 16,813 $ 10,870 $ 10,881
Total cost of sales 4,532 4,144 2,972 3,209
----------- ----------- ----------- -----------
Gross profit 9,322 12,669 7,898 7,672
----------- ----------- ----------- -----------
Gross profit margin 67.3% 75.4% 72.7% 70.5%
Operating expense:
Selling and marketing 1,885 2,235 1,531 1,456
General and administrative 1,859 1,723 1,284 1,985
Research and development 939 1,456 1,305 1,112
----------- ----------- ----------- -----------
Operating expense 4,683 5,414 4,120 4,553
----------- ----------- ----------- -----------
Income from operations 4,639 7,255 3,788 3,119
----------- ----------- ----------- -----------
Net income $ 3,389 $ 4,398 $ 2,486 $ 1,799
=========== =========== =========== ===========
Earnings per share:
Basic income $ 0.21 $ 0.28 $ 0.16 $ 0.12
=========== =========== =========== ===========
Diluted income $ 0.19 $ 0.25 $ 0.14 $ 0.10
=========== =========== =========== ===========
Weighted average common
Shares outstanding (basic) 15,988,491 15,440,891 15,099,299 15,057,703
=========== =========== =========== ===========
Weighted average common
Shares outstanding (diluted) 17,632,619 17,359,203 17,230,852 17,209,756
=========== =========== =========== ===========
F-17
Mar 31, Dec 31, Sep 30, Jun 30,
2004 2003 2003 2003
---- ---- ---- ----
Statement of Earnings Data:
Revenue, net $ 10,092 $ 12,124 $ 8,501 $ 8,676
Total cost of sales 3,179 3,063 2,624 2,629
----------- ----------- ----------- -----------
Gross profit 6,913 9,061 5,877 6,047
----------- ----------- ----------- -----------
Gross profit margin 68.5% 74.7% 69.1% 69.7%
Operating expense:
Selling and marketing 1,613 1,655 1,415 1,435
General and administrative 1,475 1,725 1,541 1,655
Research and development 793 827 839 842
----------- ----------- ----------- -----------
Operating expense 3,881 4,207 3,795 3,932
----------- ----------- ----------- -----------
Income from operations 3,032 4,854 2,082 2,115
----------- ----------- ----------- -----------
Net income $ 9,009 $ 4,854 $ 2,267 $ 1,979
=========== =========== =========== ===========
Earnings per share:
Basic income $ 0.76 $ 0.47 $ 0.22 $ 0.19
=========== =========== =========== ===========
Diluted income $ 0.53 $ 0.29 $ 0.13 $ 0.12
=========== =========== =========== ===========
Weighted average common
Shares outstanding (basic) 11,836,330 10,407,356 10,365,939 10,229,697
=========== =========== =========== ===========
Weighted average common
Shares outstanding (diluted) 17,129,496 16,879,982 16,911,580 16,536,892
=========== =========== =========== ===========
F-18
Schedule II
Schick Technologies, Inc. and Subsidiary
Valuation and Qualifying Accounts (in thousands)
Additions
---------
Balance Charged Charged Balance
at to to at
Beginning Cost and Other End of
Of Period Expenses Accounts Deductions Period
--------- -------- -------- ---------- ------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
For the year ended March 31, 2005 $ 138 -- $ 81(a) $ 57
For the year ended March 31, 2004 42 $105 9(a) 138
For the year ended March 31, 2003 717 -- 675(a) 42
RESERVE FOR OBSOLETE/SLOW
MOVING INVENTORY
For the year ended March 31, 2005 $ 2,833 $122 $ 6(b) $ 2,949
For the year ended March 31, 2004 2,837 185 189(b) 2,833
For the year ended March 31, 2003 2,899 259 321(b) 2,837
VALUATION ALLOWANCE --
DEFERRED TAX ASSET
For the year ended March 31, 2004 $11,355 $ 11,355(c) $ --
For the year ended March 31, 2003 19,816 8,461(c) 11,355
(a) Accounts receivable written off
(b) Inventory disposed of
(c) Reduction of valuation allowance
F-19
(a) Documents filed as a part of this Report
(1) Consolidated Financial Statements filed as part of this Report:
Index to Consolidated Financial Statements F-1
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets at March 31, 2005 and 2004 F-3
Consolidated Statements of Earnings for the years ended
March 31, 2005, 2004 and 2003 F-4
Consolidated Statement of Changes in Stockholders'
Equity for the years ended March 31, 2005, 2004 and 2003 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 2005, 2004 and 2003 F-6
Notes to Consolidated Financial Statements F-7
(2) Financial statement schedules filed as part of this Report
Schedule II
Valuation and Qualifying Accounts F-19
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) The following Exhibits are included in this report:
Filed herewith or
Exhibit incorporated
No. Item Title by Reference
--- ---------- ------------
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, File No. 333-33731, filed on
June 30, 1997) *
3.2 Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K, filed on
July 13, 2001) *
4.1 Form of Common Stock certificate of the Company (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-1, File No. 333-33731, filed on June 30, 1997) *
