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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, 2000
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission file number 000-22673
SCHICK TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3374812
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31-00 47th Avenue, Long Island City, NY 11101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (718) 937-5765
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
----------
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of June 13, 2000 was approximately $13,285,451. Such
aggregate market value is computed by reference to the closing sale price
of the Common Stock on such date.
As of June 13, 2000, the number of shares outstanding
of the Registrant's Common Stock, par value $.01
per share, was 10,136,113
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Table of Contents
Item of Form 10-K Page
- --------------------------------------------------------------------------------
Part I
Item 1. Business .............................................. 1
Item 2. Properties ............................................ 12
Item 3. Legal Proceedings ..................................... 12
Item 4. Submission of Matters to a Vote of Security Holders ... 13
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters ................................... 14
Item 6. Selected Financial Data ............................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk .................................................. 21
Item 8. Financial Statements and Supplementary Data ........... 22
Item 9. Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure ................ 22
Part III
Item 10. Directors and Executive Officers of the Registrant .... 22
Item 11. Executive Compensation ................................ 25
Item 12. Security Ownership of Certain Beneficial Owners And
Management ............................................ 28
Item 13. Certain Relationships and Related Transactions ........ 31
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K .............................................. F-1
PART I
ITEM 1. BUSINESS
Schick Technologies, Inc. (the "Company") designs, develops and
manufactures innovative digital radiographic imaging systems and devices for the
dental and medical markets. The Company's products, which are based on
proprietary digital imaging technologies, create instant high resolution
radiographs with reduced levels of radiation.
In the field of dentistry, the Company's CDR(R) computed dental radiography
imaging system was introduced in March 1994 and has become a leading product in
its field. The CDR system uses an intra-oral sensor to produce instant, full
size, high resolution dental x-ray images on a color computer monitor without
film or the need for chemical development, while reducing the radiation dose by
up to 80% or more as compared with conventional x-ray film. The Company also
manufactures and sells the CDRCam(R) 2000, an intra-oral camera which fully
integrates with the CDR system, and the CDRPan(TM), a digital panoramic imaging
device. The Company is also developing other products and devices for the dental
field in addition to newer versions of its current products.
In the field of medical radiography, the Company manufactures and sells the
accuDEXA(R) bone densitometer, a low-cost and easy-to-operate device for the
assessment of bone mineral density and fracture risk. Additionally, the Company
is developing a digital mammography device which, it believes, will offer high
quality diagnostic capability at a reasonable cost, and has commenced
development of a general digital radiography device for intended use in various
applications, including mobile medicine, orthopedics, podiatry, veterinary
medicine and industrial non-destructive testing.
The Company's core products are based primarily on its proprietary
active-pixel sensor ("APS") imaging technology. In addition, certain of the
Company's products are based upon its proprietary enhanced charged coupled
device ("CCD") imaging technology. APS allows the fabrication of large-area
imaging devices with high resolution at a fraction of the cost of traditional
technologies. APS technology was originally developed by the California
Institute of Technology and licensed to Photobit Corporation; it is sublicensed
to the Company for a broad range of health care applications.
The Company's objective is to be the leading provider of high resolution,
low-cost digital radiography products. The Company plans to leverage its
technological advantage in the digital imaging field to penetrate a broad range
of diagnostic imaging markets. The Company believes that its proprietary
technologies and expertise in electronics, imaging software and advanced
packaging may enable it to compete successfully in these markets. Key elements
of the Company's strategy include (i) expanding market leadership in dental
digital radiography through expanded sales channels, further product
enhancements and strategic distribution agreements ; (ii) broadening the
marketing of accuDEXA(R) to the medical market through a combination of direct
sales and increased marketing activities; (iii) introducing new products based
on patented and proprietary APS technology for other medical and industrial
applications; and (iv) enhancing international distribution channels for
existing and new products.
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.
On December 27, 1999, the Company established a strategic relationship with
Greystone Funding Corporation ("Greystone") and entered into a Loan Agreement
with Greystone which provides for the establishment of a credit facility for the
Company in an amount of up to $7.5 million. In connection with this Agreement,
as amended and restated on March 17, 2000, Greystone designees were appointed to
the Company's Board of Directors and key executive management positions. The
Company intends that the Greystone line of credit will be used to provide it
with working capital and help facilitate future growth. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's offices are located at 31-00 47th Avenue, Long Island City,
New York 11101. The Company's
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telephone number is (718) 937-5765, and its web site address is
http://www.schicktech.com.
PRODUCTS / INDUSTRY
Dental Imaging
X-ray imaging, or radiography, is widely used as a basic diagnostic
technique in a broad range of medical applications. To produce a conventional
radiograph, a film cassette is placed behind the anatomy to be imaged. A
generator, which produces high energy photons known as x-rays, is positioned
opposite the film cassette. The transmitted x-rays pass through soft tissue,
such as skin and muscle, and are absorbed by harder substances, such as bone.
These x-rays then form a latent image upon the film. After exposure, the film is
passed through a series of chemicals and then dried.
Film, however, has certain inherent limitations, including the time,
operating expense, inconvenience and uncertainty associated with film
processing, as well as the cost of disposal of waste chemicals and the need for
compliance with environmental regulations. Furthermore, the radiation dosage
levels required to assure adequate image quality in conventional film raise
concerns regarding the health risks associated with exposure to radiation. Also,
conventional film images cannot be electronically retrieved from patient records
or electronically transmitted to health care providers or insurance carriers at
remote locations, a capability which has become increasingly important in
today's managed care environment. While x-ray scanning systems convert x-rays
into digital form, they add to the substantial time and expense associated with
the use of conventional film and do not eliminate the drawbacks of film
processing.
Digital radiography products have been developed to overcome the
limitations of conventional film. These systems replace the conventional film
cassette with an electronic receptor which directly converts the incident x-rays
to digital images. The first system to employ certain aspects of this technique
was Computed Radiography(TM) ("CR"), a "near real time" system, in which a laser
scanner reads the x-ray image from a specially designed cassette. While CR
allows the images to be electronically displayed and stored, it does not achieve
instant results, and employs a large, costly scanning system. Other technologies
which allow for instant acquisition of digital x-rays have been developed,
including CCD arrays and amorphous silicon panels, neither of which is well
suited for imaging large areas due, respectively, to high cost and limited
resolution.
Dentists, who typically perform their own radiology work, represent the
single largest group of radiologists in the world and the dental industry is, in
terms of unit volume, the largest consumer of radiographic products and
equipment.
The Company believes that there is a potential market for approximately 1.1
million digital dental radiography devices worldwide. According to the American
Dental Association, there are approximately 150,000 practicing dentists in the
United States. The Company believes that each of them, on average, operates 2.5
radiological units, creating a potential market of 375,000 digital dental
radiography devices in the United States. In addition, the Company believes that
there are approximately 600,000 practicing dentists in the world's major
healthcare markets outside of the United States and, the Company believes that
each of them, on average, operates 1.25 radiological units, creating a potential
market of 750,000 additional devices.
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 diagnosis and treatment plans to
patients, which the Company believes has the potential to increase the rate of
patients' treatment acceptance and resulting revenues. Finally, the dosage
required to produce an intra-oral dental x-ray, which is high when compared with
other medical radiographs, can be reduced by up to 80% or more through the use
of digital radiography.
The Company's principal revenue-generating product is its CDR(R) computed
dental radiography imaging
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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 allows the
dentist to perform a variety of advanced diagnostic operations on the image. The
sensor can then be repositioned for the next x-ray. As the x-ray dose is
significantly lower than that required for conventional x-ray film, concern over
the potential health risk posed by multiple x-rays is greatly diminished. The
process is easy and intuitive, enabling nearly any member of the dental staff to
operate the CDR(R) system with minimal training.
The Company manufactures digital sensors in three sizes which correspond to
the three standard size conventional x-ray films. Size 0 measures 31 x 22 x 5mm
and is designed for pediatric use; size 1 measures 37 x 24 x 5mm and is designed
for taking anterior dental images; and size 2 measures 43 x 30 x 5mm and is
designed to take bitewing images. All of the Company's CDR(R) sensors can be
sterilized using cold solutions or gas. The typical CDR(R) configuration
includes a computer, display monitor and size 2 digital sensor. Since mid-1998,
the computers sold by the company as a component part of the CDR(R) system have
been manufactured exclusively by Dell Computer Corporation, pursuant to an
agreement between the Company and Dell.
