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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2004
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 (IRS Employer
incorporation or organization) Identification No.)
30-00 47th Avenue, Long Island City, NY 11101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (718) 937-5765
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes |_| No |X|
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of September 30, 2003, the last business day of the registrant's
most recently completed second fiscal quarter, was approximately $57,888,985.
Such aggregate market value is computed by reference to the closing sale price
of the Common Stock on such date.
As of June 10, 2004, the number of shares outstanding of the Registrant's
Common Stock, par value $.01 per share, was 15,028,793
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
Table of Contents
Item of Form 10-K Page
Part I
Item 1. Business ................................................................................. 1
Item 2. Properties ............................................................................... 11
Item 3. Legal Proceedings ........................................................................ 11
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 12
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ................ 12
Item 6. Selected Financial Data .................................................................. 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................... 22
Item 8. Financial Statements and Supplementary Data .............................................. 22
Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure ..... 22
Item 9A. Controls and Procedures .................................................................. 22
Part III
Item 10. Directors and Executive Officers of the Registrant ....................................... 22
Item 11. Executive Compensation ................................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners And Management ........................... 31
Item 13. Certain Relationships and Related Transactions ........................................... 34
Item 14. Principal Accountant Fees and Services ................................................... 34
Part IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ......................... F-1
FORWARD-LOOKING STATEMENTS
This Form 10-K Annual Report contains forward-looking statements that
involve risk and uncertainties. All statements, other than statements of
historical facts, included in this Annual Report regarding the Company, its
financial position, products, business strategy and plans and objectives of
management of the Company for future operations, are forward-looking statements.
When used in this Annual Report, words such as "anticipate," "believe,"
"estimate," "expect," "intend," "objectives," "plans" and similar expressions,
or the negatives thereof or variations thereon or comparable terminology as they
relate to the Company, its products or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company's management, as well as assumptions made by and information currently
available to the Company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of various
factors, including, but not limited to, those contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this Annual Report and the "Risk Factors" set forth in Exhibit 99.1 to this
Annual Report. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by this paragraph.
PART I
ITEM 1. BUSINESS
Schick Technologies, Inc. (the "Company") designs, develops and
manufactures innovative digital radiographic imaging systems and devices, which
are based on proprietary digital imaging technologies, for the dental and
medical markets.
In the field of dentistry, the Company offers an integrated filmless
solution for the dental professional. The Company's major products include:
(i) the CDR(R) (computed dental radiography) imaging system;
(ii) Dental Imaging Software;
(iii) CDR Wireless(TM);
(iv) USBCam(TM);
(v) CDRPan(R); and
(vi) CDRPanX(TM).
The CDR(R) system, which has become a leading product in the field over
the past decade, uses an intra-oral sensor to produce instant, full size,
high-resolution dental x-ray images on a color computer monitor without the use
of film or the need for chemical development. Additionally, CDR(R) dramatically
reduces the radiation dose to which a patient may be exposed -- by up to 80% as
compared with conventional x-ray film. CDR Wireless(TM), introduced in February
2003, is an innovative wireless instant digital dental x-ray system that
combines all of the advantages of digital radiography with greater flexibility
and ease of placement. The USBCam(TM), the first intra-oral dental camera to
provide full motion video via a standard USB port, was introduced by the Company
in July 2002. It fully integrates with the CDR(R) system and eliminates the need
for camera power supplies and video capture cards. CDRPan(R), sold since
September 1999, eliminates the need for x-ray film in panoramic dental
diagnostic procedures and can be easily retrofitted onto existing panoramic
dental x-ray machines. CDRPanX(TM) introduced by the Company in November 2003,
is an integrated digital panoramic device, which allows for fully digital
panoramic dental diagnostic procedures.
In addition, the Company is developing other products and devices for the
dental field, as well as updated versions of its current products.
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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.
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, developed by the California Institute
of Technology and initially licensed to Photobit Corporation, is licensed to
Micron Technology, Inc.; 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 innovative, high
resolution, cost effective 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; (ii) enhancing the Company's international
distribution channels; and (iii) broadening the Company's product offerings.
The Company's business was founded in 1992 and it was incorporated in
Delaware in 1997. On July 7, 1997, the Company completed an initial public
offering of its Common Stock. Proceeds to the Company after expenses of the
offering were approximately $33,508,000.
Under generally accepted accounting principles, the Company operates in
one reportable segment: digital radiographic imaging systems. Note 1 to the
Company's Consolidated Financial Statements summarizes, by percentage, the
Company's revenues from its principal products.
The Company's offices are located at 30-00 47th Avenue, Long Island City,
New York 11101. The Company's telephone number is (718) 937-5765, and its
website address is http://www.schicktech.com.
PRODUCTS / INDUSTRY
Digital Imaging
X-ray imaging, or radiography, is widely used as a basic diagnostic
technique in a broad range of 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 may raise
concerns regarding the health risks associated with exposure to radiation. Also,
conventional film images cannot be electronically retrieved from patient records
or electronically transmitted to health care providers or insurance carriers at
remote locations, a capability which has become increasingly important in
today's managed care environment. While certain x-ray scanning systems can
convert x-rays into digital form, they add to the time and expense associated
with the use of conventional film and do not eliminate the drawbacks of film
processing.
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Digital radiography products have been developed to overcome the
limitations of conventional film. These systems replace the conventional film
cassette with an electronic receptor which directly converts the incident x-rays
to digital images.
Dental Imaging
In contrast to physicians, who often operate within highly-specialized
fields, dentists typically perform their own radiology work. They utilize a
significant volume of radiographic products and operate a substantial quantity
of radiographic equipment. The Company believes that there is a potential market
for 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 that each
of them, on average, operates 1.25 radiological units, creating a potential
market of 750,000 additional devices. According to a survey of United States
dentists, reported in Dental Products Report in November 2003, the market
penetration for digital dental radiography devices among the survey respondents
was 17.1%.
The Company believes that dentists have a particularly strong motivation
to adopt digital radiography. Radiographic examinations are an integral part of
routine dental checkups and the dentist is directly involved in the film
development process. The use of digital radiography eliminates delays in film
processing, thus increasing the dentist's potential revenue stream and
efficiency, and reduces overhead expenses. The use of digital radiography also
allows dentists to more effectively communicate diagnoses and treatment plans to
patients and to easily store and display patients' previous dental x-ray images,
which the Company believes have the potential to increase the rate of patients'
treatment acceptance and resulting revenues. Finally, the radiation dosage
required to produce an intra-oral dental x-ray, which is high when compared with
other medical radiographs, can be reduced by up to 80% through the use of
digital radiography.
The Company's principal revenue-generating product is its CDR(R) computed
dental radiography imaging system. The Company's CDR(R) system is easy to
operate and can be used with any dental x-ray generator. To produce a digital
x-ray image using CDR(R), the dentist selects an intra-oral sensor of suitable
size and places it in the patient's mouth. The sensor converts the x-rays into a
digital image that is displayed on the computer monitor within five seconds and
automatically stored as part of the patient's clinical records. CDR(R) system
software 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-ray
exposures is greatly diminished. The process is easy and intuitive, enabling
nearly any member of the dental staff to operate the CDR(R) system with minimal
training.
The Company manufactures wired digital sensors in three sizes which
correspond to the three standard sizes of conventional dental x-ray film. Size 0
nominally measures 31 x 22.5 x 5.3mm and is designed for pediatric use; size 1
nominally measures 37.7 x 25 x 5.3mm and is designed for taking anterior dental
images; and size 2 nominally measures 43.5 x 30.6 x 5.3mm and is designed for
taking bitewing images. All of the Company's CDR(R) sensors can be disinfected
using cold solutions or gas. The typical CDR(R) configuration includes a
computer, display monitor, size 2 digital sensor, imaging software and a USB
remote module.
In February 2003, the Company announced the introduction of CDR
Wireless(TM), which the Company believes to have been the world's first wireless
instant dental x-ray system. It allows dentists to produce high-quality instant
radiographs with low radiation dosage and without the need for a cable between
the intra-oral sensor and computer. The Company currently manufactures Size 1
and Size 2 wireless sensors.
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The Size 1 sensor nominally measures 37.7 x 25 x 6.6mm and the Size 2 sensor
nominally measures 43.5 x 30.6 x 5.3mm.
The Company began selling its intra-oral camera, the CDRCam(R), in early
1997 and a redesigned version, the CDRCam 2000, in November 1999. In April 2002,
the Company introduced the USBCam(TM), an innovative intra-oral camera which
fully integrates with the CDR(R) system to provide color video images of the
structures of the mouth. The Company believes that the USBCam(TM) was the
world's first intra-oral camera with a direct USB interface. Since their
introduction in 1991, intra-oral cameras have become widely accepted in
dentistry as a diagnostic, communication and presentation tool.
In March 1999, the Company commenced the sale of its digital panoramic
imaging device, the CDRPan(R). This device, which is designed to be retrofitted
into conventional panoramic dental x-ray machines, replaces film with electronic
sensors and a computer. This obviates the need for film and provides
instantaneous images, thus offering substantial savings in terms of time and
costs. Additionally, the CDRPan(R) easily integrates with practice management
and other computer software applications. An integrated digital panoramic
machine, marketed under the CDRPanX(TM) name, was introduced by the Company in
November 2003. It is a stand-alone device that performs digital panoramic
imaging for use in dentistry and maxillofacial surgery. The CDRPanX(TM) is
currently sold abroad; the Company plans to introduce this product to the U.S.
market during fiscal 2005.
