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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, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-22673
SCHICK TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3374812
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
30-00 47th Avenue, Long Island City, NY 11101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (718) 937-5765
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes |X| No | |
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of September 30, 2004, the last business day of the registrant's
most recently completed second fiscal quarter, was approximately $106,388,387.
Such aggregate market value is computed by reference to the closing sale price
of the Common Stock on such date.
As of June 8, 2005, the number of shares outstanding of the Registrant's Common
Stock, par value $.01 per share, was 16,036,003.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
Table of Contents
Item of Form 10-K Page
Part I
Item 1 Business ................................................. 2
Item 2. Properties ............................................... 10
Item 3. Legal Proceedings ........................................ 10
Item 4. Submission of Matters to a Vote of Security Holders ...... 11
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters ...................................... 11
Item 6. Selected Financial Data .................................. 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk ................................................... 20
Item 8. Financial Statements and Supplementary Data .............. 20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ................. 20
Item 9A Controls and Procedures .................................. 20
Item 9B. Other Information ........................................ 22
Part III
Item 10. Directors and Executive Officers of the Registrant ....... 22
Item 11. Executive Compensation ................................... 26
Item 12. Security Ownership of Certain Beneficial Owners And
Management ............................................ 30
Item 13. Certain Relationships and Related Transactions ........... 32
Item 14. Principal Accountant Fees and Services ................... 32
Part IV
Item 15. Exhibits and Financial Statement Schedules ............... F-1
FORWARD-LOOKING STATEMENTS
This Form 10-K Annual Report contains forward-looking statements that
involve risk and uncertainties. All statements, other than statements of
historical facts, included in this Annual Report regarding the Company, its
financial position, products, business strategy and plans and objectives of
management of the Company for future operations, are forward-looking statements.
When used in this Annual Report, words such as "anticipate," "believe,"
"estimate," "expect," "intend," "objectives," "plans" and similar expressions,
or the negatives thereof or variations thereon or comparable terminology as they
relate to the Company, its products or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company's management, as well as assumptions made by and information currently
available to the Company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of various
factors, including, but not limited to, those contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this Annual Report and the "Risk Factors" set forth in Exhibit 99.1 to this
Annual Report. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by this paragraph.
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PART I
ITEM 1. BUSINESS
Schick Technologies, Inc. (the "Company") designs, develops and
manufactures innovative digital radiographic imaging systems and devices, which
are based on proprietary digital imaging technologies, for the dental and
medical markets.
In the field of dentistry, the Company offers an integrated filmless
solution for the dental professional. The Company's suite of CDR(R) dental
imaging products includes:
(i) The CDR(R) digital imaging system;
(ii) CDR Wireless(TM);
(iii) CDR Dental Imaging Software;
(iv) USBCam(R);
(v) CDRPan(R);
(vi) CDRPanX(TM); and
(vii) SDX(TM).
The CDR(R), or Computed Dental Radiography system, has become a leading
product in the field over the past decade. It uses an intra-oral sensor to
produce instant, full size, high-resolution dental x-ray images on a color
computer monitor without the use of film or the need for chemical development.
Additionally, CDR dramatically reduces the radiation dose to which a patient may
be exposed -- by up to 80% as compared with conventional x-ray film. CDR
Wireless(TM), introduced in February 2003, is an innovative wireless instant
digital dental x-ray system that combines all of the advantages of digital
radiography with greater flexibility and ease of placement. The USBCam(R), the
first intra-oral dental camera to provide full motion video via a standard USB
port, was introduced by the Company in July 2002. It fully integrates with the
CDR system and eliminates the need for camera power supplies and video capture
cards. CDRPan(R), sold since September 1999, eliminates the need for x-ray film
in panoramic dental diagnostic procedures and can easily be retrofitted onto
existing panoramic dental x-ray machines. CDRPanX(TM) introduced by the Company
in November 2003, internationally, and December 2004, domestically, is an
integrated digital panoramic device, which allows for fully digital panoramic
dental diagnostic procedures. SDX(TM), introduced by the Company in February
2005, is a DC x-ray generator designed to optimize wired and wireless digital
radiography.
In addition, the Company is continuing to develop other products and
devices, as well as updated versions of its current products.
In the field of medical radiography, the Company manufactures and sells
the accuDEXA(R) bone densitometer, introduced by the Company in December 1997.