The Company began selling its intra-oral camera, the CDRCam(R), in early
1997 and introduced the CDRCam(R) 2000, a redesigned version of the product, in
November 1999. CDRCam(R) fully integrates with the CDR(R) system to provide
color video images of the structures of the mouth. Since their introduction in
1991, intra-oral cameras have become widely accepted as a dental communication
and presentation tool. CDRCam(R) is "ETL Listed." ETL is a North American Safety
Mark indicating compliance with safety standard UL-2601-1.
In March 1999, the Company commenced the sale of its digital panoramic
imaging device, the CDRPan(TM). 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 easily integrates with practice management and
other computer software applications.
Bone Mineral Density / Fracture Risk Assessment
Assessment of bone mineral density ("BMD") is an essential component in the
diagnosis and monitoring of osteoporosis. Osteoporosis is a disease that causes
progressive loss of bone mass which, in serious cases, may result in bone
fractures and even death. Osteoporosis can develop over the course of many years
without apparent symptoms, until bone is sufficiently degenerated and fractures
occur. The National Osteoporosis Foundation has estimated that approximately 200
million people suffer from the disease worldwide, which affects one out of three
postmenopausal women and one out of ten men over the age of 70. In the United
States, an estimated 28 million people suffer from the disease or have low bone
mass, placing them at increased risk for osteoporosis. The total estimated
health care cost of osteoporosis in the United States, including indirect costs,
is approximately $14 billion annually.
Until recently, osteoporosis was considered neither treatable nor
preventable. Because effective treatments are now available and because
osteoporosis may be preventable if detected in its early stages, the demand for
BMD diagnostic equipment has significantly increased. Because of the large
population segment which could benefit from BMD testing, the Company believes
that there is a need for a practical, instant, cost effective, precise, compact
and easy-to-use BMD testing device for the primary care physician. Primary care
physicians consist of internal medicine, family, geriatric and OB/GYN practices.
These practices represent approximately 172,000 potential testing sites in the
United States alone. Traditional BMD assessment devices have been large, costly
and difficult to operate, and are mainly found in large hospitals and diagnostic
imaging centers. It is estimated that in 1999, there were approximately 6,000
such BMD assessment devices in use in the United States.
The Company has developed an innovative BMD assessment device to assist
doctors in the diagnosis of low bone density and prediction of fracture risk.
The Company believes that this low-cost and highly precise diagnostic tool,
which is marketed under the trade name accuDEXA(R), assesses BMD more quickly,
accurately and easily than
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any comparable product currently on the market, while using a minimal radiation
dosage. It is a point-of-treatment tool, designed for use by primary care
physicians as an integral part of a patient's regular physical examination. In
December 1997, the Company received clearance from the United States Food and
Drug Administration ("FDA") for the general use and marketing of the accuDEXA(R)
as a BMD assessment device; in June, 1998, the FDA granted the Company
additional clearance for its marketing of the accuDEXA(R) as a predictor of
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, requiring little operator
intervention, calibration or interfacing other than the entry of relevant
patient data into a built-in touch sensitive LCD screen. The device requires no
external x-ray generator or computer and it exposes the patient to less than 1%
of the radiation of a single conventional chest x-ray. To perform a test using
the accuDEXA(R), the patient places his or her hand into a positioner and, upon
activation by the operator, the device automatically emits two low-dosage x-ray
pulses. The patient's bone density and fracture risk information is displayed on
the screen in less than 30 seconds. The accuDEXA(R) is "ETL Listed." ETL is a
North American Safety Mark indicating compliance with safety standard UL-2601-1.
Mammography
Digital mammography offers significant advantages over current film-based
systems, yielding higher contrast, improved resolution and lower radiation
dosage. Digital mammography may be especially useful in screening women under
the age of 50 because of its enhanced ability to image the denser breast tissue
typically found in younger women. Clinical testing has shown that digital
mammography, as compared with non-digital devices, can increase accurate
diagnosis by 20%. Digital mammography also provides instant images allowing for
real time stereotactic needle biopsies.
In January 2000, General Electric Company received clearance from the FDA
to market the first screening digital mammography system. Three other
manufacturers, Trex Medical Corporation, Fuji Medical Systems and Fischer
Imaging Corporation, are preparing clinical trials for digital devices. The
Company believes that the price range for these devices will likely exceed
$250,000.
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The Company has developed a method of producing high quality digital
mammography sensors at a cost which, it believes, will be substantially lower
than its competitors' existing and proposed systems. The Company believes that
its digital mammography sensors will yield higher contrast, improved resolution
and lower radiation dosage than current film based systems, will be especially
useful in screening the denser breast tissue typically found in women under the
age of 50 and will allow for real time stereotactic needle biopsies. Clinical
testing has shown that, in comparison with non-digital devices, digital
mammography can increase accurate diagnosis by 20%.
The Company's proprietary technology allows the fabrication of high
resolution, large-area devices at low cost. The Company has manufactured a
prototype of an 10" x 6" sensor and currently plans to commence clinical trials
this year. The Company has not yet filed for FDA clearance of this device. There
can be no assurance that the Company will file for such clearance or that the
FDA will grant such clearance. See "Business - Government Regulation."
General Digital Radiography
The Company is also developing a mobile 8"x 10" digital radiography system
for various applications. This unit is targeted primarily for peripheral x-ray
images, such as orthopedic and podiatric. The unit is also suitable for
veterinary and non-destructive testing applications. Management believes that
the unit will be available for sale by mid-2001, pending clearance by the FDA.
There can be no assurance that the Company will file for such clearance or that
the FDA will grant such clearance. See "Business - Government Regulation."
Schick X-Ray Corporation
On September 24, 1997, the Company completed the acquisition of certain
assets of Keystone Dental X-Ray, Inc., a manufacturer of x-ray equipment for the
medical and dental radiology field, for $1.5 million in cash. The acquired
assets were integrated into the Company's former subsidiary, Schick X-Ray
Corporation ("Schick X-Ray"). In August 1999, Schick X-Ray was dissolved and its
operations absorbed by the Company.
MANUFACTURING
The Company's products are manufactured at its facility in Long Island
City, New York, which includes a 2,300 square foot controlled environment sensor
production facility. This facility is subject to periodic inspection by the FDA.
The Company has invested in automated and semi-automated equipment for the
fabrication and machining of parts and assemblies incorporated in its products.
The Company's quality assurance program includes various quality 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, since that time, has been subject to
semi-annual audits to ensure the maintenance of such certification.
The Company manufactures most of its custom components itself in order to
minimize dependence on suppliers, for quality control purposes and to help
maintain process propriety. While the Company does procure certain components
from outside sources which are sole suppliers, it believes that those components
could be obtained from additional sources without substantial difficulty,
although the need to change suppliers or to alternate between suppliers might
cause significant delays in delivery or significantly increase the Company's
costs. The Company procures its APS and CCD semiconductor wafers, a significant
component of its products, each from a single supplier. Extended interruptions
of this supply could have a material adverse effect on the Company's ability to
produce its products and its results of operations. The Company's manufacturing
processes are, for the most part,
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vertically integrated, although selective outsourcing is employed to take
advantage of economies of scale at outside manufacturing facilities and to
alleviate manufacturing bottlenecks. Certain components used in existing
products of the Company, as well as products under development, may be purchased
from single sources.
DEPENDENCE ON CUSTOMERS
During fiscal 2000 and 1999, a single customer, Henry Schein, Inc.,
accounted for annual sales by the Company of $2.6 and $7.2 million, or 11.7% and
15.8%, respectively, of annual sales. During fiscal 1998, no single customer
accounted for more than ten percent of the Company's annual sales. During fiscal
2000, 1999 and 1998, respectively, sales of approximately $6.5 million, $6.0
million, and $7.1 million were made to foreign customers.
PATENTS, TRADE SECRETS AND PROPRIETARY RIGHTS
The Company seeks to protect its intellectual property through a
combination of patent, trademark and trade secret protection. The Company's
future success will depend in part on its ability to obtain and enforce patents
for its products and processes, preserve its trade secrets and operate without
infringing the proprietary rights of others.
Patents
The Company has an active corporate patent program, the goal of which is to
secure patent protection for its technology. The Company currently has 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; and `Dental Radiography Using an
Intraoral Linear Array Sensor,' U.S. Patent No. 5,995,583, which expires on
November 13, 2016; and a `Method for Reading Out Data from an X-Ray Detector,'
U.S. Patent No. 6,069,935, which expires on June 6, 2017. In addition, the
Company is the 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. The Company also has additional
U.S. and foreign patent applications currently pending.