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. Until recently, osteoporosis was considered neither
treatable nor preventable. Because recognized 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. The Company's
accuDEXA(R) device is an innovative BMD assessment device used to assist doctors
in the diagnosis of low bone density and prediction of fracture risk. The
Company believes that this low-cost and precise diagnostic tool assesses BMD
more quickly and easily than 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 part of a patient's physical
examination where indicated. In December 1997, the Company received clearance
from the United States Food and Drug Administration ("FDA") for marketing the
accuDEXA(R) as a BMD assessment device; in June, 1998 and May 2000, the FDA
granted the Company additional clearances for its marketing of the accuDEXA(R),
respectively, as a predictor of fracture risk and to further clarify issues
regarding the collection of the normative database.
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 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 position 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.
MANUFACTURING
The Company's manufacturing facility is located at its headquarters in
Long Island City, New York. This facility is subject to periodic inspection by
the FDA. The Company assembles its CDR(R) sensors, CDRPan(R) and CDRPanX(TM)
sensors, USBCam(TM) intra-oral cameras and accuDEXA(R) bone densitometers at
this manufacturing facility. The Company outsources the assembly of certain
subassemblies, such as
4
printed circuit boards, plastics and cables, but performs the majority of the
final assembly and testing process at its manufacturing facility.
The Company purchases components for its products from a number of outside
vendors. While the Company strives to maintain multiple sources of supply for
each component, certain highly specialized components, including semiconductor
wafers used in the assembly of sensors, are primarily provided by a single
supplier. In these cases, the Company strives to maintain sufficient inventory
so as to provide extra time in which to locate an acceptable alternate supplier
in the event of a supply interruption. The Company believes that it would be
able to locate an acceptable alternate supplier in such event; however, the need
to replace a supplier could cause a disruption in the Company's ability to
timely deliver its products or increase the Company's costs.
The Company's quality assurance program includes various quality control
measures, from inspection of raw materials, purchased parts and assemblies
through in-process and final inspection, and conforms to the guidelines of the
International Quality Standard, ISO 9001. In August 1998, the Company was
granted ISO 9001 certification and, in September 2003, was granted ISO 9001:2000
certification. Since August 1998, the Company has been subject to semi-annual
audits to evaluate its eligibility to maintain such certification.
DEPENDENCE ON CUSTOMERS
During fiscal 2004, 2003 and 2002, respectively, North American sales of
approximately $21.6 million or 55% of total annual sales, $15.4 million or 52%
of total annual sales and $9.9 million or 41% of total annual sales, were made
to Patterson Dental Company. During fiscal 2004, 2003 and 2002 respectively,
sales of approximately $9.9 million, $6.2 million and $6.2 million were made to
international customers.
PATENTS, TRADE SECRETS AND PROPRIETARY RIGHTS
The Company seeks to protect its intellectual property through a
combination of patent, trademark and trade secret protection. The Company's
future success will depend in part on its ability to obtain and enforce patents
for its products and processes, preserve its trade secrets and operate without
infringing the proprietary rights of others.
Patents
The Company has an active corporate patent program, the goal of which is
to secure patent protection for its technology. The Company currently has issued
United States patents for an `Intra-Oral Sensor For Computer Aided Radiography',
U.S. Patent No. 5,434,418, which expires on October 16, 2012; a `Large Area
Image Detector', U.S. Patent No. 5,834,782, which expires on November 20, 2016;
a `Method and Apparatus for Measuring Bone Density', U.S. Patent No. 5,852,647,
which expires on September 24, 2017; an `Apparatus for Measuring Bone Density
Using Active Pixel Sensors', U.S. Patent No. 5,898,753, which expires on June 6,
2017; a `Dental Imaging System with Lamps and Method', U.S. Patent No.
5,908,294, which expires on June 12, 2017; an `X-ray Detection System Using
Active Pixel Sensors', U.S. Patent No. 5,912,942, which expires on June 6, 2017;
a `Dental Imaging System with White Balance Compensation', U.S. Patent No.
6,002,424, which expires on June 12, 2017; `Dental Radiography Using an
Intraoral Linear Array Sensor,' U.S. Patent No. 5,995,583, which expires on
November 13, 2016; a `Method for Reading Out Data from an X-Ray Detector,' U.S.
Patent No. 6,069,935, which expires on November 2, 2018; and a `Filmless Dental
Radiography System Using Universal Serial Bus Port', U.S. Patent No. 6,134,298,
which expires on August 7, 2018. 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 ten U.S. patent applications currently
pending. The Company also seeks foreign patent protection when it deems it to be
warranted.
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The Company is the exclusive sub-licensee for use in medical radiography
applications of certain patents, patent applications and other know-how
(collectively, the "Intellectual Property") related to complementary metal oxide
semiconductor ("CMOS") active pixel sensor technology (the "APS Technology"),
which was developed by the California Institute of Technology and licensed to
Photobit Corp. from which the Company obtained its sub-license. Photobit was
subsequently acquired by Micron Technology, Inc., which continues to sublicense
the CMOS Intellectual Property to the Company. The Company's exclusive rights to
such technology are subject to government rights to use, noncommercial
educational and research rights to use by California Institute of Technology and
the Jet Propulsion Laboratory, and the right of a third party to obtain a
nonexclusive license from the California Institute of Technology with respect to
such technology. The Company believes that, except for such third party's
exercise of its right to obtain a nonexclusive license to use APS Technology in
a field other than medical radiography, none of the foregoing parties have given
notice of their exercise of any of their respective rights to the APS
Technology. There can be no assurance that this will continue to be the case,
and any such exercise could have a material adverse effect on the Company.
Additionally, the agreement between the Company and Photobit Corporation
required, among other things, that the Company use all commercially reasonable
efforts to timely introduce, improve and market and distribute licensed products
in various fields. The Company has not introduced licensed products in certain
of these fields, and there can be no assurance that the Company will do so in
the future. Such failure to introduce licensed products could result in a
termination or modification of the Company's rights with respect to the fields
in which it has not introduced licensed products, but should not affect the
Company's rights with respect to the fields in which it has introduced licensed
products.
Trademarks
The Company has obtained trademark registrations from the United States
Patent and Trademark Office for the marks (i) "CDR" for its digital dental
radiography product; (ii) "CDRCam" (both textual and stylized) for its
intra-oral camera (iii) "QuickZoom" (both textual and stylized) for a viewing
feature in its digital dental radiography product; (iv) "accuDEXA" for its BMD
assessment product; and (v) "CDRPan" for its panoramic digital dental
radiography product. In addition, the Company has a pending trademark
application as well as common law trademark rights in several other names it
uses commercially in connection with its products.
Trade Secrets
In addition to patent protection, the Company owns trade secrets and
proprietary know-how which it seeks to protect, in part, through appropriate
Non-Disclosure, Non-Solicitation, Non-Competition and Inventions Agreements,
and, to a limited degree, employment agreements with appropriate individuals.
These agreements generally provide that all confidential information developed
by or made known to the individual by the Company during the course of the
individual's relationship with the Company is the property of the Company, and
is to be kept confidential and not disclosed to third parties, except in
specific limited circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering services to
the Company shall be the exclusive property of the Company. However, there can
be no assurances that these agreements will not be breached, that the Company
would have adequate remedies available for any breach or that the Company's
trade secrets will not otherwise become known to, or independently developed by,
its competitors.
GOVERNMENT REGULATION
Products that the Company is currently developing or may develop in the
future are likely to require certain forms of governmental clearance, including,
but not limited to, marketing clearance by the 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
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marketing clearance. There can be no assurance that any products developed by
the Company in the future will be given clearance by applicable governmental
authorities or that additional regulations will not be adopted or current
regulations amended in such a manner as to adversely affect the Company.
Pursuant to the Federal Food, Drug and Cosmetic Act, as amended (the "FD&C
Act"), the FDA classifies medical devices intended for human use into three
classes: Class I, Class II, and Class III. In general, Class I devices are
products for which the FDA determines that safety and effectiveness can be
reasonably assured by general controls under the FD&C Act relating to such
matters as adulteration, misbranding, registration, notification, records and
reports. The USBCam(TM) 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(R),
CDRPanX(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 class require pre-market approval, as described below. None of the
Company's existing products are in the Class III category.
The FD&C Act further provides that, unless exempted by regulation, medical
devices may not be commercially distributed in the United States unless they
have been cleared by the FDA. There are two review procedures by which medical
devices can receive such clearance. Some products may qualify for clearance
under a Section 510(k) procedure, in which the manufacturer submits to the FDA a
pre-market notification that it intends to begin marketing the product, and
shows that the product is substantially equivalent to another legally marketed
product (i.e., that it has the same intended use and that it is as safe and
effective as a legally marketed device, and does not raise different questions
of safety and effectiveness than does a legally marketed device). In some cases,
the 510(k) notification must include data from human clinical studies.
Marketing may commence once the FDA issues a clearance letter finding such
substantial equivalence. According to FDA regulations, the agency has 90 days in
which to respond to a 510(k) notification. There can be no assurance, however,
that the FDA will provide a timely response, or that it will reach a finding of
substantial equivalence.
If a product does not qualify for the 510(k) procedure (either because it
is not substantially equivalent to a legally marketed device or because it is a
Class III device), the FDA must approve a Pre-Market Approval ("PMA")
application before marketing can begin. PMA applications must demonstrate, among
other things, that the medical device is safe and effective. A PMA application
is typically a complex submission that includes the results of clinical studies.