It is a low-cost and easy-to-operate device for the assessment of bone mineral
density and fracture risk.
The Company's core products are based primarily on its proprietary
complementary metal oxide semiconductor ("CMOS") active pixel sensor ("APS")
imaging technology. APS allows the cost-effective fabrication of imaging devices
with high resolution. APS technology was developed by the California Institute
of Technology and sublicensed to the Company for a range of health care
applications. In addition, certain of the Company's products are based upon its
proprietary enhanced charged-coupled-device ("CCD") imaging technology.
The Company's objective is to be the leading provider of innovative, high
resolution, cost effective digital radiography products. The Company's primary
focus is on the worldwide dental market. The Company plans to leverage its
technological advantage in the digital imaging field to penetrate a variety of
diagnostic imaging markets. The Company believes that its proprietary
technologies and expertise in electronics, imaging software and advanced
packaging may enable it to compete successfully in these markets. Key elements
of the Company's strategy include (i) innovating products; (ii) leveraging brand
recognition; (iii) expanding market leadership in dental digital radiography;
(iv) enhancing international distribution channels; and (v) broadening product
offerings.
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The Company's business was founded in 1992 and it was incorporated in
Delaware in 1997. On July 7, 1997, the Company completed an initial public
offering of its Common Stock. Proceeds to the Company after expenses of the
offering were approximately $33,508,000.
Under generally accepted accounting principles, the Company operates in
one reportable segment: digital radiographic imaging systems. Note 1 to the
Company's Consolidated Financial Statements summarizes, by percentage, the
Company's revenues from its principal products.
The Company's offices are located at 30-00 47th Avenue, Long Island City,
New York 11101. The Company's telephone number is (718) 937-5765, and its
website address is http://www.schicktech.com.
PRODUCTS / INDUSTRY
Digital Imaging
X-ray imaging, or radiography, is widely used as a basic diagnostic
technique in a broad range of applications. To produce a conventional
radiograph, a film cassette is placed behind the anatomy to be imaged. A
generator, which produces high-energy photons known as x-rays, is positioned
opposite the film cassette. The transmitted x-rays pass through soft tissue,
such as skin and muscle, and are absorbed by harder substances, such as bone.
These x-rays then form a latent image upon the film. After exposure, the film is
passed through a series of chemicals and then dried.
Film, however, has certain inherent limitations, including the time,
expense, inconvenience and uncertainty associated with film processing, as well
as the cost and environmental impact resulting from the disposal of waste
chemicals. Furthermore, the radiation dosage levels required to ensure adequate
image quality in conventional film may raise concerns regarding the health risks
associated with exposure to radiation. Also, conventional film images cannot be
electronically retrieved from patient records or electronically transmitted to
health care providers or insurance carriers at remote locations, a capability
which has become increasingly important in today's managed care environment.
While certain x-ray scanning systems can convert x-rays into digital form, they
add to the time and expense resulting from the use of conventional film and do
not eliminate the drawbacks associated with film processing.
Digital radiography products have been developed to overcome the
limitations of conventional film. These systems replace the conventional film
cassette with an electronic receptor which directly converts the incident x-rays
to digital images.
Dental Imaging
In contrast to physicians, who often operate within highly-specialized
fields, dentists typically perform their own radiology work. They utilize a
significant volume of radiographic products and operate a substantial quantity
of radiographic equipment. The Company believes that there is a potential market
for over one million digital dental radiography devices worldwide. According to
the American Dental Association, as of 2002, there were 156,921 active private
practitioners in the United States. The Company believes that each of them, on
average, operates 2.5 radiological units, creating a current potential market of
over 390,000 digital dental radiography devices in the United States alone.
According to the World Health Organization, as of 2004, there were 1,138,957
practicing dentists throughout the world; of these, the Company believes that at
least 600,000 practice in the world's major healthcare markets outside of the
United States and that each of them operates 1.25 radiological units, on
average, creating a potential market of 750,000 additional devices. As reported
in March 2005 by Dental Products Report, only 22% of dentists who responded to
its survey use a direct digital x-ray system in their practice.