The Company is the exclusive sub-licensee for use in medical radiography
applications of certain patents, patent applications and other know-how related
to complementary metal oxide semiconductor ("CMOS") active pixel sensor
technology (collectively, the "APS Technology"), which was developed by the
California Institute of Technology and licensed to Photobit Corp. from which the
Company obtained its sub-license. 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, as of the date of this filing, except for
such third party's exercise of its right to obtain a nonexclusive license to use
APS Technology in a field other than 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.
Additionally, the agreement between the Company and Photobit Corp. requires,
among other things, that the Company use all commercially reasonable efforts to
timely introduce, improve and market and distribute licensed products. There can
be no assurance that the Company will comply with its obligations under its
agreement with Photobit Corp. Any such failure to comply could have a material
adverse effect on the Company.
Trademarks
The Company has obtained trademarks from the United States Patent and
Trademark Office for the marks (i) "CDR" for its digital dental radiography
product; (ii) "CDRCam" (both textual and stylized) for its intra-oral camera
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(iii) "QuickZoom" (both textual and stylized) for a viewing feature in its
digital dental radiography product; and (iv) "accuDEXA" for its BMD assessment
product. The Company has three additional trademark applications pending before
the PTO.
Trade Secrets
In addition to patent protection, the Company owns trade secrets and
proprietary know-how which it seeks to protect, in part, through appropriate
Non-Disclosure, Non-Solicitation, Non-Competition and Inventions Agreements,
and, to a limited degree, employment agreements, with appropriate individuals,
including employees, consultants, vendors and independent contractors. These
agreements generally provide that all confidential information developed by or
made known to the individual by the Company during the course of the
individual's relationship with the Company is the property of the Company, and
is to be kept confidential and not disclosed to third parties, except in
specific limited circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering services to
the Company shall be the exclusive property of the Company. However, there can
be no assurances that these agreements will not be breached, that the Company
would have adequate remedies available for any breach or that the Company's
trade secrets will not otherwise become known to, or independently developed by,
its competitors.
GOVERNMENT REGULATION
Products that the Company is currently developing or may develop in the
future are likely to require certain forms of governmental clearance, including
marketing clearance by the United States Food and Drug Administration (the
"FDA"). 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 CDRCam(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. The CDR(R) system, CDRPan(TM) and
accuDEXA(R) have been classified as Class II devices.
Class III devices are devices for which the FDA has insufficient
information to conclude that either general controls or special controls would
be sufficient to assure safety and effectiveness, and which are life-supporting,
life-sustaining, of substantial importance in preventing impairment of human
health, or present a potential unreasonable risk of illness or injury. Devices
in this case require pre-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
7
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 a PMA application will be
approved by the FDA.
In February 1994, the FDA cleared the Company's 510(k) application for
general use and marketing of the CDR(R) system. In November 1996, the FDA
cleared the Company's 510(k) application for general use and marketing of the
CDRCam(R). In December 1997, the FDA cleared the Company's 510(k) application
for general use and marketing of accuDEXA(R). On June 4, 1998, the FDA granted
the Company additional clearance to market accuDEXA(R) as a predictor of
fracture risk. In December 1998, the FDA cleared the Company's 510(k)
application for CDRPan(TM). The Company has not yet submitted a 510(k)
application for digital mammography sensors. There can be no assurance that the
Company will submit such application or that it will obtain FDA clearance for
such products.
In addition to the requirements described above, the FD&C Act requires that
all medical device manufacturers and distributors register with the FDA annually
and provide the FDA with a list of those medical devices which they distribute
commercially. The FD&C Act also requires that all manufacturers of medical
devices comply with labeling requirements and manufacture their products and
maintain their documents in a prescribed manner with respect to manufacturing,
testing, and quality control activities. The FDA's Medical Device Reporting
regulation subjects medical devices to post-market reporting requirements for
death or serious injury, and for certain malfunctions that would be likely to
cause or contribute to a death or serious injury if malfunction were to recur.
In addition, the FDA prohibits a device which has received marketing clearance
from being marketed for applications for which marketing clearance has not been
obtained. 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 enforces additional regulations
regarding the safety of equipment utilizing x-rays. Various states also impose
similar 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 prior to marketing a new medical device, are potentially
expensive and time consuming. They may delay or hinder a product's timely entry
into the marketplace. Moreover, there can be no assurance that the review or
approval process for these products by the FDA or any other applicable
governmental authorities will occur in a timely fashion, if at all, or that
additional regulations will not be adopted or current regulations amended in
such a manner as will adversely affect the Company. The FDA also regulates the
content of advertising and marketing materials relating to medical devices.
Failure to comply with such regulations may result in a delay in obtaining
approval for the marketing of such products or the withdrawal of such approval
if previously obtained.
8
The Company is currently developing new products for the dental and medical
markets. The Company expects to file 510(k) applications with the FDA in
connection with the digital mammography sensors currently under development by
the Company, and other future products, including its general digital
radiography sensors. There can be no assurance that the Company will file such
510(k) applications and/or will obtain pre-market clearance for the digital
mammography sensors or any other future products, or that in order to obtain
510(k) clearance, the Company will not be required to submit additional data or
meet additional FDA requirements that may substantially delay the 510(k) process
and result in substantial additional expense. Moreover, such pre-market
clearance, if obtained, may be subject to conditions on the marketing or
manufacturing of the digital mammography sensors which could impede the
Company's ability to manufacture and/or market the product. There can be no
assurance that the digital mammography or general digital radiography sensors or
any other products which may be developed by the Company will be approved by or
receive marketing clearance from applicable governmental authorities. If the
Company is unable to obtain regulatory approval for and market new products and
enhancements to existing products, it will have a material adverse effect on the
Company.
Failure to comply with applicable regulatory requirements can, among other
consequences, result in fines, injunctions, civil penalties, suspensions or loss
of regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution. In addition, governmental regulations may
be established that could prevent or delay regulatory clearance of the Company's
products. Delays in receipt of clearance, failure to receive clearance or the
loss of previously received clearance would have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition to laws and regulations enforced by the FDA, the Company is
subject to government regulations applicable to all businesses, including, among
others, regulations related to occupational health and safety, workers' benefits
and environmental protection. The extent of government regulation that might
result from any future legislation or administrative action cannot be accurately
predicted. Failure to comply with regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Distribution of the Company's products in countries other than the United
States may be subject to regulations in those countries. These regulations vary
significantly from country to country; the Company typically relies on its
independent distributors in such foreign countries to obtain the requisite
regulatory approvals. The Company has obtained the "CE mark," necessary for the
marketing of its products in the member countries of the European Union. The CE
mark is a European Union symbol of adherence to quality assurance standards and
compliance with the European Union's Medical Device Directives. The Company has
developed and implemented a quality assurance program in accordance with the
guidelines of the International Quality Standard, ISO 9001. In August of 1998,
the Company was granted ISO 9001 certification. The Company's current products
also have been awarded the "ETL" and "CSA" marks. These are North American
safety marks which indicate compliance with U.L. Standard 2601.
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
available on commercially acceptable terms, or at all.
RESEARCH AND DEVELOPMENT
During fiscal 2000, 1999 and 1998, research and development expenses were
$2.8 million, $4.4 million and $3.9 million, respectively.
BACKLOG
The backlog of orders was approximately $2.0 million and $2.5 million at
June 1, 2000 and June 1, 1999,
9
respectively. Such figures include approximately $634,000 and $887,000 of orders
on hold pending credit approval at June 1, 2000 and June 1, 1999, respectively.
Orders included in backlog may generally be cancelled or rescheduled by
customers without significant penalty.
EMPLOYEES
As of June 7, 2000, the Company had 153 full-time employees, engaged in the
following capacities: sales and marketing (30); general and administrative (31);
operations (73); and research and development (19). 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 ("Patterson")
entered into an exclusive distribution agreement and, 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 is one
of the largest distributors of dental products in North America, with more than
1,000 field sales personnel in the U.S. and Canada. In addition, the Company has
an in-house sales program which focuses on universities and continuing education
programs. As of March 1, 2000, CDR(R) had been sold to 47 of the 54 dental
schools in the United States. The Company also employs a government sales
program to sell directly to the Armed Services, Veterans Administration
hospitals, United States Public Health Service and other government-sponsored
health institutions.