Preparation of such an application is a detailed and time-consuming process.
Once a PMA application has been submitted, the FDA's review process may be
lengthy and include requests for additional data. By statute and regulation, the
FDA may take 180 days to review a PMA application, although such time may be
extended. Furthermore, there can be no assurance that the FDA will approve a PMA
application.
In January 1994, the FDA cleared the Company's 510(k) application for
general use and marketing of the CDR(R) system, and in October 2002, cleared the
Company's expanded 510(k) application for the CDR wireless product. In November
1996, the FDA cleared the Company's 510(k) application for general use and
marketing of the USBCam(TM). In December 1997, the FDA cleared the Company's
510(k) application for general use and marketing of accuDEXA(R). The FDA granted
the Company additional clearances in connection with the accuDEXA(R), on June 4,
1998, to market accuDEXA(R) as a predictor of fracture risk, and on May 26,
2000, to further clarify issues regarding the collection of the normative
database. In
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December 1998 and May 2003, the FDA cleared the Company's 510(k) applications
for CDRPan(R) and CDRPanX(TM), respectively.
In addition to the requirements described above, the FD&C Act requires
that all medical device manufacturers and distributors register with the FDA
annually and provide the FDA with a list of those medical devices which they
distribute commercially. The FD&C Act also requires that all manufacturers of
medical devices comply with labeling requirements and manufacture their products
and maintain their documents in a prescribed manner with respect to
manufacturing, testing, and quality control activities. The FDA's Medical Device
Reporting regulation subjects medical devices to post-market reporting
requirements for death or serious injury, and for certain malfunctions that
would be likely to cause or contribute to a death or serious injury if
malfunction were to recur. In addition, the FDA prohibits a device which has
received marketing clearance from being marketed for applications for which
marketing clearance has not been obtained. Furthermore, the FDA generally
requires that medical devices not cleared for marketing in the United States
receive FDA marketing clearance before they are exported, unless an export
certification has been granted.
The Company must obtain certain approvals by and marketing clearances from
governmental authorities, including the FDA and similar health authorities in
foreign countries, to market and sell its products in those countries. The FDA
regulates the marketing, manufacturing, labeling, packaging, advertising, sale
and distribution of "medical devices", as do various foreign authorities in
their respective jurisdictions. The FDA 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.
The Company is currently developing new products for the dental and
medical markets. The Company expects to file 510(k) applications with the FDA in
connection with its future products. There can be no assurance that the Company
will file such 510(k) applications and/or will obtain pre-market clearance for
any future products, or that in order to obtain 510(k) clearance, the Company
will not be required to submit additional data or meet additional FDA
requirements that may substantially delay the 510(k) process and result in
substantial additional expense. Moreover, such pre-market clearance, if
obtained, may be subject to conditions on marketing or manufacturing, which
could impede the Company's ability to manufacture and/or market the product. 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.
The Company's CDR(R) wireless product complies with the relevant technical
standards established by the U.S. Federal Communications Commission ("FCC"), as
set forth in FCC Rule 15.249. CDR wireless is not subject to any wireless or
transmission licensing requirements.
Failure to comply with applicable regulatory requirements can, among other
consequences, result in fines, injunctions, civil penalties, suspensions or loss
of regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution. In addition, governmental regulations may
be established that could prevent or delay regulatory clearance of the Company's
products. Delays in receipt
8
of clearance, failure to receive clearance or the loss of previously received
clearance would have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition to laws and regulations discussed above, the Company is
subject to government regulations applicable to all businesses, including, among
others, regulations related to occupational health and safety, workers' benefits
and environmental protection. The extent of government regulation that might
result from any future legislation or administrative action cannot be accurately
predicted. Failure to comply with regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Distribution of the Company's products in countries other than the United
States may be subject to regulations in those countries. These regulations vary
significantly from country to country; the Company typically relies on its
independent distributors in such foreign countries to obtain the requisite
regulatory approvals.
The Company's products bear the "CE Mark," a European Union symbol of
compliance with quality assurance standards and with the European Union's
Medical Device Directive ("MDD"). In order to market the Company's products in
the member countries of the European Union, it is necessary that those products
conform to these standards and the MDD. It is also necessary that the Company's
products comply with any revisions which may be made to the standards or the
MDD. To date, the Company has maintained such compliance.
The Company has developed and implemented a quality assurance program in
accordance with the guidelines of the International Quality Standard, ISO 9001.
In August 1998, the Company was granted ISO 9001 certification. The Company's
current products also comply with the requirements for the "U.L." 2601-1
(U.S.A.) and "CSA" C22.2 No. 601-1 (Canada) standards and bear the "ETL" mark
indicating such compliance.
PRODUCT LIABILITY INSURANCE
The Company is subject to the risk of product liability and other
liability claims in the event that the use of its products results in personal
injury or other claims. Although the Company has not experienced any product
liability claims to date, any such claims could have an adverse impact on the
Company. The Company maintains insurance coverage related to product liability
claims, but there can be no assurance that product liability or other claims
will not exceed its insurance coverage limits, or that such insurance will
continue to be maintained or that it will be available on commercially
acceptable terms, or at all.
RESEARCH AND DEVELOPMENT
During fiscal 2004, 2003 and 2002, research and development expenses were
$3.3, $2.6 and $2.2 million, respectively.
BACKLOG
The backlog of orders was approximately $0.8 million at June 10, 2004 and
$0.5 million at each of June 3, 2003 and June 1, 2002, respectively. Such
figures include approximately $0.4 million, $0.2 million, and $0.4 million of
orders on hold pending credit approval at June 3, 2004, June 3, 2003 and June 1,
2002, respectively. Orders included in backlog may generally be cancelled or
rescheduled by customers without significant penalty.
EMPLOYEES
As of June 10, 2004, the Company had 133 full-time employees, engaged in
the following capacities: sales and marketing (40); general and administrative
(32); operations (37); and research and development
9
(24). 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 covering the United States and
Canada; as of May 1, 2000, the Company began marketing and selling its CDR(R)
dental products in the United States and Canada through Patterson. The Company
believes that Patterson is one of the largest distributors of dental products in
North America, with more than 1,200 field sales personnel in the U.S. and
Canada. In addition, the Company has an in-house sales program that focuses on
universities and continuing education programs. As of March 31, 2004, CDR(R) had
been sold to 47 of the 55 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 currently has 16 area sales manager ("ASM") territories
located throughout the United States and one in Canada to interface with and
assist Patterson in its sales effort; two individuals manage the ASM staff. In
addition, a sales and marketing support staff of seven, based at the Company's
offices in New York and at other locations throughout the United States,
supports the sales managers and the ASMs by planning events and product seminars
and developing promotional and marketing materials.
In the international market, the Company sells the CDR(R) system via
independent regional distributors. There are currently approximately 65
independent CDR(R) dealers, covering about 57 countries. A dedicated in-house
staff, as well as four individuals based in Europe, Asia and Latin America,
provide the foreign distributors with materials, sales support, technical
assistance and training, both in New York and abroad.
The Company's goal is to develop and introduce new technologies and
products while maintaining market leadership in our core domestic business,
strengthening and expanding our international distribution network and securing
as many productive sales channels as possible.
BMD / Fracture Risk Assessment
The Company currently sells the accuDEXA(R) primarily through a network of
manufacturer representatives. To date, accuDEXA(R) sales have taken place
primarily within the United States, with a relatively small number of sales
abroad. The primary end-users for accuDEXA(R) are primary care physicians,
including OB/GYN practices, and osteopathic and geriatric specialists.
COMPETITION
Competition relating to the Company's current products is intense and
includes various companies, both within and outside of the United States. Many
of the Company's competitors are large companies with financial, sales and
marketing, and other resources that are substantially greater than those of the
Company. In addition, there can be no assurance that the Company's competitors
are not currently developing, or will not attempt to develop, technologies and
products that are more effective than those of the Company or that would
otherwise render the Company's products obsolete or noncompetitive. No assurance
can be given that the Company will be able to compete successfully.
10
Dental Products
A number of companies currently sell intra-oral digital dental sensors
under various brand names. These include Eastman Kodak Co. ("Trophy"), Gendex
Dental Systems ("DenOptix"), Dentrix Dental Systems, Inc. ("ImageRay"),
Provisions Dental Systems, Inc. ("Dexis"), Sirona Dental Systems ("Sidexis") and
Suni Imaging, Inc. In addition, Gendex, Air Techniques and Soredex Corporation
sell storage-phosphor based intra-oral dental systems. The Company believes that
its CDR system has thus far competed successfully against other products. If
other companies enter the digital radiography field, it may result in a
significantly more competitive market in the future. Several companies are
involved in the manufacture and sale of intra-oral cameras, including Gendex,
Henry Schein, Inc., Digital Doc and Air Techniques. Several companies, including
Kodak, Sirona, Signet, Instrumentarium Imaging and Planmeca, manufacture digital
panoramic dental devices.
BMD / Fracture Risk Assessment
Two other companies, GE Lunar Corporation and Cooper-Surgical, Inc., are
currently marketing peripheral dual-X-Ray-absorptiometry (DXA) BMD
densitometers. Several companies including GE Lunar, Hologic, Inc., Sunlight,
Inc. and Norland are marketing peripheral ultrasound devices. A number of other
companies market other devices including ones that assess hand densitometry. Two
companies, Ostex International Inc. and Quidel Corp., Inc., have developed
biochemical markers which indicate the rate at which the body is resorbing
(i.e., breaking down) bone.