The Company believes that dentists have a particularly strong motivation
to adopt digital radiography. Radiographic examinations are an integral part of
routine dental checkups and the dentist is directly involved in the film
development process. The use of digital radiography eliminates delays in film
processing, thus increasing the dentist's potential revenue stream and
efficiency, and reduces overhead expenses. The use of digital radiography also
allows dentists to more effectively communicate diagnoses and treatment plans to
patients and to easily store and display patients' previous dental x-ray images,
which the Company believes have the potential to increase the rate of patients'
treatment acceptance and resulting revenues. Finally, the radiation
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dosage required to produce an intra-oral dental x-ray, which is high when
compared with other medical radiographs, can be reduced by up to 80% through the
use of digital radiography.
The Company's principal revenue-generating product is its CDR(R) computed
dental radiography imaging system. The Company's CDR(R) system is easy to
operate and can be used with any dental x-ray generator. To produce a digital
x-ray image using CDR(R), the dentist selects an intra-oral sensor of suitable
size and places it in the patient's mouth. The sensor converts the x-rays into a
digital image that is displayed on the computer monitor within five seconds and
automatically stored as part of the patient's clinical records. CDR(R) system
software provides the dentist with a variety of tools for advanced analysis of
the image. The sensor can then be repositioned for the next x-ray. As the x-ray
dose is significantly lower than that required for conventional x-ray film,
concern over the potential health risk posed by multiple x-ray exposures is
greatly diminished. The process is easy and intuitive, enabling nearly any
member of the dental staff to operate the CDR(R) system with minimal training.
The Company manufactures wired digital sensors in three sizes which
correspond to the three standard sizes of conventional dental x-ray film. Size 0
is designed for pediatric use; size 1 is designed for taking anterior dental
images; and size 2 is designed for taking bitewing images. All of the Company's
CDR(R) sensors can be disinfected using cold solutions or gas. The typical
CDR(R) configuration includes a computer, display monitor, size 2 digital
sensor, imaging software and a USB remote module.
In February 2003, the Company announced the introduction of CDR
Wireless(TM), which the Company believes to be the world's first wireless
instant dental x-ray system. It allows dentists to produce high-quality instant
radiographs with low radiation dosage and without the need for a cable between
the intra-oral sensor and computer. The Company currently manufactures Size 1
and Size 2 wireless sensors.
In April 2002, the Company introduced the USBCam(R), an innovative
intra-oral camera which fully integrates with the CDR(R) system to provide color
video images of the structures of the mouth. The Company believes that the
USBCam was the world's first intra-oral camera with a direct USB interface.
Since their introduction in 1991, intra-oral cameras have become widely accepted
in dentistry as a diagnostic, communication and presentation tool.
In March 1999, the Company commenced the sale of its digital panoramic
imaging device, the CDRPan(R). This device, which is designed to be retrofitted
into conventional panoramic dental x-ray machines, replaces film with electronic
sensors and a computer. This obviates the need for film and provides
instantaneous images, thus offering substantial savings in terms of time and
costs. Additionally, the CDRPan(R) easily integrates with practice management
and other computer software applications.
In November 2003 and December 2004, respectively, the Company introduced
an integrated digital panoramic machine, marketed under the CDRPanX(TM) name, to
the international and U.S. markets. It is a stand-alone device that performs
digital panoramic imaging for use in dentistry and maxillofacial surgery.
In February 2005, the Company introduced the SDX(TM), a DC dental x-ray
generator designed to optimize wired and wireless digital radiography. The SDX
integrates with the other products in the Company's suite of CDR(R) dental
imaging products.
Bone Mineral Density / Fracture Risk Assessment
The Company's accuDEXA(R) device, sold since December 1997, is an
innovative bone mineral density ("BMD") assessment device which helps physicians
diagnose low bone density and predict fracture risk. Based on APS technology,
accuDEXA(R) is a small self-contained unit capable of instantly assessing the
BMD of a specific portion of the patient's hand, a relative indicator of BMD
elsewhere in the body. This device is the first BMD assessment instrument that
is virtually automatic, requires no external x-ray generator or computer, and
exposes the patient to less than 1% of the radiation of a single conventional
chest x-ray.
MANUFACTURING
The Company's manufacturing facility is located at its headquarters in
Long Island City, New York. At this facility, which is subject to periodic
inspection by the United States Food and Drug Administration ("FDA"), the
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Company manufactures certain of its products and components, and performs the
majority of the final assembly and quality assurance testing process. In
addition, the Company outsources the fabrication and testing of certain final
assemblies and subassemblies.