The Company employs approximately 17 area sales managers located throughout
the United States to interface with and assist Patterson in its sales effort. A
sales and marketing support staff of approximately 3 individuals, based at the
Company's offices in New York, supports the sales managers and the direct sales
force by planning events 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 59
independent CDR(R) dealers, covering over 70 countries. A dedicated in-house
staff provides the foreign distributors with materials, technical assistance and
training, both in New York and abroad.
The Company's goal is to utilize its leading position in the industry,
secure as many productive sales channels as possible and to rapidly penetrate
additional segments of the international market.
BMD / Fracture Risk Assessment
The Company currently sells the accuDEXA(R) primarily through a direct
in-house sales force and is exploring alternative sales avenues and potential
strategic partnerships. To date, accuDEXA(R) sales have taken place primarily
within the United States, with a relatively small number of sales (less than 3%)
abroad. The primary end-users for accuDEXA(R) are primary care physicians,
including OB/GYN practices, and osteopathic and geriatric specialists.
Pharmaceutical companies are currently involved in wide-scale osteoporosis
education and awareness programs targeted at physicians. A number of such
companies, including Novartis Pharma AG, Wyeth-Ayerst Laboratories, Eli Lilly
Co., Merck & Co. and Procter & Gamble, currently have FDA-approved therapies for
the treatment of osteoporosis. The Company believes that several other
companies, including Boehringer-Mannheim GmbH, Sanofi-Synthelabo, Inc. and
Pfizer Inc. , have additional products that are currently in clinical trials.
The Company expects that the efforts of pharmaceutical companies to develop
medicines and treatment programs will result in the expansion of doctors'
involvement in initial screening and routine management of osteoporosis, thereby
increasing the market for BMD assessment devices. The Company intends to
capitalize on these efforts both in the United States and abroad.
10
The Company has successfully completed a number of research studies and has
collected normative reference data for the accuDEXA(R) databases. These research
studies addressed issues of long-term importance such as the detection of
osteoporosis and patient risk for bone fracture. The Company has established
normative reference databases for Asian female, African-American female,
Hispanic female, Caucasian female and Caucasian male populations. The Company
will utilize these databases to address the needs of healthcare markets in
different countries and regions and expects them to positively impact upon sales
of accuDEXA(R) abroad. The Company is currently conducting research studies to
investigate the accuDEXA's ability to successfully monitor a course of therapy
over a period of time.
Mammography
The Company is considering several possible sales strategies for the
marketing and distribution of its mammography devices and has not yet determined
which strategies it will employ.
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 which are substantially greater than those of the
Company. In addition, they may have substantially greater experience in
obtaining regulatory approvals than that 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 uncompetitive. No assurance can be given that the Company will be
able to compete successfully.
Dental Products
A number of companies currently sell intra-oral digital dental sensors.
These include Trex Medical Corporation's Trophy Radiologie subsidiary,
Provisions Dental Systems, Inc., Sirona Dental Systems., Cygnus Imaging, Inc.,
and DMD. In addition, Dentsply International and Soredex Corporation sell a
storage-phosphor based intra-oral dental system. The Company believes that the
CDR(R) system has thus far competed successfully against other products. If
other companies enter the digital radiography field, it may result in a
significantly more competitive market in the future. Several companies are
involved in the manufacture and sale of intra-oral cameras, including Dentsply
International Inc., Welch-Allyn Co., Henry Schein Co., Ultra-Cam, Air Technics
and DMD. Digital panoramic dental devices are manufactured by several companies,
including Sirona, Signet, Instrumentarium Imaging and Planmeca. Of those, only
the device manufactured by Signet is designed to be incorporated into existing
conventional panoramic devices.
BMD / Fracture Risk Assessment
Two other companies, Lunar Corporation and Norland Medical Systems, Inc.,
are currently marketing peripheral BMD densitometers. Several companies
including Lunar, Hologic, Inc. and Norland are marketing peripheral ultrasound
devices. A number of other companies have submitted 510(k) applications to the
FDA seeking clearance to market other devices. Two companies, Ostex
International Inc. and Metra Biosystems, Inc., have developed biochemical
markers which indicate the rate at which the body is resorbing (i.e., breaking
down) bone. Another potential competitor of the Company's accuDEXA(R)is the
Osteogram 2000, manufactured by CompuMed Inc., a peripheral screening test
employing RA technology, conventional hand x-rays and computer analysis.
Mammography
The companies in the digital mammography market include the following
manufacturers of traditional mammography devices: GE Medical Systems, Fischer
Imaging, Trex Medical, Instrumentarium Imaging, Philips and Siemens.
11
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, 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 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.
ITEM 2. PROPERTIES
The Company presently leases approximately 103,000 square feet of space in
Long Island City, New York. This space houses the Company's executive offices,
sales and marketing headquarters, research and development laboratories and
production and shipping facilities. The Company believes that such space will be
adequate for its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company and/or certain of its officers and former officers, are
involved in the proceedings described below:
I. The Company is a named defendant in two lawsuits instituted by Trophy
Radiologie, S.A. (`Trophy S.A.'), a subsidiary of Trex Medical Corporation. One
lawsuit was instituted in France and the other in the United States.
The French lawsuit was filed in November 1995, in the tribunal de Grande
Instance de Bobigny, the French patent court, and originally alleged that the
Company's CDR(R)system infringes French Patent No. 2,547,495, European Patent
No. 129,451 and French Certificate of Addition No. 2,578,737. These patents, all
of which are related, are directed to a CCD-based intra-oral sensor. Since
filing its lawsuit, Trophy S.A. has withdrawn its allegation of infringement
with respect to the Certificate of Addition. Trophy S.A. is seeking a permanent
injunction and unspecified damages, including damages for its purported lost
profits. The Company believes that the lawsuit is without merit and is
vigorously defending it.
The lawsuit in the United States was filed in March 1996 by Trophy S.A.,
Trophy Radiology, Inc., a United States subsidiary of Trophy S.A. (`Trophy
Inc.') and the named inventor on the patent in suit, Francis Mouyen, a French
citizen. The suit was brought in the United States District Court for the
Eastern District of New York, and alleges that the Company's CDR(R) system
infringes United States Patent No. 4,593,400 (the `400 patent'), which is
related to the patents in the French lawsuit. Trophy S.A., Trophy Inc. and
Mouyen are seeking a permanent injunction and unspecified damages, including
damages for purported lost profits, enhanced damages for the Company's purported
willful infringement and an award of attorney fees. The Company believes that
the lawsuit is without merit and is vigorously defending it. The Company's
counsel in the United States suit has issued a formal opinion that the CDR
system does not infringe the 400 patent.
In addition, the Company has counter-sued Trophy S.A. and Trophy Inc. for
infringement of United States Patent No. 4,160,997, an expired patent which was
exclusively licensed to the Company by its inventor, Dr. Robert Schwartz, and
for false advertising and unfair competition. The Company believes that its
counter-suit is meritorious, and is vigorously pursuing it.
On September 12, 1997, after having been given permission to do so by the
Court, the Company served two
12
motions for summary judgment seeking dismissal of the action pending in the
United States District Court for the Eastern District of New York, on the
grounds of non-infringement and patent invalidity. On February 22, 2000, oral
argument on these motions was heard by the Court. The motions are currently
pending.
While the Company believes such suits against it are without merit, there
can be no assurance that the Company will be successful in its defense of any of
these actions, or in its counter-suit. If the Company is unsuccessful in its
defense of any of these actions, it could have a material adverse effect upon
the Company. Moreover, regardless of their outcome, the Company may be forced to
expend significant amounts of money in legal fees in connection with these
lawsuits.
II. In late 1998 through early 1999, nine shareholder complaints purporting
to be class action lawsuits were filed in the United States District Court for
the Eastern District of New York. Plaintiffs filed a Consolidated and Amended
Complaint on or about May 27, 1999 and, on or about November 24, 1999, filed a
Second Amended and Consolidated Complaint (the "Complaint"). The Complaint names
as defendants the Company, David B. Schick, Thomas E. Rutenberg, and David
Spector (collectively, the "Individual Defendants"), as well as
PricewaterhouseCoopers LLP.
The Complaint alleged, inter alia, that certain defendants issued false and
misleading statements concerning the Company's publicly reported earnings in
violation of the federal securities laws. The Complaint sought certification of
a class of persons who purchased the Company's Common Stock between July 1, 1997
and February 19, 1999, inclusive, and did not specify the amount of damages
sought.