ITEM 2. PROPERTIES
The Company presently leases approximately 50,000 square feet of space in
Long Island City, New York. That lease expires in June 2007. The leased space
houses our executive offices, sales and marketing headquarters, research and
development laboratories and production and shipping facilities. The Company
believes that such space will be adequate for its needs for the foreseeable
future and that, if such space proves to be inadequate, it will be able to
procure additional or replacement space that will be adequate for its needs.
ITEM 3. LEGAL PROCEEDINGS
The Company and/or certain of its officers and former officers, are
involved in the matters described below:
In August 1999, the Company, through its outside counsel, contacted the
Division of Enforcement of the Securities and Exchange Commission ("SEC") to
advise it of certain matters related to the Company's restatement of earnings
for interim periods of fiscal 1999. Subsequent thereto, the SEC requested the
voluntary production of certain documents and the Company provided the SEC with
the requested materials. On August 17, 2000 and April 30, 2003, the SEC served
subpoenas upon the Company, pursuant to a formal order of investigation,
requiring the production of certain documents. The Company timely provided the
SEC with the subpoenaed materials. The Company has been informed that since
January 2002 the SEC and/or the United States Attorney's Office for the Southern
District of New York have served subpoenas upon and/or contacted certain
individuals, including current and former officers and employees of the Company,
and a current Director, in connection with this matter. On June 13, 2002, the
Company was advised by counsel to David Schick, the Company's former chief
executive officer, that the United States Attorney's Office for the Southern
District of New York had notified such counsel that Mr. Schick was a target of
the United States Attorney's investigation of this matter. The Company has
cooperated with the SEC staff and U.S. Attorney's Office.
On November 14, 2003, the SEC filed a civil action in the United States
District Court for the Eastern District of New York against the Company, its
former chief executive officer, and its former vice president of sales &
marketing. The SEC complaint alleges fraud, and books and records and reporting
violations
11
under Sections 10(b), 13(a) and 13(b)(2) of the Securities Exchange Act and
various rules promulgated thereunder in connection with the financial statements
included in the Company's reports on Form 10-Q for the quarters ended June 30,
September 30 and December 31, 1998. The SEC complaint seeks to enjoin the
Company from future violations of those provisions of the Exchange Act and the
rules thereunder, as well as disgorgement of any ill-gotten gains, which the
Company does not believe to be material in amount. With respect to the other
defendants, the complaint seeks injunctive relief, civil penalties, disgorgement
and an officer/director bar.
In September 2003, the Board of Directors appointed a Special Litigation
Committee, consisting of Messrs. Blank (Chair), Hood, Landesman and Rocca, which
has oversight responsibility and authority with respect to the SEC/U.S. Attorney
matter. The Company promptly commenced discussions with the SEC's northeast
regional office in an effort to resolve the complaint against the Company. There
can be no assurance that those discussions will continue and/or will be
successful. The Company will continue to incur significant legal fees and may
incur indemnification costs. However, the Company believes that the magnitude of
such expenditures will not adversely affect its ongoing business operations.
The Company cannot predict the potential outcome of these matters and
their impact on the Company and, therefore, has made no provision relating to
these matters in the accompanying consolidated financial statements.
The Company could become a party to a variety of legal actions (in
addition to that referred to above), such as employment and employment
discrimination-related suits, employee benefit claims, breach of contract
actions, tort claims, shareholder suits, including securities fraud, and
intellectual property related litigation. In addition, because of the nature of
its business, the Company is subject to a variety of legal actions relating to
its business operations. Recent court decisions and legislative activity may
increase the Company's exposure for any of these types of claims. In some cases,
substantial punitive damages could be sought. The Company currently has
insurance coverage for some of these potential liabilities. Other potential
liabilities may not be covered by insurance, insurers may dispute coverage, or
the amount of insurance may not be sufficient to cover the damages awarded. In
addition, certain types of damages, such as punitive damages, may not be covered
by insurance and insurance coverage for all or certain forms of liability may
become unavailable or prohibitively expensive in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended March 31, 2004.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since January 30, 2002, the Company's Common Stock has been traded on the
over-the-counter Bulletin Board under the symbol "SCHK".
The following table sets forth, for the periods indicated, the high and
low bid prices of the Company's Common Stock as quoted on the over-the-counter
Bulletin Board for each of the fiscal quarters during the years ended March 31,
2004 and 2003.
Fiscal Year Ended March 31, 2004 High Low
- -------------------------------- ------ ------
First Quarter ........................................ $ 8.80 $ 4.30
Second Quarter ....................................... $ 8.58 $ 6.85
Third Quarter ........................................ $ 8.40 $ 6.50
Fourth Quarter ....................................... $12.15 $ 7.05
12
Fiscal Year Ended March 31, 2003 High Low
- -------------------------------- ------ ------
First Quarter ........................................ $ 3.60 $ 2.10
Second Quarter ....................................... $ 3.01 $ 1.10
Third Quarter ........................................ $ 3.00 $ 1.78
Fourth Quarter ....................................... $ 4.75 $ 2.72
On June 10, 2004, the closing bid and asked prices per share of the
Company's Common Stock, as quoted on the over-the-counter Bulletin Board, were
$12.05 and $12.40 per share, respectively. Such prices represent quotations
between dealers, without dealer mark-up, markdown or commission, and may not
represent actual transactions. On June 10, 2004, there were one hundred
seventy-one (171) holders of record of the Company's Common Stock. However, the
Company believes that the number of beneficial owners of such stock is
substantially higher.
To date, the Company has retained its earnings to finance the growth and
development of the Company's business, and has not paid any dividends on its
Common Stock. The Company may consider paying dividends in the future, but
currently has no plans to do so. The payment of dividends is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements, financial condition and other relevant
factors.
Equity Compensation Plan Information
The following table sets forth the following information, as of March 31,
2004, with respect to compensation plans (including individual compensation
arrangements) under which equity securities of the Company are authorized for
issuance: the number of securities to be issued upon the exercise of outstanding
options, warrants and rights; the weighted-average exercise price of such
options, warrants and rights; and, other than the securities to be issued upon
the exercise of such options, warrants and rights, the number of securities
remaining available for future issuance under the plan:
- ---------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- ---------------------------------------------------------------------------------------------------------------
Plan category Number of Weighted-average Number of securities
securities to be exercise price remaining available
issued upon of outstanding for future issuance
exercise of options, under equity
outstanding warrants and compensation plans
options, rights (excluding
warrants and securities reflected
rights in column (a))
- ---------------------------------------------------------------------------------------------------------------
Equity compensation plans approved 2,124,264 $3.36 1,475,736
by security holders
- ---------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved
by security holders -- -- --
- ---------------------------------------------------------------------------------------------------------------
Total 2,124,264 $3.36 1,475,736
- ---------------------------------------------------------------------------------------------------------------
In addition to the options described in the table above, the Company has
outstanding an aggregate of 847,500 warrants, exercisable at an initial exercise
price of $0.75 per share, which are held by the Company's CEO, as assignee of
Greystone Funding Corporation ("Greystone"). During fiscal 2004, Greystone
exercised 4,802,500 warrants. Such warrants, which are described in Note 10 to
the Company's Consolidated Financial Statements, were issued by the Company in
connection with loan transactions.
13
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from, and are qualified
by reference to, the audited financial statements of the Company for the period
indicated. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 and the Financial Statements included in Item 15 of this
Report.
Schick Technologies, Inc.
Selected Financial Data
Year ended March 31,
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
(in thousands, except per share data)
Statement of Operations Data:
Revenue, net $ 39,393 $ 29,817 $ 24,399 $ 21,252 $ 21,989
Cost of sales 11,310 9,369 8,540 9,736 15,393
Excess and obsolete inventory 185 259 292 570 898
-------- -------- -------- -------- --------
Total cost of sales 11,495 9,628 8,832 10,306 16,291
-------- -------- -------- -------- --------
Gross profit 27,898 20,189 15,567 10,946 5,698
Operating expenses:
Selling and marketing 6,118 5,911 5,291 5,314 7,636
General and administrative 6,291 5,041 4,148 4,161 7,339
Research and development 3,301 2,598 2,176 2,220 2,830
Bad debt expense (recovery) 105 -- (93) (454) --
Abandonment of leasehold -- -- 118 275 --
-------- -------- -------- -------- --------
Total operating expenses 15,815 13,550 11,640 11,516 17,805
-------- -------- -------- -------- --------
Income (loss) from operations 12,083 6,639 3,927 (570) (12,107)
Total other income (expense) 109 (174) (839) (1,068) (224)
-------- -------- -------- -------- --------
Income (loss) before income taxes 12,192 6,465 3,088 (1,638) (12,331)
Income tax benefit 5,917 5,360 -- -- --
-------- -------- -------- -------- --------
Net income (loss) $ 18,109 $ 11,825 $ 3,088 $ (1,638) $(12,331)
======== ======== ======== ======== ========
Basic earnings (loss) per share $ 1.69 $ 1.17 $ 0.30 $ (0.16) $ (1.23)
======== ======== ======== ======== ========
Diluted earnings (loss) per share $ 1.07 $ 0.78 $ 0.26 $ (0.16) $ (1.23)
======== ======== ======== ======== ========
As at March 31,
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
Balance Sheet Data:
Cash and cash equivalents $ 20,734 $ 7,100 $ 1,622 $ 2,167 $ 1,429
Working capital / (deficiency) 27,400 9,157 1,133 (1,586) 841
Total assets 42,743 22,610 11,957 12,646 16,290
Long-term obligations -- -- 2,039 4,080 6,938
Total liabilities 7,715 7,747 9,057 12,835 14,974
Retained earnings (accumulated deficit) (9,748) (27,857) (39,682) (42,770) (41,132)
Stockholders' equity 35,028 14,863 2,900 (189) 1,316
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements included elsewhere in this Report. This
discussion contains forward-looking statements based on current expectations
that involve risks and uncertainties. Actual results and the timing of certain
events may differ significantly from those projected in such forward-looking
statements due to a number of factors, including those set forth in "Results of
Operations" in this Item and elsewhere in this Report. See "ITEM 1 -- Business
- -- Forward-Looking Statements" and Exhibit 99.1 to this Report.