The Company purchases various components for its products from a number of
outside suppliers. While the Company strives to maintain multiple sources of
supply for each such component, certain highly specialized components, including
semiconductor wafers used in the assembly of sensors, are primarily provided by
a single supplier. In these cases, the Company strives to maintain sufficient
inventory so as to provide extra time in which to locate an acceptable alternate
supplier in the event of a supply interruption. The Company believes that it
would be able to locate an acceptable alternate supplier in such event; however,
the need to replace a supplier could cause a disruption in the Company's ability
to timely deliver its products or increase the Company's costs.
The Company's quality assurance program includes various quality control
measures, from inspection of raw materials, purchased parts and assemblies
through in-process and final inspection, and conforms to the guidelines of the
International Quality Standard, ISO 9001. In August 1998, the Company was
granted ISO 9001 certification and, in September 2003, was granted ISO 9001:2000
certification. Since August 1998, the Company has been subject to semi-annual
audits to reaffirm its ongoing eligibility to maintain such certification.
DEPENDENCE ON CUSTOMERS
During fiscal 2005, 2004 and 2003, respectively, North American sales of
approximately $31.8 million (or 61% of total annual sales), $21.6 million (or
55% of total annual sales) and $15.4 million (or 52% of total annual sales) were
made to Patterson Dental Company ("Patterson"). During fiscal 2005, 2004 and
2003, respectively, sales of approximately $13.9 million, $9.9 million and $6.2
million were made to international customers.
PATENTS, TRADE SECRETS AND PROPRIETARY RIGHTS
The Company seeks to protect its intellectual property through a
combination of patent, trademark and trade secret protection. The Company's
future success will depend in part on its ability to obtain and enforce patents
for its products and processes, preserve its trade secrets and operate without
infringing the proprietary rights of others.
Patents
The Company has an active corporate patent program, the goal of which is
to secure patent protection for its technology. The Company currently has issued
United States patents for an `Intra-Oral Sensor for Computer Aided Radiography',
U.S. Patent No. 5,434,418, which expires on October 16, 2012; a `Large Area
Image Detector', U.S. Patent No. 5,834,782, which expires on November 20, 2016;
a `Method and Apparatus for Measuring Bone Density', U.S. Patent No. 5,852,647,
which expires on September 24, 2017; an `Apparatus for Measuring Bone Density
Using Active Pixel Sensors', U.S. Patent No. 5,898,753, which expires on June 6,
2017; a `Dental Imaging System with Lamps and Method', U.S. Patent No.
5,908,294, which expires on June 12, 2017; an `X-Ray Detection System Using
Active Pixel Sensors', U.S. Patent No. 5,912,942, which expires on June 6, 2017;
a `Dental Imaging System with White Balance Compensation', U.S. Patent No.
6,002,424, which expires on June 12, 2017; `Dental Radiography Using an
Intraoral Linear Array Sensor,' U.S. Patent No. 5,995,583, which expires on
November 13, 2016; a `Method for Reading Out Data from an X-Ray Detector,' U.S.
Patent No. 6,069,935, which expires on November 2, 2018; a `Filmless Dental
Radiography System Using Universal Serial Bus Port', U.S. Patent No. 6,134,298,
which expires on August 7, 2018; a 'Wireless Dental Camera', U.S. Patent No.
6,761,561, which expires on June 7, 2022; an 'Intraoral Wireless Sensor', U.S.
Design Patent No. D493,892, which expires on August 18, 2018; and 'Dental X-Ray
Positioning Using Adhesives', U.S. Patent No. 6,811,312, which expires on
February 8, 2022. The Company is also a licensee of U.S. Patent No. 5,179,579,
for a `Radiograph Display System with Anatomical Icon for Selecting Digitized
Stored Images', under a worldwide, non-exclusive, fully paid license.
Additionally, the Company has two recently allowed U.S. Patents as well as
another six U.S. patent applications currently pending. The Company also seeks
foreign patent protection when it deems it to be warranted.