On May 23, 2000, the Company entered into an agreement in principle with
the plaintiffs for the settlement of the class action lawsuit. Under the
settlement agreement, reflected in a Memorandum of Understanding, all claims
against the Company and the Individual Defendants are to be dismissed without
presumption or admission of any liability or wrongdoing. The principal terms of
the settlement agreement call for payment to the Plaintiffs, for the benefit of
the class, of the sum of $3.4 million. The settlement amount will be paid in its
entirety by the Company's insurance carrier and is not expected to have any
material impact on the financial results of the Company. The settlement is
subject to approval by the Court.
III. 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 has made a request for the voluntary
production of certain documents. The Company intends to cooperate fully with the
SEC staff and has provided responsive documents to it. This matter is in a
preliminary stage and the Company cannot predict its potential outcome.
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, 2000.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
The Company's Common Stock began trading on The Nasdaq National Market
under the symbol "SCHK" on July 1, 1997. Prior to such date, there was no
established public trading market for the Company's Common Stock.
By letter dated September 15, 1999, the Company was advised by the Nasdaq
Stock Market's Listing Qualifications Panel (the "Panel") that the Company's
Common Stock would no longer be listed on the Nasdaq National Market effective
with the close of business on September 15, 1999. The Panel's action was based
on the Company's inability to timely file its Annual Report on Form 10-K for the
fiscal year ended March 31, 1999 and Form 10-Q for the quarter ended June 30,
1999, as well as the revenue recognition and sales practices which had been the
subject of an investigation by the Audit Committee of the Company's Board of
Directors and had led to the filing delays and the need for the restatement of
the Company's financial reports. The Company timely requested a review of this
decision and, on May 25, 2000, the Nasdaq Listing and Hearing Review Council
informed the Company of its determination to affirm the Panel's decision.
Since the delisting of the Company's Common Stock, there has been no
established trading market for such stock, which has been trading in the
over-the-counter market.
The following table sets forth, for the periods indicated, the high and low
sales prices of the Company's Common Stock, as quoted on The Nasdaq National
Market through September 15, 1999, and in the over-the-counter market, as
reported on the "pink sheets" published by National Quotation Bureau LLC,
commencing September 16, 1999.
Fiscal Year Ended March 31, 1999 High Low
- -------------------------------- ------ -----
First Quarter 27.50 13.75
Second Quarter 19.50 14.50
Third Quarter 20.00 7.50
Fourth Quarter 10.375 3.938
Fiscal Year Ended March 31, 2000 High Low
- -------------------------------- ------ -----
First Quarter 5.75 2.438
Second Quarter (through 9/15/99 delisting) 2.875 1.75
Second Quarter (commencing 9/16/99) .625 .50
Third Quarter 1.50 .45
Fourth Quarter 2.625 1.00
On June 6, 2000, the closing bid and asked prices per share of the
Company's Common Stock in the over-the-counter market, as reported as reported
on the "pink sheets" published by National Quotation Bureau LLC, were $1.50 and
$1.75 per share, respectively. Such prices represent quotations between dealers,
without dealer mark-up, mark-down or commission, and may not represent actual
transactions. On June 7, 2000, there were 186 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 not paid any dividends on its Common Stock. The
Company currently intends to retain future earnings to finance the growth and
development of the Company's business and does not anticipate paying any
dividends in the foreseeable future. The payment of dividends is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements, financial condition and other relevant
factors.
14
On July 7, 1997, the Company's initial public offering (the "Offering") of
1,750,000 shares of its common stock, $.01 par value per share (the "Common
Stock") was completed. The Company's registration statement on Form S-1
(Registration No. 333-33731) was declared effective by the Securities and
Exchange Commission on June 30, 1997. As part of the Offering, the Company
granted to the Underwriters over-allotment options to purchase up to 262,500
shares of Common Stock ("the "Underwriters' Option"). On July 10, 1997, the
underwriters exercised the Underwriters' Option purchasing 262,500 shares of
Common Stock from the Company.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from, and are qualified
by reference to, the audited financial statements of the Company for the period
indicated. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in ITEM 7 and the Financial Statements included in ITEM 8 of this
Report.
Year Ended March 31,
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(in thousands, except per share data)
Statement of Operations Data:
Revenue, net $ 6,804 $ 16,101 $ 38,451 $ 45,605 $ 21,989
-------- -------- -------- -------- --------
Cost of sales 3,343 7,907 17,658 34,611 15,393
Excess and obsolete inventory -- 114 -- 5,466 898
-------- -------- -------- -------- --------
Total cost of sales 3,343 8,021 17,658 40,077 16,291
-------- -------- -------- -------- --------
Gross profit 3,461 8,080 20,793 5,528 5,698
-------- -------- -------- -------- --------
Operating expenses:
Selling and marketing 1,620 4,961 10,645 18,440 7,636
General and administrative 1,388 2,054 3,954 7,338 7,330
Research and development 458 1,418 3,852 4,354 2,830
Bad debt expense -- 34 164 5,598 9
Patent litigation settlement -- -- 600 -- --
-------- -------- -------- -------- --------
Total operating costs 3,466 8,467 19,215 35,730 17,805
-------- -------- -------- -------- --------
Income (loss) from operations (5) (387) 1,578 (30,202) (12,107)
Total other income (expense) (108) 35 1,111 244 (224)
-------- -------- -------- -------- --------
Income (loss) before income taxes (113) (352) 2,689 (29,958) (12,331)
Provision (benefit) for income taxes -- -- 328 (352) --
-------- -------- -------- -------- --------
Net income (loss) $ (113) $ (352) $ 2,361 $(29,606) $(12,331)
======== ======== ======== ======== ========
Basis earnings (loss) per share $ (0.02) $ (0.05) $ 0.25 $ (2.96) $ (1.23)
======== ======== ======== ======== ========
Diluted earnings (loss) per share $ (0.02) $ (0.05) $ 0.24 $ (2.96) $ (1.23)
======== ======== ======== ======== ========
15
March 31,
---------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
Balance Sheet Data:
Cash and cash equivalents $ 525 $ 1,710 $ 6,217 $ 1,415 $ 1,429
Working capital 1,240 5,518 33,745 2,902 841
Total assets 4,395 11,060 51,674 29,386 16,290
Total liabilities 3,026 4,973 9,565 16,850 14,974
Retained earnings (accumulated deficit) (1,203) (1,556) 805 (28,801) (41,132)
Stockholders' equity 1,369 6,087 42,109 12,536 1,316
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements included elsewhere in this Report. This
discussion contains forward-looking statements based on current expectations
that involve risks and uncertainties. Actual results and the timing of certain
events may differ significantly from those projected in such forward-looking
statements due to a number of factors, including those set forth in "Results of
Operations" in this Item and elsewhere in this Report. See "ITEM 1 -- Business
- -- Forward-Looking Statements" and Exhibit 99 to this Report.
Overview
The Company designs, develops and manufactures digital imaging systems for
the dental and medical markets. In the field of dentistry, the Company has
developed and currently manufactures and markets an intra-oral digital
radiography system. The Company has also developed a bone mineral density
assessment device to assist in the diagnosis and treatment of osteoporosis,
which was introduced in December 1997. The Company is also developing a
radiographic imaging device for digital mammography, and has commenced
development of a general digital radiography device for intended use in various
applications.
The Company's revenues during fiscal 2000 were derived primarily from sales
of its CDR(R) and accuDEXA(R) products. The Company recognizes revenue on sales
of its products at the time of shipment to its customers and when no significant
vendor obligations exist and collectability is probable. Revenues from the sales
of extended warranties are recognized on a straight-line basis over the life of
the extended warranty, which is generally a one-year period. The Company
utilizes both a direct sales force and a limited number of distributors for
sales of its products within the United States. Effective May 1, 2000, the
Company entered into an exclusive distribution agreement with Patterson Dental
Company and terminated its existing domestic dealer arrangements. International
sales are made primarily through a network of independent foreign distributors.
In fiscal 2000, 1999, and 1998, sales to customers within the United States were
approximately 68%, 87% and 82% of total revenues, respectively. The Company's
international sales are made primarily to distributors in Western Europe,
Russia, Australia and South America. The Company intends to expand its business
in other international markets, including Asia. All of the Company's sales are
denominated in United States dollars.
Costs of sales consists of raw materials and computer components,
manufacturing labor, facilities overhead, product support, warranty costs and
installation costs. The Company procures its APS and CCD semiconductor wafers, a
significant component of its products, each from a single supplier. The Company
believes that sourcing from a single supplier provides certain competitive
advantages to the Company.