Overview
The Company designs, develops and manufactures digital imaging systems for
the worldwide dental and medical markets. In the field of dentistry, the Company
currently manufactures and markets a variety of digital imaging products
including an intra-oral digital radiography system (CDR(R) and CDR
Wireless(TM)), a digital panoramic radiography sensor (CDRPan(R)) and integrated
device (CDRPanX(TM)) and an intra-oral camera system (USBCam(TM)). The Company
has also developed a bone mineral density assessment device (accuDEXA(R)) to
assist in the diagnosis and treatment of osteoporosis, which was introduced in
December 1997. The Company's revenues during fiscal 2004 were derived primarily
from sales of its CDR(R) system.
The Company records sales revenue upon shipment to international dealers
and to end-users in the U.S. In the case of sales made by Patterson, revenue
arising from inventory in Patterson's possession is recorded in deferred
revenue, and revenue is recognized upon shipment from Patterson's distribution
centers. Revenues from the sales of extended warranties are recognized on a
straight-line basis over the life of the extended warranty, which is generally a
one-year period. The Company utilizes Patterson as the exclusive distributor for
sales of its dental products within the United States and Canada. The Company's
accuDEXA(R) product is sold through a network of independent sales
representatives in the United States. International sales are made primarily
through a network of independent foreign distributors. In fiscal 2004, 2003, and
2002, sales to customers within the United States were approximately 75%, 78%
and 75% of total revenues, respectively. The Company's international sales are
made primarily to distributors in Europe and Asia. All of the Company's sales
are primarily denominated in United States dollars.
Cost of sales consists of raw materials, manufacturing labor, facilities
overhead, product support, and warranty costs. Excess and obsolete inventory
expense relates to the overstocking or obsolescence of various dies and/or
obsolete x-ray inventory that the Company may not use or otherwise salvage.
Operating expenses include selling and marketing expenses, general and
administrative expenses and research and development expenses, and bad debt
expense. Selling and marketing expenses consist of salaries and commissions,
advertising, promotional and sales events and travel. General and administrative
expenses include executive salaries, professional fees, facilities, overhead,
accounting, human resources, and general office administration expenses.
Research and development expenses are comprised of salaries, consulting fees,
facilities overhead and testing materials used for basic scientific research and
the development of new and improved products and their uses. Research and
development costs are expensed as incurred. Bad debt expense is a result of
product shipments that were determined to be uncollectible or not collected. Bad
debt recovery is a result of the receipt, in cash, for shipments previously
deemed uncollectible.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the Company to make
estimates and assumptions that affect amounts reported in the accompanying
consolidated financial statements and related footnotes. These estimates and
assumptions are evaluated on an ongoing basis based on historical developments,
market conditions,
15
industry trends and other information the Company believes to be reasonable
under the circumstances. There can be no assurance that actual results will
conform to the Company's estimates and assumptions, and that reported results of
operations will not be materially adversely affected by the need to make
accounting adjustments to reflect changes in these estimates and assumptions
from time to time. The following policies are those that the Company believes to
be the most sensitive to estimates and judgments. The Company's significant
accounting policies are more fully described in Note 1 to the consolidated
statements.
Revenue recognition
The Company recognizes revenue when each of the following four criteria
are met: 1) a contract or sales arrangement exists; 2) products have been
shipped and title has been transferred or services have been rendered; 3) the
price of the products or services is fixed or determinable; and 4)
collectibility is reasonably assured. Revenues from sales of the Company's
hardware and software products are recognized at the time of shipment to
customers, and when no significant obligations exist and collectibility is
probable. The Company provides its exclusive domestic distributor with a 30-day
return policy but allows for an additional 15 days, and accordingly recognizes
allowances for estimated returns pursuant to such policy at the time of
shipment. Revenue from shipments to foreign customers is recognized at the time
of shipment in accordance with foreign sales orders. With respect to products
shipped to its exclusive domestic distributor, the Company defers revenue until
Patterson ships such inventory from its distribution centers. Amounts received
from customers in advance of product shipment are classified as deposits from
customers. Revenues from the sale of extended warranties on the Company's
products are recognized on a straight-line basis over the life of the extended
warranty, which is generally a one-year period. Deferred revenues relate to
extended warranty fees paid by customers prior to the performance of extended
warranty services, to certain shipments to Patterson, as described above, and to
the 90-day exchange program for CDR(R) wireless, as follows: Patterson
instituted a policy permitting, under specific circumstances, the exchange of
CDR(R) wireless products, sold after October 23, 2003, for wired CDR(R)
products. This exchange is allowed for a period of 90 days from the date of
installation in the event that external radio-frequency sources cause
interference that cannot be resolved. Accordingly, the Company has deferred
recognition of revenue related to Patterson's shipment of the CDR(R) wireless
product until the foregoing 90-day period has elapsed.
Accounts receivable
The Company primarily sells on open credit terms to Patterson and to the
U.S. Government, and upon signed purchase orders to hospitals and universities.
The Company's international sales are generally prepaid, guaranteed by
irrevocable letter of credit or underwritten by credit insurance. In a limited
number of cases, international dealers are granted open credit terms. Warranty
shipments are prepaid. Revenue from customers is subject to agreements allowing
limited rights of return. Accordingly, the Company reduces revenue recognized
for estimated future returns. The estimate of future returns is adjusted
periodically based upon historical rates of return. The Company provides an
allowance for doubtful accounts based upon its analysis of aged accounts
receivable.
Inventories
Inventories are stated at the lower of cost or market. The cost of
inventories is determined principally on the standard cost method for
manufactured goods and on the average cost method for other inventories, each of
which approximates actual cost on the first-in, first-out ("FIFO") method. The
Company establishes reserves for inventory estimated to be obsolete,
unmarketable or slow moving inventory equal to the difference between the cost
of inventory and estimated market value based upon assumptions about future
demand and market conditions. If actual market conditions are less favorable
than those anticipated or if changes in technology affect the Company's
products, additional inventory reserves could be required.
16
Goodwill and other long-lived assets
Effective April 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and other Intangible
Assets". This statement requires that the amortization of goodwill be
discontinued and instead an annual impairment approach be applied. The
impairment tests were performed upon adoption and are performed annually
thereafter (or more often if adverse events occur) and will be based upon a fair
value approach rather than an evaluation of undiscounted cash flows. If the
asset has been impaired, the resulting charge reflects the excess of the asset's
carrying value over the recalculated goodwill. Impairment tests performed in
August 2002, March 2003 and March 2004 indicated that goodwill had not been
impaired.
Other long-lived assets, such as patents and property and equipment, are
amortized or depreciated over their estimated useful lives. These assets are
reviewed for impairment whenever events or circumstances provide evidence that
suggest that the carrying amount of the asset may not be recoverable, with
impairment being based upon an evaluation of the identifiable undiscounted cash
flows. If the asset has been impaired, the resulting charge reflects the excess
of the asset's carrying cost over its fair value.
If market conditions become less favorable, future cash flows, the key
variable in assessing the impairment of these assets, may decrease and as a
result the Company may be required to recognize impairment charges.
Deferred tax asset and income taxes
Income taxes are determined in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), which requires recognition of
deferred income tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income tax liabilities and assets are
determined based on the difference between financial statements and tax bases of
liabilities and assets using enacted tax rates in effect for the year in which
the differences are expected to reverse. SFAS 109 also provides for the
recognition of deferred tax assets if it is more likely than not that the assets
will be realized in future years. Through March 31, 2003, a valuation allowance
of $11.4 million was established for deferred tax assets for which it was not
more likely than not that the deferred tax asset would be realized. During the
year ended March 31, 2003 the Company reduced its valuation allowance by $5.8
million. At March 31, 2004, the Company reduced its valuation allowance by $6.6
million, to zero, because it determined that it was more likely than not that
the total deferred tax would be realized. During fiscal 2004, 2003 and 2002, the
Company's utilization of its net operating losses resulted in a reduction of
current taxes in the amount of $4.8 million, $2.7 million and $1.5 million,
respectively. In assessing the valuation allowance, the Company has considered
future taxable income and ongoing tax planning strategies and has determined
that it is more likely than not that the deferred tax asset will be realized.
Changes in these circumstances, such as a decline in future taxable income, may
result in the reestablishment of a valuation allowance.
Warranty obligations
Products sold are generally covered by a warranty against defects in
material and workmanship for a period of one year. The Company accrues a
warranty reserve for estimated costs to provide warranty services. The Company
estimates costs to service warranty obligations based on historical experience
and expectation of future conditions. To the extent the Company experiences
increased warranty claim activity or increased costs associated with servicing
those claims, warranty accrual will increase, resulting in decreased gross
profit.