The Company is the exclusive sub-licensee for use in medical radiography
applications of certain patents, patent applications and other know-how
(collectively, the "Intellectual Property") related to complementary metal oxide
semiconductor ("CMOS") active pixel sensor technology (the "APS Technology"),
which was developed by
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the California Institute of Technology and sublicensed to the Company. The
Company's exclusive rights to such technology are subject to government rights
to use, noncommercial educational and research rights to use by California
Institute of Technology and the Jet Propulsion Laboratory, and the right of a
third party to obtain a nonexclusive license from the California Institute of
Technology with respect to such technology. The Company believes that, except
for such third party's exercise of its right to obtain a nonexclusive license to
use APS Technology in a field other than medical radiography, none of the
foregoing parties have given notice of their exercise of any of their respective
rights to the APS Technology. There can be no assurance that this will continue
to be the case, and any such exercise could have a material adverse effect on
the Company.
The Company has granted several non-exclusive licenses on certain of its
patents and intends to grant additional patent licenses in the future as and
when it deems it appropriate.
Trademarks
The Company has obtained trademark registrations from the United States
Patent and Trademark Office for the marks (i) "CDR" for its digital dental
radiography product; (ii) "USBCam" for its intra-oral camera (iii) "QuickZoom"
(both textual and stylized) for a viewing feature in its digital dental
radiography product; (iv) "accuDEXA" for its BMD assessment product; and (v)
"CDRPan" for its panoramic digital dental radiography product. In addition, the
Company has common law trademark rights in several other names it uses
commercially in connection with its products.
Trade Secrets
In addition to patent protection, the Company owns trade secrets and
proprietary know-how which it seeks to protect, in part, through appropriate
Non-Disclosure, Non-Solicitation, Non-Competition and Inventions Agreements,
and, to a limited degree, employment agreements with appropriate individuals.
These agreements generally provide that all confidential information developed
by or made known to the individual by the Company during the course of the
individual's relationship with the Company is the property of the Company, and
is to be kept confidential and not disclosed to third parties, except in
specific limited circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering services to
the Company shall be the exclusive property of the Company. However, there can
be no assurances that these agreements will not be breached, that the Company
would have adequate remedies available for any breach or that the Company's
trade secrets will not otherwise become known to, or independently developed by,
its competitors.
GOVERNMENT REGULATION
Products that the Company is currently developing or may develop in the
future are likely to require certain forms of governmental clearance, including,
but not limited to, marketing clearance by the U.S. Food and Drug
Administration. The FDA review process typically requires extended proceedings
pertaining to product safety and efficacy. The Company believes that its future
success will depend to a large degree upon commercial sales of improved versions
of its current products and sales of new products; the Company will not be able
to market such products in the United States without FDA marketing clearance.
There can be no assurance that any products developed by the Company in the
future will be given clearance by applicable governmental authorities or that
additional regulations will not be adopted or current regulations amended in
such a manner as to adversely affect the Company.
Pursuant to the Federal Food, Drug and Cosmetic Act, as amended (the "FD&C
Act"), the FDA classifies medical devices intended for human use into three
classes: Class I, Class II, and Class III. In general, Class I devices are
products for which the FDA determines that safety and effectiveness can be
reasonably assured by general controls under the FD&C Act relating to such
matters as adulteration, misbranding, registration, notification, records and
reports. The USBCam(R) is a Class I device.
Class II devices are products for which the FDA determines that general
controls are insufficient to provide a reasonable assurance of safety and
effectiveness, and that require special controls such as promulgation of
performance standards, post-market surveillance, patient registries or such
other actions as the FDA deems necessary. CDR(R), CDR Wireless(TM), CDRPan(R),
CDRPanX(TM), SDX(TM) and accuDEXA(R) have been classified as Class II devices.
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Class III devices are devices for which the FDA has insufficient
information to conclude that either general controls or special controls would
be sufficient to assure safety and effectiveness, and which are life-supporting,
life-sustaining, of substantial importance in preventing impairment of human
health, or present a potential unreasonable risk of illness or injury. Devices
in this class require pre-market approval, as described below. None of the
Company's existing products are in the Class III category.
The FD&C Act further provides that, unless exempted by regulation, medical
devices may not be commercially distributed in the United States unless they
have been cleared by the FDA. There are two review procedures by which medical
devices can receive such clearance. Some products may qualify for clearance
under a Section 510(k) procedure, in which the manufacturer submits to the FDA a
pre-market notification that it intends to begin marketing the product, and
shows that the product is substantially equivalent to another legally marketed
product (i.e., that it has the same intended use and that it is as safe and
effective as a legally marketed device, and does not raise different questions
of safety and effectiveness than does a legally marketed device). In some cases,
the 510(k) notification must include data from human clinical studies.