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 and from changes in technology,
16
including sensors, cameras and associated electronics and the Company's
phase-out of production of its CCD sensors (as well as its first generation APS
sensors) in favor of its new APS sensors.
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. Development costs incurred to
establish the technological feasibility of software applications are expensed as
incurred. Bad debt expense is a result of product shipments which were
determined to be uncollectible or not collected.
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,
--------------------
2000 1999 1998
----- ----- -----
Revenue, net 100.0% 100.0% 100.0%
----- ----- -----
Cost of sales 70.0% 75.9% 45.9%
Excess and obsolete inventory 4.1% 12.0% --
----- ----- -----
Total cost of sales 74.1% 87.9% 45.9%
----- ----- -----
Gross profit 25.9% 12.1% 54.1%
Operating expenses:
Selling and marketing 34.7% 40.4% 27.7%
General and administrative 33.3% 16.1% 10.3%
Research and development 12.9% 9.5% 10.0%
Bad debt expense -- 12.3% 0.4%
Patent litigation settlement -- -- 1.6%
Fiscal Year Ended March 31, 2000 as Compared to Fiscal Year Ended March 31, 1999
Net revenues decreased 51.8% to $22.0 million in fiscal 2000 from $45.6
million in fiscal 1999. The revenue decline is due to lower sales of the
Company's CDR(R) dental product and accuDEXA(R) bone mineral density assessment
device. Fiscal 2000 revenues were reduced due to a reduction of marketing
activity for the Company's products, reduction of credit granting to select
dealers, hospitals, universities and governmental agencies and, the Company
believes, by the negative perception that existed in the marketplace concerning
the Company's viability and long-term ability to upgrade and service its
products.
The rate of return in fiscal 2000 for the Company's CDR and accuDEXA
products decreased significantly to 4.3% of gross sales in fiscal 2000 from
28.6% of gross sales in fiscal 1999. The decreased return rate for the CDR is
believed to be attributable to several factors including the resolution of
certain technical problems in transitioning its CDR product line from CCD
sensors to APS sensors. Second, the Company's single user CDR System requires
minimal installation. Commencing in September 1998, the Company initiated a
program in coordination with its computer supplier, in which the supplier
installed all single-user CDR Systems. As a result of logistical problems in
implementing this program, the supplier's installations experienced significant
delays, which led to a higher than normal rate of return for single user systems
shipped in this period. Starting in January 1999, the Company resumed direct
management of its single user CDR installations.
17
The Company also experienced a higher than normal rate of returns of
accuDEXA units. The Company believes that these returns are due to several
factors, including the following: First, early shipments of accuDEXA experienced
a higher than expected failure rate due to several reasons, including shipping
damage, as well as humidity and temperature sensitivity of several components
included in the initial design of the product. The Company took steps to address
these problems and believes that failure rates relating to such damage and
sensitivity have dropped significantly. In this regard, the Company currently
expects to implement a number of additional improvements to accuDEXA, to further
increase reliability, in the first half of fiscal 2001. Second, the Company
initiated a change in its sales policy which affected accuDEXA sales made from
May 1998 through November 1998. During that time, the Company waived its
customary 10% deposit which it had charged to customers prior to shipment of
goods. In December 1998, the Company changed its credit policy, requiring
prepayment from non-dealer customers.
Total cost of sales decreased 59.4% to $16.3 million (74.1% of net
revenues) in fiscal 2000 from $40.1 million (87.9% of net revenues) in fiscal
1999. The total cost of sales is decreased due to lower direct and indirect
labor costs, warranty expenditures, material costs, royalty costs and overhead
costs as a result of decreased revenues and a decrease in the provision for
excess and obsolete inventory. The decrease in the provision for excess and
obsolete inventory from 1999 to 2000 is primarily attributable to the
obsolescence of inventory in the third and fourth quarter of 1999 due to the
introduction of the new APS sensors. In January 1999, in an effort to streamline
operations and reduce expenses, and as a result of more efficient manufacturing
processes and a higher rate of outsourcing, the Company reduced its direct
manufacturing labor force from 101 to 64 employees and relocated the operations
of its wholly-owned subsidiary, Schick X-Ray, Corp. from its facility in
Roebling, New Jersey to the Company's headquarters in Long Island City, New
York. In August 1999, Schick X-Ray was dissolved and its operations absorbed by
the Company.
Selling and marketing expenses decreased 58.6% to $7.6 million (34.7% of
net revenues) in fiscal 2000 from $18.4 million (40.4% of net revenues) in
fiscal 1999. This decrease is due to decreased selling expenses in the CDR and
accuDEXA product lines, trade show expenses and other marketing expenses as a
result of decreased revenues. Additionally, the Company reduced its direct sales
force and associated overhead expenses as a result of decreased revenues.
General and administrative expenses remained at $7.3 million, 33.3% of net
revenues in fiscal 2000 and 16.1% of net revenues in fiscal 1999. However,
general and administrative expenses increased as a percent of sales primarily
due to an increase in professional services rendered in connection with the
restatement of the Company's interim financial statements for fiscal 1999. This
increase was partially offset by decreases in payroll and related costs.
Research and development expenses decreased 35.0% to $2.8 million (12.9% of
net revenues) in fiscal 2000 from $4.4 million (9.5% of net revenues) in fiscal
1999. This decrease was largely attributable to decreased payroll and related
costs due to a reduction in personnel partially offset by an increase in test
services and supply expenses. All research and development costs are expensed as
incurred.
Bad debt expenses were $9 thousand in fiscal 2000 compared to $5.6 million
(12.3% of net revenues) in fiscal 1999. The Company believes that the decrease
is attributable to the Company's tightened credit policy as described above.
Interest income decreased to $.1 million in fiscal 2000 from $.5 million in
fiscal 1999 due to the utilization of cash balances and investments in
short-term interest-bearing securities in support of the Company's operating
deficiencies.
Interest expense increased to $.9 million in fiscal 2000 from $.3 million
in fiscal 1999 due to the cost of financing provided by DVI Financial Services
Inc. under the Company's Capital Lease and term note financing arrangements and
by Greystone Funding Corporation's secured credit facility.
18
Fiscal Year Ended March 31, 1999 as Compared to Fiscal Year Ended March 31, 1998
Net revenues increased 18.6% to $45.6 million in fiscal 1999 from $38.5
million in fiscal 1998. This increase was principally attributable to an
increase in sales of the Company's accuDEXA(R) bone mineral density assessment
device that rose to $12.8 million from $4.1 million in sales in fiscal 1998
following the product's introduction in December 1997.
Fiscal 1999 revenues were negatively impacted by a rate of return for the
Company's products, which was higher than the historical return rate for the
Company's products. In addition, revenues were negatively affected by an
increase in reserves for goods which may be returned in the future. Provisions
for returns are comprised of actual returns and estimates for future returns.
The increased return rate for CDR is believed to be attributable to several
factors including the following:
The Company experienced technical problems in transitioning its CDR product
line from CCD sensors to APS sensors. Shipments of the Company's initial version
of its new APS sensor for the CDR product, which were primarily delivered from
April 1998 through August 1998, exhibited a high failure rate and other
technical problems. The Company provided for replacements of systems where
practical and provided for anticipated returns for units which were not
upgradeable. In September 1998, the Company began shipping a new version of the
APS sensor which has exhibited a lower failure rate than the initial version.
The Company's single user CDR System requires minimal installation.
Commencing in September 1998, the Company initiated a program in coordination
with its computer supplier, in which the supplier installed all single-user CDR
Systems. As a result of logistical problems in implementing this program, the
supplier's installations experienced significant delays, which led to a higher
than normal rate of return for single user systems shipped in this period.
Starting in January 1999, the Company resumed direct management of its single
user CDR installations.
The Company also experienced a higher than normal rate of returns of
accuDEXA units. The Company believes that these returns are due to several
factors, including the following:
First, shipments of accuDEXA experienced a higher than expected failure
rate due to several reasons, including shipping damage, as well as humidity and
temperature sensitivity of several components included in the initial design of
the product.
Second, the Company initiated a change in its sales policy which affected
accuDEXA sales made from May 1998 through November 1998. During that time, the
Company waived its customary 10% deposit which it had charged to customers prior
to shipment of goods. In December 1998, the Company changed its credit policy,
requiring prepayment from non-dealer customers.