Stock-based compensation
Stock based compensation is accounted for under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. No stock-based
17
employee compensation cost is reflected in net income, as all options granted
under the Company's option plans had an exercise price equal to the market value
of the underlying common stock on the date of grant. The Company determines the
fair value of options issued based on the Black-Scholes model. The Black-Scholes
model is based on certain assumptions including the expected life of the option,
risk free interest rates, expected volatility and expected dividend yield.
Litigation and contingencies
The Company and its subsidiary are from time to time parties to lawsuits
and regulatory administrative proceedings arising out of their respective
operations. The Company records liabilities when a loss is probable and can
reasonably be estimated. The Company believes it has estimated appropriately in
the past; however court decisions and/or other unforeseen events could cause
liabilities to be incurred in excess of estimates.
Contractual Obligations and Commercial Commitments
The following table summarizes contractual obligations and commercial
commitments at March 31, 2004:
================================================================================
PAYMENTS DUE BY PERIOD (in thousands)
----------------------------------------------
Less
CONTRACTUAL than 1 1-3 4-5 After 5
OBLIGATIONS Total year years years years
- --------------------------------------------------------------------------------
Operating leases $1,655 $ 486 $1,032 $137 $ --
- --------------------------------------------------------------------------------
Employment
agreements * 322 322 -- -- --
- --------------------------------------------------------------------------------
Purchase obligations 2,102 1,706 396 -- --
- --------------------------------------------------------------------------------
Total Contractual
Cash Obligations $4,079 $2,514 $1,428 $137 $ --
================================================================================
* Two employment agreements with Company executives, the current CEO and former
CEO respectively, are included in this category. Both of these agreements were
terminated in June 2004 upon the resignation of the former CEO and the
appointment of the current CEO. See "Item 11-- Executive Compensation --
Employment Agreements and Termination of Employment Arrangements." In June 2004,
the Company entered into a Consulting and Non-Competition Agreement with its
former CEO, and employment agreements with its current CEO and with its
Executive Vice-President of Sales and Marketing. These agreements provide for
aggregate cumulative payments of $2.5 million, consisting of $724 in fiscal
2005, $932 in fiscal 2006, $741 in fiscal 2007 and $144 in fiscal 2008.
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,
2004 2003 2002
------ ------ ------
Revenue, net 100.0% 100.0% 100.0%
------ ------ ------
Cost of sales 28.7% 31.4% 35.0%
Excess and obsolete inventory 0.5% 0.9% 1.2%
------ ------ ------
Total cost of sales 29.2% 32.3% 36.2%
------ ------ ------
Gross profit 70.8% 67.7% 63.8%
Operating expenses:
Selling and marketing 15.5% 19.8% 21.7%
General and administrative 16.0% 16.9% 17.0%
Research and development 8.4% 8.7% 8.9%
Bad debt expense (recovery) 0.3% -- -0.4%
Abandonment of leasehold -- -- 0.5%
------ ------ ------
Total operating costs 40.1% 45.4% 47.7%
------ ------ ------
Operating income 30.7% 22.3% 16.1%
Other income (expense), net 0.3% -0.6% -3.4%
====== ====== ======
Income before tax benefit 30.9% 21.7% 12.7%
====== ====== ======
Income tax benefit, net 15.1% 18.0% --
====== ====== ------
Net income 46.0% 39.7% 12.7%
====== ====== ======
18
Fiscal Year Ended March 31, 2004 as Compared to Fiscal Year Ended March 31, 2003
We design, manufacture and sell innovative digital products for the dental
market. Our primary products are sensors that replace film in the x-ray process.
Growing acceptance of these products have resulted in double-digit revenue
growth in domestic and international markets. In fiscal 2004, we introduced the
first digital wireless sensor and a fully integrated digital panoramic machine.
Continued acceptance of these and other digital product is important to our
success.
During fiscal 2004, Eastman Kodak Company entered the digital dental
market when it acquired PracticeWorks, a practice management company with a
digital sensor manufacturing and marketing subsidiary located in France. The
entry of Kodak into the market did not adversely affect the Company's revenues
or operating margins in fiscal 2004.
Domestic dental product revenues increased 30% to $23.9 million, or 61% of
revenue. Foreign dental product revenues, principally from Europe and Asia,
increased 64% to $9.8 million, or 25% of revenue. Management believes that
continued improvement in the international distribution network and wider
acceptance of the Company's products are the key elements of improving
performance. The pace of our international revenue increase far exceeded the 15%
decline in the value of the U.S. dollar during the year.
Operating expenses, with the exception of legal fees, which are
principally related to the ongoing SEC/US attorney investigation and SEC civil
action, declined as a percent of revenue as the Company leveraged its fixed
expense advantage. After several years of increasingly profitable operations,
the Company has reduced the reserve for deferred income taxes to zero and
recorded a $6.6 million tax benefit at March 31, 2004.
Total revenue increased $9.6 million (32%) to $39.4 million in fiscal 2004
from $29.8 million in fiscal 2003. The revenue increase was due to higher sales
of CDR(R) dental radiography products principally through expansion of sales
through its exclusive domestic distributor, Patterson Dental Company
("Patterson") and through foreign distributors, principally in Europe and Asia.
Total domestic revenues increased $5.8 million (24%) to $29.4 million (75% of
revenue) from $23.6 million (79% of revenue) in fiscal 2003. Total international
revenues increased $3.8 million (62%) to $9.9 million (25% of revenue) from $6.2
million (21% of revenue) in fiscal 2003.
CDR(R) product revenue increased $9.3 million (38%) to $33.7 million (86%
of revenue) during fiscal 2004 from $24.4 million (82% of revenue) during fiscal
2003. AccuDEXA(R) product revenue was unchanged at $0.6 million (1% and 2% of
revenue during fiscal 2004 and fiscal 2003, respectively). Warranty revenues
increased $0.3 million (6%) to $5.1 million (13% of revenue) during fiscal 2004
from $4.8 million (16% of revenue) during fiscal 2003.
19
Patterson revenue amounted to 55% and 52% of total revenue in fiscal 2004
and 2003, respectively. No other individual customer exceeded 10% of total
revenue. Overall sales returns remained under 0.5% of revenue in fiscal 2004 and
2003, respectively.
Total cost of sales for fiscal 2004 increased $1.8 million (19%) to $11.5
million (29% of revenue) from $9.7 million (32% of revenue) in fiscal 2003. The
relative cost of sales declined as a result of the Company's improved operating
efficiency. The Company leveraged fixed overhead over the increase in revenue
while improved product mix resulted in higher margins. Additionally, product
improvements resulted in an overall reduction of expense in support of its
warranty obligations. The Company's provision for excess and obsolete inventory
decreased to 0.5% of net revenue in fiscal 2004 from 0.9% in fiscal 2003.
Selling and marketing expense for fiscal 2004 increased $0.2 million (3%)
to $6.1 million (16% of revenue) from $5.9 million (20% of revenue) in fiscal
2003. Increased sales and sales activities resulted in higher payroll and
commission expenses.
General and administrative expense for fiscal 2004 increased $1.3 million
(25%) to $6.3 million (16% of revenue) from $5.0 million (17% of revenue) in
fiscal 2003. Increases are principally the result of legal fees incurred in
connection with the SEC/US attorney investigation and other corporate business,
other professional fees, a non-cash payroll charge, higher payroll expense,
corporate governance costs and insurance expenses.
Research and development expense in fiscal 2004 increased $0.7 million
(27%) to $3.3 million (8% of revenue) from $2.6 million (9% of revenue) in
fiscal 2003. The increase is the result of higher payroll and research-materials
expenses related to new and ongoing projects.
Interest expense in fiscal 2004 decreased $0.1 million (44%) to $0.2
million from $0.3 million in fiscal 2003 due to the Company's June 2003
prepayment of the outstanding balance of its loan from Greystone. The prepayment
resulted in the write-off of $0.2 million of deferred interest expense in fiscal
2004. Interest income in fiscal 2004 increased $0.1million to $0.2 million as
the Company increased investment in bank certificates of deposit.
During fiscal 2004, the Company reduced its deferred tax valuation
allowance to zero and recorded a $6.6 million income tax benefit. The Company
reduced the valuation allowance because it believes it is more likely than not
that the net operating loss carryforward will be realized. During fiscal 2004,
the Company's utilization of its net operating losses resulted in a reduction of
current taxes in the amount of $4.8 million.
As a result of all of the foregoing items, the Company's net income in
fiscal 2004 increased by $6.3 million (53%) to $18.1 million from $11.8 million
in fiscal 2003.
Fiscal Year Ended March 31, 2003 as Compared to Fiscal Year Ended March 31, 2002
Net revenues increased $5.4 million (22%) to $29.8 million in fiscal 2003
from $24.4 million in fiscal 2002. The revenue increase was due to higher sales
of CDR(R) dental radiography products principally through expansion of sales
through its exclusive domestic distributor, Patterson Dental Company
("Patterson"). Domestic revenues increased $5.3 million (29%) to $23.6 million
(79% of net revenue) from $18.3 million (75% of net revenue) in fiscal 2002.
International sales increased $0.1 million (0.2%) to $6.2 million (21% of net
revenue) from $6.1 million (25% of net revenue) in fiscal 2002.