Marketing may commence once the FDA issues a clearance letter finding such
substantial equivalence. According to FDA regulations, the agency has 90 days in
which to respond to a 510(k) notification. There can be no assurance, however,
that the FDA will provide a timely response, or that it will reach a finding of
substantial equivalence.
If a product does not qualify for the 510(k) procedure (either because it
is not substantially equivalent to a legally marketed device or because it is a
Class III device), the FDA must approve a Pre-Market Approval ("PMA")
application before marketing can begin. PMA applications must demonstrate, among
other things, that the medical device is safe and effective. A PMA application
is typically a complex submission that includes the results of clinical studies.
Preparation of such an application is a detailed and time-consuming process.
Once a PMA application has been submitted, the FDA's review process may be
lengthy and include requests for additional data. By statute and regulation, the
FDA may take 180 days to review a PMA application, although such time may be
extended. Furthermore, there can be no assurance that the FDA will approve a PMA
application.
In January 1994, the FDA cleared the Company's 510(k) application for
general use and marketing of the CDR(R) system; in October 2002, cleared the
Company's expanded 510(k) application for the CDR Wireless product; and in June
2004, cleared the Company's 510(K) application in connection with a modification
of the CDR system for optimization for use with the SDX(TM) product. In November
1996, the FDA cleared the Company's 510(k) application for general use and
marketing of CDRCam (USBCam(R)). In December 1997, the FDA cleared the Company's
510(k) application for general use and marketing of accuDEXA(R). The FDA granted
the Company additional clearances in connection with the accuDEXA(R), on June 4,
1998, to market accuDEXA(R) as a predictor of fracture risk, and on May 26,
2000, to further clarify issues regarding the collection of the normative
database. In December 1998 and May 2003, the FDA cleared the Company's 510(k)
applications for CDRPan(R) and CDRPanX(TM), respectively.
In addition to the requirements described above, the FD&C Act requires
that all medical device manufacturers and distributors register with the FDA
annually and provide the FDA with a list of those medical devices which they
distribute commercially. The FD&C Act also requires that all manufacturers of
medical devices comply with labeling requirements and manufacture their products
and maintain their documents in a prescribed manner with respect to
manufacturing, testing, and quality control activities. The FDA's Medical Device
Reporting regulation subjects medical devices to post-market reporting
requirements for death or serious injury, and for certain malfunctions that
would be likely to cause or contribute to a death or serious injury if
malfunction were to recur. In addition, the FDA prohibits a device which has
received marketing clearance from being marketed for applications for which
marketing clearance has not been obtained. Furthermore, the FDA generally
requires that medical devices not cleared for marketing in the United States
receive FDA marketing clearance before they are exported, unless an export
certification has been granted.
The Company must obtain certain approvals by and marketing clearances from
governmental authorities, including the FDA and similar health authorities in
foreign countries, to market and sell its products in those countries. The FDA
regulates the marketing, manufacturing, labeling, packaging, advertising, sale
and distribution of "medical devices", as do various foreign authorities in
their respective jurisdictions. The FDA
7
enforces additional regulations regarding the safety of equipment utilizing
x-rays. Various states also impose their own regulations.
The FDA review process typically requires extended proceedings pertaining
to the safety and efficacy of new products. A 510(k) application is required in
order to market a new or modified medical device. If specifically required by
the FDA, a pre-market approval ("PMA") may be necessary. Such proceedings, which
must be completed before marketing a new medical device, are potentially very
expensive and time consuming. They may delay or hinder a product's timely entry
into the marketplace. Moreover, there can be no assurance that the review or
approval process for these products by the FDA or any other applicable
governmental authorities will occur in a timely fashion, if at all, or that
additional regulations will not be adopted or current regulations amended in
such a manner as will adversely affect the Company. The FDA also regulates the
content of advertising and marketing materials relating to medical devices.
Failure to comply with such regulations may result in a delay in obtaining
approval for the marketing of such products or the withdrawal of such approval
if previously obtained.