Total cost of sales increased 127.0% to $40.1 million (87.9% of net
revenues) in fiscal 1999 from $17.7 million (45.9% of net revenues) in fiscal
1998. The increase in cost of sales is attributable to (1) change in product
sales mix and customer mix; (2) expense to upgrade products for CDR customers;
(3) increased warranty expenses; (4) greater than expected returns; and (5)
excess capacity resulting from expansion of the Company's personnel and
facilities in support of sales projections that were not achieved. Excess and
obsolete inventory reserve provisions were $5.5 million (12.0% of net revenues)
in fiscal 1999 compared to none in fiscal 1998. These reserves arose largely
from the overstock of various dies and/or obsolete X-Ray inventory that the
Company may not use or otherwise salvage and from changes in technology,
including sensors, cameras and associated electronics, including the Company's
phase-out of production of its CCD sensors (as well as its first generation APS
sensors) in favor of its new APS sensors.
Selling and marketing expenses increased 73.2% to $18.4 million (40.4% of
net revenues) in fiscal 1999 from $10.6 million (27.7% of net revenues) in
fiscal 1998. This increase was attributable primarily to the hiring and training
of new salespeople and a significant expansion in the Company's marketing
activities in support of sales projections that were not achieved.
General and administrative expenses increased 85.6% to $7.3 million (16.1%
of net revenues) in fiscal 1999 from $4.0 million (10.3% of net revenues) in
fiscal 1998. The increase was attributable primarily to increase in
19
payroll and facilities expenses as the Company expanded its capacity in support
of sales projections that were not achieved, as well as certain professional
expenses that had not been anticipated.
Research and development expenses increased 13.0% to $4.4 million (9.5% of
net revenues) in fiscal 1999 from $3.9 million (10.0% of net revenues) in fiscal
1998. This increase was attributable principally to increased research and
development expenses associated with the enhancement of the accuDEXA, bone
mineral density assessment device and to the CDR system as well as continued
development of a mammography system. All research and development costs are
expensed as incurred.
Bad debt expenses were $5.6 million (12.3% of net revenues) in fiscal 1999
compared to $.2 million (.4% of net revenues) in fiscal 1998. The increase is
attributable to (1) shipments to a distributor which were determined to be
uncollectible during fiscal 1999 ($1.0 million); and (2) other sales which were
not collected subsequently and for which provision for doubtful accounts was
established at March 31, 1999.
Interest income decreased to $505 in fiscal 1999 from $1.2 million in
fiscal 1998 due to the utilization of cash balances and investments in
short-term interest-bearing securities in support of the Company's operating
deficiencies.
Interest expense increased to $261 in fiscal 1999 from $77 in fiscal 1998
due to the cost of financing provided by DVI Financial Services Inc. under the
Company's Capital Lease and Bridge Loan arrangements. Bridge Loan costs include
lease termination expense related to the cancellation and return of system sales
financed by DVI.
Current income tax benefit for fiscal 1999 reflects the refund of taxes
paid by the Company in fiscal year 1998. The Company has not provided deferred
income benefit of future income tax carryforwards because there is no certainty
that such benefits will be utilized. The Company has charged $349 to earnings
representing deferred income taxes from fiscal 1998 which it may not collect.
Liquidity and Capital Resources
At March 31, 2000, the Company had $1.4 million in cash and cash
equivalents and working capital of $.8 million compared to $1.4 million in cash
and cash equivalents, $.4 million in short-term investments and $2.9 million in
working capital at March 31, 1999. The decrease in working capital is primarily
attributable to the loss from operations during fiscal 2000.
During fiscal 2000 cash used in operations was $2.1 million compared to
$20.4 million used in operations during fiscal 1999. Increases in cash were
primarily provided by the sale of a portion of the Company's investment stock
and by the initial draw down of the Company's loan facility with Greystone
Funding Corporation. This cash was used to fund the Company's operating loss and
accounts payable reduction, which exceeded reductions in accounts receivable,
inventory and collection of refundable income taxes. Accounts receivable
decreased to $1.5 million at March 31, 2000 compared to $4.2 million at March
31, 1999 due to reduced sales and restricted credit granting to select dealers,
hospitals, universities and governmental agencies. Inventories decreased to $5.6
million at March 31, 2000 compared to $10.7 million at March 31, 1999 due to the
Company's planned reduction of inventory levels. The Company received estimated
tax payment and net operating loss refunds of $2.4 million during fiscal 2000.
The Company's capital expenditures decreased to $.1 million in fiscal 2000
from $2.8 million in fiscal 1999. Fiscal 2000 expenditures included leasehold
improvements, computers and production equipment.
DVI Financial Services, Inc. ("DVI") has provided the Company with notes
payable for $6.6 million which is secured by first priority liens on
substantially all of the Company's assets. The Company issued promissory notes
and security agreements that provide, in part, that the Company may not permit
the creation of any additional lien or encumbrance on the Company's property or
assets. The notes are due in varying installments through fiscal 2006. Interest
is paid monthly at the prime rate (9% at March 31, 2000) plus 2.5%.
In December 1999, the Company entered into a Loan Agreement (the "Loan
Agreement") with Greystone Funding Corporation ("Greystone") to provide up to
$7.5 million of subordinated debt in the form of a secured credit
20
facility. Pursuant to the Loan Agreement, and to induce Greystone to enter into
said Agreement, the Company issued to Greystone and its designees, warrants to
purchase 3,000,000 shares of the Company's Common Stock at an exercise price of
$.75 per share. The Company agreed to issue Greystone and additional 2,000,000
shares at an exercise price of $.75 per share in connection with a cash payment
of $1 million by Greystone to the Company in consideration of a sale of Photobit
stock by the Company to Greystone. The sale of the Photobit stock was made
subject to a right of first refusal held by Photobit and it founders. By letter
dated February 17, 2000, counsel for Photobit informed the Company that Photobit
considers the Company's sale of its shares to Greystone to be void on the basis
of the Company's purported failure to properly comply with Photobit's right of
first refusal.
On March 17, 2000, the Company and Greystone entered into and Amended and
Restated Loan Agreement effective as of December 17, 1999 (the "Amended loan
Agreement"), which amended and restated the Loan Agreement, pursuant to which
Greystone agreed to provide up to $7.5 million of subordinated debt in the form
of a secured credit facility. The $1 million cash payment to the Company was
converted as of December 27, 1999 into an initial advance of $1 million under
the Amended Loan Agreement. Pursuant to the Amended Loan Agreement and to induce
Greystone to enter into said Agreement, the Company issued warrants to Greystone
and its designees, consisting of those warrants previously issued under the Loan
Agreement and Photobit stock sale arrangement, to purchase 5,000,0000 shares, of
the Company's Common Stock at an exercise price of $0.75 per share, exercisable
at any time after December 27, 1999. Under the Amended Loan Agreement, the
Company also issued to Greystone or its designees warrants (the "Additional
Warrants") to purchase an additional 13,000,000 shares of common stock, which
Additional Warrants will vest and be exercisable at a rate of two shares of
Common Stock for each dollar advanced under the Amended Loan Agreement in excess
of the initial draw of $1 million. Any additional warrants, which do not vest
prior to expiration or surrender of the line of credit, will be forfeited and
canceled. In connection with the Greystone secured credit facility, effective as
of February 15, 2000, DVI consented to the Company's grant to Greystone of a
second priority lien encumbering the Company's assets, under and subject in
priority and right of payment to all liens granted by the Company to DVI. To
date, no additional funds have been advanced under the Amended Loan Agreement in
excess of the initial draw of $1 million.
The Company has also undertaken various cost-cutting measures including
reduction of facilities and personnel. By approximately 40% and 60% respectively
from peak levels of fiscal 1999. The Company discontinued certain promotional
programs which had resulted in increased credit risk, and concomitantly limited
credit to selected domestic dealers. The company continues efforts to improve
its products and methods of production. Effective May 1, 2000 the Company
entered an exclusive distribution agreement with Patterson Dental Company
("Patterson"). Under the terms of this agreement the Company discontinued all
direct domestic sales of its dental products, with the exception of those to
governmental agencies and universities. As a result of the agreement, the
Company further reduced its sales force. Remaining domestic sales
representatives have become manufacturer representatives charged with support of
the Patterson sales effort. The Company terminated all existing dealer
agreements including its agreement with Henry Schein, Inc.