CDR(R) product sales increased $5.9 million (32%) to $24.4 million (82% of
total revenue) during fiscal 2003 from $18.5 million (76% of total revenue)
during fiscal 2002. AccuDEXA(R) product sales decreased $0.2 million (25%) to
$0.6 million (2% of total revenue) during fiscal 2003 from $0.8 million (3% of
total revenue) during fiscal 2002. Warranty revenues decreased $0.2 million (4%)
to $4.8 million (16% of total revenue) during fiscal 2003 from $5.0 million (21%
of total revenue) during fiscal 2002.
20
Patterson revenue amounted to 52% and 40% of total revenue in fiscal 2003
and 2002, respectively. No other individual customer exceeded 10% of total
revenue. Overall sales returns remained at 0.2% of revenue in fiscal 2003 and
2002.
Total cost of sales for fiscal 2003 increased $0.8 million (9%) to $9.6
million (32% of net revenue) from $8.8 million (36% of net revenue) in fiscal
2002. The decline in relative cost of sales is due to improved operating
efficiency as the Company reduced overhead as a result of the consolidation of
its facilities into a single location during the first quarter of fiscal 2002
and a shift in product sales mix. Additionally, product improvements resulted in
reduced expense in support of its warranty program. The Company's provision for
excess and obsolete inventory decreased to 0.9% of net revenue in fiscal 2003
from 1.2% in fiscal 2002.
Selling and marketing expense for fiscal 2003 increased $0.6 million (12%)
to $5.9 million (20% of net revenue) from $5.3 million (22% of net revenue) in
fiscal 2002. Increased sales and sales activities resulted in higher payroll,
commissions and related travel expenses.
General and administrative expense for fiscal 2003 increased $0.9 million
(22%) to $5.0 million (17% of revenue) from $4.1 million (17% of revenue) in
fiscal 2002. Increases are principally the result of higher payroll, travel and
insurance expenses.
Research and development expense in fiscal 2003 increased $0.4 million
(19%) to $2.6 million (9% of revenue) from $2.2 million (9% of revenue) in
fiscal 2002. The increase is the result of higher payroll and research materials
expenses.
Interest expense in fiscal 2003 decreased $0.7 million (68%) to $0.3
million from $1.0 million in fiscal 2002 due to the Company's July 2001
prepayment of $1 million it had borrowed from Greystone. The prepayment resulted
in the write off of $0.4 million of deferred interest expense in fiscal 2002.
During fiscal 2003, the Company reduced its deferred tax valuation
allowance by $5.8 million resulting in an income tax benefit of $5.5 million,
net of alternative minimum income taxes ("AMT") of $0.3 million. The Company
reduced the valuation allowance because it believes it is more likely than not
that a portion of the net operating loss carryforward will be realized. The
Company continues to reserve approximately $11.1 million of deferred income
taxes. During fiscal 2003, the Company's utilization of its net operating losses
resulted in a reduction of current taxes in the amount of $2.9 million.
As a result of all of the foregoing items, the Company's net income in
fiscal 2003 increased $8.7 million (283%) to $11.8 million from $3.1 million in
fiscal 2002.
Liquidity and Capital Resources
At March 31, 2004, the Company had $20.7 million in cash and cash
equivalents, and working capital of $27.4 million, compared to $7.8 million in
cash and cash equivalents, and $9.2 million in working capital, at March 31,
2003. The increase in working capital is primarily attributable to the Company's
increased operating profit during fiscal 2004.
During fiscal 2004, cash provided by operations was $13.8 million, as
compared to $8.3 million during fiscal 2003. Accounts receivable increased to
$4.0 million at March 31, 2004, as compared to $3.0 million at March 31, 2003,
due to increased sales activity. The allowance for doubtful accounts increased
$96, to $138, at March 31, 2004 from $42 at March 31, 2003, due to a single
account which disputed the amount it owes to the Company. The amount due from
Patterson which was included in accounts receivable ($2.3 million at March 31,
2004) was fully collected after year-end. Inventories increased to $3.1 million
at March 31, 2004, compared to $3.0 million at March 31, 2003. The Company's
capital expenditures
21
decreased to $0.3 million in fiscal 2004 from $0.5 million in fiscal 2003. The
Company's capital expenditures in fiscal 2004 and 2003 primarily consisted of
tooling costs and computer upgrades.
During the fiscal years ended March 31, 2004 and 2003, the Company made
principal payments on long-term debt of $1.5 million and $2.4 million,
respectively. The Company prepaid its long-term debt, in full, in June 2003.
Management believes that its existing capital resources and other
potential sources of credit are adequate to meet its current cash requirements.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet financing arrangements or interests
in so-called special purpose entities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included as a separate section of this Annual
Report on Form 10-K, commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DATA
None.
ITEM 9A. CONTROLS AND PROCEDURES
a) Under the supervision and with the participation of the Company's
management, including its principal executive officer and its principal
accounting officer, the Company has evaluated the effectiveness of the Company's
disclosure controls and procedures as of March 31, 2004.
They have concluded that these disclosure controls provide reasonable
assurance that the Company can collect, process and disclose, within the time
periods specified in the SEC's rules and forms, the information required to be
disclosed in its periodic Exchange Act reports.
b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect its internal
controls subsequent to the date of their most recent evaluation.
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 73, has served as a Director of the Company
since April 1992 and as a member of the Executive
Compensation Committee of the Board of Directors
since November 2002. Dr. Barrekette's current term
on the Board expires at the Company's Annual
Meeting of Stockholders in 2005. Dr. Barrekette is
a licensed Professional Engineer in New York
State. Since 1986 Dr. Barrekette has been a
consulting engineer and physicist. From
22
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 Electrical &
Electronics Engineers, and a member of The
National Society of Professional Engineers, The
New York State Society of Professional Engineers,
The Optical Society of America and The New York
Academy of Science. Dr. Barrekette is the uncle of
David B. Schick, the Company's former Chairman and
Chief Executive Officer, and the brother-in-law of
Dr. Allen Schick.
Jonathan Blank, Esq. Age 59, has served as a Director of the Company
and as a member of the Audit Committee of the
Board of Directors since April 2000, as a member
of the Executive Compensation Committee of the
Board of Directors since November 2002, and as
Chairman of the Special Litigation Committee of
the Board of Directors since September 2003. Mr.
Blank's current term on the Board expires at the
Company's Annual Meeting of Stockholders in 2005.
Since 1979, Mr. Blank has been a member of the law
firm of Preston Gates Ellis & Rouvelas Meeds LLP
and a managing partner of the firm since 1995. Mr.
Blank holds a J.D. degree from Harvard Law School.
William K. Hood Age 80, has served as Chairman of the Board of
Directors since June 2004, as a Director of the
Company and as Chairman of the Audit Committee of
the Board of Directors since February 2002, as a
member of the Executive Compensation Committee of
the Board of Directors since November 2002, and as
a member of the Special Litigation Committee of
the Board of Directors since September 2003. Mr.
Hood's current term on the Board expires at the
Company's Annual Meeting of Stockholders in 2004.
From 1989 to 1996, Mr. Hood served as a consultant
to Harlyn Products, Inc. and as a member of its
Board of Directors. From 1983 to 1988, he was
Senior Vice-President of American Bakeries
Company. From 1981 to 1983, Mr. Hood served as
Dean of the Chapman University School of Business
and Management. From 1972 to 1980, he was
President and Chief Executive Officer of
Hunt-Wesson Foods, Inc. Mr. Hood is currently a
Trustee of Chapman University.
Uri Landesman Age 42, has served as a Director of the Company
since January 2003 and from April 1992 to June
1997, and as a member of the Executive
Compensation and Special Litigation Committees of
the Board of Directors since September 2003. Mr.
Landesman's current term on the Board expires at
the Company's Annual Shareholders Meeting in 2006.
Since January 2004, Mr. Landesman has been a
Senior Vice President and Director of Global
Research at Federated Global Investment Management
Corp. and Senior Portfolio Manager since February
2003. From July 2001 to January 2003, Mr.
Landesman was a Principal and Portfolio Manager at
Arlington Capital Management. From April 1999 to
June 2001, he was a Principal and Chief Investment
Officer at Aaron Fleck & Associates, LLC/A.F.A.
Management Partners, L.P. From June 1993 to March
1999, Mr. Landesman
23
was employed at J.P. Morgan Investment Management,
as Vice-President and Lead Portfolio Manager from
February 1997 to March 1999, and as Vice-President
and Senior Analyst from June 1993 to January 1997.
He holds a B.A. degree from Yeshiva University.
Curtis M. Rocca III Age 41, has served as a Director of the Company
and as a member of the Audit Committee of the
Board of Directors since May 2002, as Chairman of
the Executive Compensation Committee of the Board
of Directors since November 2002, and as a member
of the Special Litigation Committee of the Board
of Directors since September 2003. Mr. Rocca's
current term on the Board expires at the Company's
Annual Meeting of Stockholders in 2004. Since
2000, Mr. Rocca has been the Chief Executive
Officer of Douglas, Curtis & Allyn, LLC. From 1998
to 2000, he served as Chief Executive Officer of
Dental Partners, Inc. From 1990 to 1998, Mr. Rocca
was Chairman and Chief Executive Officer of
Bio-Dental Technologies Corp.