4.2 Form of private-placement Warrant of the Company (incorporated by
reference to Exhibit 4.2 to the Company's Registration Statement
on Form S-1, File No. 333-33731, filed on June 30, 1997) *
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 (incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on Form S-1,
File No. 333-33731, filed on June 30, 1997) *
10.1 1996 Employee Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K, filed on July 13, 2001) *
Filed herewith or
Exhibit incorporated
No. Item Title by Reference
--- ---------- ------------
10.2 1997 Stock Option Plan for Non-Employee Directors, as amended
(incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K, filed on June 18, 2003) *
10.3 Form of Non-Disclosure, Non- Solicitation, Non-Competition and
Inventions Agreements between Schick Technologies, Inc. and Named
Executives of Schick Technologies, Inc. (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement
on Form S-1, File No. 333-33731, filed on June 30, 1997) *
Filed herewith or
Exhibit incorporated
No. Item Title by Reference
--- ---------- ------------
10.4 Service and License Agreement between Photobit, LLC and Schick
Technologies, Inc. dated as of June 24, 1996 (incorporated by
reference to Exhibit 10.5 to the Company's Registration Statement
on Form S-1, File No. 333-33731, filed on June 30, 1997) *
10.5 Registration Rights Agreement between Schick Technologies, Inc.
and Greystone, dated as of December 27, 1999 (incorporated by
reference to Exhibit 10.27 to the Company's Annual Report on Form
10-K, filed on June 29, 2000) *
10.6 Registration Rights Agreement between Schick Technologies, Inc.
and DVI Financial Services, Inc., dated as of March 15, 2000
(incorporated by reference to Exhibit 10.33 to the Company's
Annual Report on Form 10-K, filed on June 29, 2000) *
10.7 Distributorship Agreement, dated April 6, 2000, by and between
Schick Technologies, Inc. and Patterson Dental Company
(incorporated by reference to Exhibit 10.34 to the Company's
Annual Report on Form 10-K, filed on June 29, 2000) *
10.8 Employment Agreement between Schick Technologies, Inc. and
Jeffrey T. Slovin, dated November 9, 2001 (incorporated by
reference to Exhibit 10.36 to the Company's Annual Report on Form
10-K, filed on June 17, 2002) *
10.9 Consulting and Non-Competition Agreement between Schick
Technologies, Inc. and David B. Schick, dated May 7, 2004
(incorporated by reference to Exhibit 10.33 to the Company's
Annual Report on Form 10-K, filed on June 25, 2004) *
10.10 Employment Agreement between Schick Technologies, Inc. and
Jeffrey T. Slovin, dated June 9, 2004 (incorporated by reference
to Exhibit 10.34 to the Company's Annual Report on Form 10-K,
filed on June 25, 2004) *
10.11 Employment Agreement between Schick Technologies, Inc. and
Michael Stone, dated June 15, 2004 (incorporated by reference to
Exhibit 10.35 to the Company's Annual Report on Form 10-K, filed
on June 25, 2004) *
14.1 Code of Ethics (incorporated by reference to Exhibit 14.1 to the
Company's Annual Report on Form 10-K, filed on June 25, 2004) *
21.1 List of Subsidiaries of Schick Technologies, Inc. +
23.1 Consent of Independent Registered Public Accounting Firm +
24.1 Powers of Attorney (included on signature page of this Report) +
31.1 Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 +
31.2 Certification of Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 +
32.1 Certification of Principal Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 +
32.2 Certification of Principal Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 +
99.1 Cautionary Statement +
* Previously filed; incorporated herein by reference
+ Filed herewith
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 June 10, 2005.
SCHICK TECHNOLOGIES, INC.
By: /s/ Jeffrey T. Slovin
-------------------------
Jeffrey T. Slovin
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 10, 2005.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey T. Slovin 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 resubstitution, for him in his name, place and
stead 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/ Jeffrey T. Slovin Chief Executive Officer, President and
---------------------------- Director
Jeffrey T. Slovin
/s/ Ronald Rosner Director of Finance and Administration
---------------------------- (Principal financial and accounting officer)
Ronald Rosner
/s/ William K. Hood Chairman of the Board and Director
----------------------------
William K. Hood
/s/ Allen Schick Director
----------------------------
Allen Schick
/s/ Euval Barrekette Director
----------------------------
Euval Barrekette
/s/ Arthur Kowaloff Director
----------------------------
Arthur Kowaloff
/s/ Curtis M. Rocca III Director
----------------------------
Curtis M. Rocca III