The Company believes that its cost reductions, refinancing and new sales
arrangement, should permit the Company to generate sufficient working capital to
meet its obligations as they mature. The ability of the Company to meet its cash
requirements is dependent, in part, on the Company's ability to attain adequate
sales and profit levels and to satisfy its existing warranty obligations without
incurring expenses substantially in excess of related warranty revenue and to
collect its accounts receivable on a timely basis. Management believes that
existing capital resources and sources of credit, including the Greystone credit
facility, are adequate to meet its current cash requirements. However, if the
Company's cash needs are greater than anticipated or the Company does not
satisfy drawdown conditions under the Amended Loan Agreement, the Company will
be required to seek additional or alternative financing sources. There can be no
assurance that such financing will be available or available on terms acceptable
to the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The DVI term notes bear an annual interest rate based on the prime rate
plus 2.5%, provided however, that if any payments to DVI are past due for more
than 60 days, interest will thereafter accrue at the prime rate plus 5.5%.
Because the interest rate is variable, the Company's cash flow may be adversely
affected by increases in interest rates. Management does not, however, believe
that any risk inherent in the variable-rate nature of the loan is likely to have
a material effect on the Company's interest expense or available cash.
21
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DATA
Information responsive to this item was previously reported in the
Company's Current Reports on Form 8-K, dated September 2, 1999 and September 24,
1999.
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 69, has served as a Director of the Company since
April 1992. Dr. Barrekette's current term on the Board,
which was initially scheduled to expire at the
Company's Annual Meeting of Stockholders in 1999, shall
expire once his successor is elected and qualified. 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 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 Electronic &
Electrical 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 uncle of David B. Schick and the
brother-in-law of Dr. Allen Schick.
David B. Schick Age 39, is a founder of the Company and, since its
inception in April 1992, has served as the Company's
Chief Executive Officer and Chairman of the Board of
Directors. From the Company's inception to December
1999, Mr. Schick also served as the Company's
President. Mr. Schick's current term on the Board
expires at the Company's Annual Meeting of Stockholders
in 2000. Mr. Schick is also a member of the Board of
Directors of Photobit Corporation. From September 1991
to April 1992, Mr. Schick was employed by Philips N.V.
Laboratories, where he served as a consulting engineer
designing high-definition television equipment. From
February 1987 to August 1991, Mr. Schick was employed
as a senior engineer at Cox and Company, an engineering
firm in New York City. From January 1985 to January
1987, Mr. Schick was employed as an electrical engineer
at Grumman Aerospace Co. Mr. Schick holds a B.S. degree
in electrical engineering from the University of
Pennsylvania's Moore School of Engineering. Mr. Schick
is the son of Dr. Allen Schick and the nephew of Dr.
Barrekette.
Allen Schick, Ph.D. Age 65, has served as a Director of the Company since
April 1992. Dr. Schick's current term on the Board
expires at the Company's Annual Meeting of
22
Stockholders in 2000. Since 1981, Dr. Schick has been a
professor at the University of Maryland and since 1988
has been a Visiting Fellow at the Brookings
Institution. Dr. Schick holds a Ph.D. degree from Yale
University. Dr. Schick is David B. Schick's father and
the brother-in-law of Dr. Barrekette.
Jeffrey T. Slovin Age 35, has served as the Company's President and as a
Director since December 1999. Mr. Slovin's current term
on the Board expires at the Company's Annual Meeting of
Stockholders in 2001. Mr. Slovin is currently 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 SportsLab 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.
Robert Barolak Age 46, has served as a Director of the Company since
December 1999. Mr. Barolak's current term on the Board
expires at the Company's Annual Meeting of Stockholders
in 2001. Since 1989, Mr. Barolak has been employed at
Greystone & Co. in various executive capacities and has
been its Executive Vice President since 1995. From 1979
to 1989, Mr. Barolak was an attorney at the firm of
Ballard Spahr Andrews & Ingersoll, LLP in Philadelphia.
Mr. Barolak holds a J.D. degree from the University of
Pennsylvania School of Law.
Jonathan Blank, Esq. Age 55, has served as a Director of the Company since
April 2000. Mr. Blank's current term on the Board
expires at the Company's Annual Meeting of Stockholders
in 2002. Since 1979, Mr. Blank has been a member of the
law firm of Preston Gates Ellis & Rouvelas Meeds LLP, a
managing partner of the firm since 1995 and a member of
the Executive Committee of Preston Gates Ellis LLP
since 1995. Mr. Blank is also a member of the Board of
Directors of Marine Transport Corporation and of its
Audit Committee.
(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 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.
Name Age Position Officer
---- --- -------- Since
-------
David B. Schick................... 39 Chairman of the Board and Chief
Executive Officer 1992
Jeffrey T. Slovin................. 35 President and Director 1999
John Pauley....................... 53 Chief Operating Officer 1999
Zvi N. Raskin..................... 37 Secretary and General Counsel 1992
Stan Mandelkern................... 40 Vice President of Engineering 1999
William Rogers.................... 59 Vice President of Operations 1999
23
Michael Stone..................... 47 Vice President of Sales and Marketing 2000
The business experience of each of the executive officers who is not a
Director is set forth below.
JOHN PAULEY has served as the Company's Chief Operating Officer since
October 1999. From 1985 to 1999, Mr. Pauley was President and Chief
Executive Officer of PFCM Corporation, a management-consulting firm. From
1983 to 1985, Mr. Pauley was Director of Construction Engineering and
Facilities Operations at NBC, Inc. and, from 1979 to 1983, was President
and Chief Executive Officer of Hospital Energists, Inc. / Oak Ridge
Associated Universities. Mr. Pauley holds a B.A. Degree in Biology and a
B.S. Degree in Chemistry from the University of Tennessee.
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. From 1990 to 1992, Mr. Raskin was an associate at the New York law
firm of Dornbush Mandelstam & Silverman. Mr. Raskin holds a J.D. degree
from Yale Law School.
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 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 a M.S. Degree in
electrical engineering from Syracuse University.
WILLIAM ROGERS has served as the Company's Vice President of Operations
since January 2000. From August 1998 to January 2000, Mr. Rogers was the
Company's Director of Materials and Manufacturing Engineering. From June
1995 to August 1998, Mr. Rogers was Director of Operations at Veeco
Instruments Co., and from May 1993 to February 1995 was Director of
Manufacturing for Scully Signal Company. Mr. Rogers holds a B.S. Degree in
electrical engineering from Northeastern University.
MICHAEL STONE has served as the Company's Vice President of Sales and
Marketing since January 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.
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 written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors and greater than 10% beneficial owners were
complied with, except that the Form 3 for Mr. Stone, Vice President of Sales and
Marketing, was not timely filed.
24
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
received for the fiscal years ended March 31, 2000, 1999 and 1998 by the
Company's chief executive officer and each of the current and former executive
officers of the Company whose total salary and other compensation exceeded
$100,000 (the "Named Executives") for services rendered in all capacities
(including service as a director of the Company) during the year ended March 31,
2000.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------- Awards
------
Other
Annual Securities All Other
Name and Principal Fiscal Compensa Underlying Compensa
Position Year Salary($) Bonus($) tion(1) Options(#)(2) tion($)(3)
-------- ---- --------- -------- ------- ------------- ---------
- ------------------------------------------------------------------------------------------------------------------------------------
2000 $184,442 $ -- -- -- $ 3,802
David B. Schick
Chairman of the Board and 1999 217,500 -- -- 12,251 3,980
Chief Executive Officer
1998 143,385 39,692 -- 3,267 4,569
- ------------------------------------------------------------------------------------------------------------------------------------
2000 165,769 -- -- -- 3,144
Fred Levine
Former Vice President of 1999 179,167 47,500(4) -- 12,055 4,366
Sales and Marketing and
Former Director
1998 137,318 23,826(4) -- 1,000 4,031
- ------------------------------------------------------------------------------------------------------------------------------------
2000 160,577 10,000 -- -- 4,265
Zvi N. Raskin, Esq
General Counsel and 1999 132,500 -- -- 17,006 3,286
Secretary
1998 99,539 25,000 -- 2,343 3,113
- ------------------------------------------------------------------------------------------------------------------------------------
George C. Rough, Jr 2000 139,385(5) -- -- -- --
Former Chief Financial
Officer 1999 13,846(6) 150,000(7) -- 100,000(8) --
1998 -- -- -- -- --
- ----------------
(1) Aggregate amount does not exceed the lesser of $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
1998, 1999 and 2000, 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
1998, 1999 and 2000.
(4) Represents a commission received by Mr. Levine in connection with certain
sales targets that were met or exceeded.
- ----------------
25
(5) Reflects payment of salary to Mr