Allen Schick, Ph.D. Age 69, has served as a Director of the Company
since April 1992, and as a member of the Executive
Compensation Committee of the Board of Directors
since November 2002. Dr. Schick's current term on
the Board expires at the Company's Annual Meeting
of Stockholders in 2006. Since 1981, Dr. Schick
has been a professor at the University of Maryland
and, in 2000, was elected "Distinguished
University Professor", a title reserved for fewer
than 2% of the faculty. Since 1988, Dr. Schick has
been a Visiting Fellow at the Brookings
Institution. Dr. Schick holds a Ph.D. degree from
Yale University. Dr. Schick is the father of David
B. Schick, , the Company's former Chairman and
Chief Executive Officer, and the brother-in-law of
Dr. Barrekette.
Jeffrey T. Slovin Age 39, has served as the Company's Chief
Executive Officer since June 15, 2004 and as its
President since December 1999. Mr. Slovin has also
served as a Director of the Company since December
1999. In addition, from November 2001 to June 15,
2004, Mr. Slovin served as the Company's Chief
Operating Officer. Mr. Slovin's current term on
the Board expires at the Company's Annual Meeting
of Stockholders in 2004. Since November 2002, Mr.
Slovin has been a member of the Board of Directors
of Electronic Global Holdings Ltd. From 1999 to
November 2001, Mr. Slovin was a Managing Director
of Greystone & Co., Inc. From 1996 to 1999, Mr.
Slovin served in various executive capacities at
Sommerset Investment Capital LLC, including
Managing Director, and as President of Sommerset
Realty Investment Corp. During 1995, Mr. Slovin
was a Manager at Fidelity Investments Co. From
1991 to 1994, Mr. Slovin was Chief Financial
Officer of Sports Lab USA Corp. and, from 1993 to
1994, was also President of Sports and
Entertainment Inc. From 1987 to 1991, Mr. Slovin
was an associate at Bear Stearns & Co., Inc.,
specializing in mergers and acquisitions and
corporate finance. Mr. Slovin holds an MBA degree
from Harvard Business School.
24
(b) The following table shows the names and ages of all executive officers of
the Company, the positions and offices held by such persons and the period
during which each such person has served as an officer. The term of office of
each person is generally not fixed since each person serves at the discretion of
the Board of Directors of the Company.
Officer
Name Age Position Since
- ---- --- -------- -----
Jeffrey T. Slovin......... 39 Chief Executive Officer, President 1999
and Director
Michael Stone............. 51 Executive Vice-President of 2000
Sales & Marketing
Stan Mandelkern........... 44 Vice President of Engineering 1999
Ari Neugroschl............ 33 Vice President of Management 2000
Information Systems
Zvi N. Raskin............. 41 Secretary and General Counsel 1992
Will Autz................. 50 Vice President of Manufacturing 2003
Ronald Rosner............. 57 Director of Finance and
Administration 2000
The business experience of each of the executive officers who is not a
Director is set forth below.
MICHAEL STONE has served as the Company's Executive Vice President of Sales and
Marketing since September 2000 and as the Company's Vice President of Sales and
Marketing from January 2000 to September 2000. From September 1993 to January
2000, Mr. Stone was General Manager of the Dental Division of Welch-Allyn
Company, and from October 1989 to September 1993 was Director of Marketing for
Welch-Allyn. Mr. Stone holds an MBA degree from the University of Rochester.
STAN MANDELKERN has served as the Company's Vice President of Engineering since
November 1999. From 1998 to 1999, Mr. Mandelkern was the Company's Director of
Electrical Engineering, and was a Senior Electrical Engineer at the Company from
1997 to 1998. From 1996 to 1997, Mr. Mandelkern was at Satellite Transmission
Systems as Project Leader for the Digital Video Products Group. From 1989 to
1996, Mr. Mandelkern held various design and management positions at Loral Corp.
Mr. Mandelkern holds an M.S. Degree in electrical engineering from Syracuse
University.
ARI NEUGROSCHL has served as the Company's Vice President of Management
Information Systems since July 2000. From November 1997 to July 2000, Mr.
Neugroschl was the Company's Director of Management Information Systems, and
from February 1996 to November 1997 he served as the Company's Director of
Customer Service and Support. Mr. Neugroschl holds a B.S. in Economics from
Yeshiva University.
ZVI N. RASKIN has served as Secretary of the Company since April 1992 and as
General Counsel of the Company since September 1995. From April 1992 to May
1996, Mr. Raskin was a Director of the Company. Mr. Raskin is admitted to
practice law before the Bars of the State of New York, the United States
District Courts for the Southern and Eastern Districts of New York and the
United States Court of Appeals for the Second Circuit. From 1992 to 1995, Mr.
Raskin was a senior associate at the New York law firm of Townley & Updike. Mr.
Raskin holds a J.D. degree from Yale Law School.
WILL AUTZ has served as the Company's Vice President of Manufacturing since
January 2003. From January 2000 to December 2002, Mr. Autz was the Company's
Director of Manufacturing. From 1996 to 1999, Mr. Autz was the Manager of
Manufacturing Engineering at Trident International Inc., a division of Illinois
Tools Work Inc. From 1991 to 1996, Mr. Autz was the Director of Manufacturing &
Manufacturing Engineering at General Signal Networks, a division of General
Signal Inc. Mr. Autz holds a BS in
25
Electromechanical Technology from the New York Institute of Technology and is a
member of the American Society of Manufacturing Engineers.
RONALD ROSNER has served as the Company's Director of Finance and Administration
since August 2000. From March 1999 to August 2000, Mr. Rosner served the Company
in several senior accounting and financial capacities. From October 1998 to
February 1999, Mr. Rosner was a Consultant at Mercantile Ship Corporation, and
from April 1997 to October 1998 was the CFO at Coast MFG. Mr. Rosner holds a
B.S. degree in Accounting from Brooklyn College and has been a Certified Public
Accountant in the State of New York since May 1972. Prior to 1999, for a period
of approximately four years, Mr. Rosner was an audit manager with the
predecessor to Ernst & Young LLP.
(c) Not applicable.
(d) Family Relationships
See Item 10(a).
(e) Business Experience
See Items 10(a) and 10(b).
(f) Involvement in Certain Legal Proceedings
There are no legal proceedings involving any of the Company's Directors or
Officers which are reportable hereunder.
Audit Committee Financial Experts
The Company's Board of Directors has determined that two members of the
Audit Committee, Mr. Hood and Mr. Rocca, are "independent directors" and "audit
committee financial experts," as those terms are defined by the Securities and
Exchange Commission.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Commission. Such executive officers and
directors and greater than 10% beneficial owners are required by the regulations
of the Commission to furnish the Company with copies of all Section 16(a)
reports they file.
Based solely on a review of the copies of such reports furnished to the
Company and written representations from 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 seven Form 5's were filed on May 5, 2004 and one Form
5 was filed on May 11, 2004 for the issuance of employee stock options on
November 3, 2003 by the Board of Directors to the following executive officers,
pursuant to the Company's 1996 Employee Stock Option Plan: Messrs. Mandelkern,
Neugroschl, Raskin, Rosner, David Schick, Slovin, Stone and Autz.
Code of Ethics
On June 2, 2004, by resolution of its Board of Directors, the Company
adopted a code of ethics governing the conduct of Company personnel, including
its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions. The
code of ethics is filed as Exhibit 14.1 to this Annual Report.
26
In the event that any amendment is made to the code of ethics, and such
amendment is applicable to the Company's principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, the Company shall disclose the nature of any such
amendment on its Internet website within five business days following the date
of the amendment. In the event that the Company grants a waiver, including an
implicit waiver, from a provision of the code of ethics, to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, the Company shall disclose
the nature of any such waiver, including the name of the person to whom the
waiver is granted and the date of such waiver, on its Internet website within
five business days following the date of the waiver. The Company's Internet
website address is http://www.schicktech.com.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
received for the fiscal years ended March 31, 2004, 2003 and 2002 by the
Company's chief executive officer and each of the four most highly compensated
executive officers of the Company whose total salary and other compensation
exceeded $100,000 (the "Named Executives") for services rendered in all
capacities (including service as a director of the Company) during the year
ended March 31, 2004.
Summary Compensation Table
Annual Long-Term
Compensation Compensation Awards
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Other
Annual Securities All Other
Name and Principal Fiscal Compensa- Underlying Compensa-
Position Year Salary($) Bonus($) tion(1) Options(2) tion($)(3)
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David B. Schick 2004 266,185 100,000 -- 7,379 9,041
Former Chief Executive Officer 2003 246,540 90,463 -- 8,572 6,708
and Former Chairman of the Board 2002 225,246 50,000 -- 160,709 4,362
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Jeffrey T. Slovin 2004 266,378 100,000 -- 7,318 9,690
Chief Executive Officer 2003 246,646 90,463 -- 8,502 6,710
and President 2002 89,430 57,263 -- 150,000 1,846
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Michael Stone 2004 224,700 68,552 -- 6,851 9,335
Executive Vice President of 2003 212,487 45,232 -- 7,439 5,894
Sales and Marketing 2002 193,577 48,154 -- 135,207 4,491
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Zvi N. Raskin, Esq 2004 235,532 13,530 -- 7,111 12,134
General Counsel and 2003 222,690 28,025 -- 7,793 5,078
Secretary 2002 204,154 20,000 -- 36,018 4,527
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Stan Mandelkern 2004 172,895 35,031 -- 6,606 10,195
Vice President of 2003 163,241 5,952 -- 7,240 4,081
Engineering 2002 154,615 -- -- 30,108 3,865
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(1) Does not include other compensation if the aggregate amount thereof does
not exceed the lesser of either $50,000 or 10% of the total annual salary
and bonus for the named officer.
(2) Represents options to purchase shares of Common Stock gra