The Company is currently developing new products for the dental and
medical markets. The Company expects to file 510(k) applications with the FDA in
connection with its future products, as necessary. There can be no assurance
that the Company will file such 510(k) applications and/or will obtain
pre-market clearance for any future products, or that in order to obtain 510(k)
clearance, the Company will not be required to submit additional data or meet
additional FDA requirements that may substantially delay the 510(k) process and
result in substantial additional expense. Moreover, such pre-market clearance,
if obtained, may be subject to conditions on marketing or manufacturing, which
could impede the Company's ability to manufacture and/or market the product
and/or adversely affect its profitability. If the Company is unable to obtain
regulatory clearance for and market new products and enhancements to existing
products, it will have a material adverse effect on the Company.
The Company's CDR(R) wireless product complies with the relevant technical
standards established by the U.S. Federal Communications Commission ("FCC"), as
set forth in FCC Rule 15.249. CDR Wireless(TM) is not subject to any wireless or
transmission licensing requirements.
Failure to comply with applicable regulatory requirements can, among other
consequences, result in fines, injunctions, civil penalties, suspensions or loss
of regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution. In addition, governmental regulations may
be established that could prevent or delay regulatory clearance of the Company's
products. Delays in receipt of clearance, failure to receive clearance or the
loss of previously received clearance would have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition to laws and regulations discussed above, the Company is
subject to government regulations applicable to all businesses, including, among
others, regulations related to occupational health and safety, workers' benefits
and environmental protection. The extent of government regulation that might
result from any future legislation or administrative action cannot be accurately
predicted. Failure to comply with regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Distribution of the Company's products in countries other than the United
States may be subject to regulations in those countries. These regulations vary
significantly from country to country; the Company typically relies on its
independent distributors in such foreign countries to obtain the requisite
regulatory approvals.
The Company's dental products bear the "CE Mark," a European Union symbol
of compliance with quality assurance standards and with the European Union's
Medical Device Directive ("MDD"). In order to market the Company's products in
the member countries of the European Union, it is necessary that those products
conform to these standards and the MDD. It is also necessary that the Company's
products comply with any revisions which may be made to the standards or the
MDD. To date, the Company has maintained such compliance on its core products.
The Company has developed and implemented a quality assurance program in
accordance with the guidelines of the International Quality Standard, ISO 9001.
In August 1998, the Company was granted ISO 9001
8
certification. The Company's products also comply with the requirements for the
"UL" 60601-1 (formerly UL 2601-1) (U.S.A.) and "CSA" C22.2 No. 601-1 (Canada)
standards, the applicable standards for obtaining North American safety marking
from an "NRTL" (Nationally Recognized Testing Lab). All of the Company's current
products either bear an NRTL marking or are in the process of obtaining such
marking.
PRODUCT LIABILITY INSURANCE
The Company is subject to the risk of product liability and other
liability claims in the event that the use of its products results in personal
injury or other claims. Although the Company has not experienced any product
liability claims to date, any such claims could have an adverse impact on the
Company. The Company maintains insurance coverage related to product liability
claims, but there can be no assurance that product liability or other claims
will not exceed its insurance coverage limits, or that such insurance will
continue to be maintained or that it will be available on commercially
acceptable terms, or at all.
RESEARCH AND DEVELOPMENT
During fiscal 2005, 2004 and 2003, research and development expenses were
$4.9 million, $3.3 million and $2.6 million, respectively.
BACKLOG
The backlog of orders was approximately $1.0 million at June 6, 2005, $0.8
million at June 10, 2004, and $0.5 million at June 3, 2003. Orders included in
backlog may generally be cancelled or rescheduled by customers without
significant penalty.
EMPLOYEES
As of June 1, 2005, the Company had 139 full-time employees, engaged in
the following capacities: sales and marketing (44); general and administrative
(23); operations (44); and research and development (28). The Company believes
that its relations with its employees are good. No Company employees are
represented by a labor union or are subject to a collective bargaining
agreement, nor has the Company experienced any work stoppages due to labor
disputes.
SALES AND MARKETING
Dental Products
In April 2000, the Company and Patterson Dental Company entered into an
exclusive distribution agreement covering the United States and Canada; as of
May 1, 2000, the Company began marketing and selling its CDR(R) dental products
in the United States and Canada through Patterson. The Company believes that
Patterson has the largest direct sales force in the dental industry, totaling
nearly 1,300 sales representatives and equipment/software specialists serving
the United States and Canada.
The Company has a government sales program to sell directly to the Armed
Services, Veterans Administration hospitals, United States Public Health Service
and other government-sponsored health institutions.
The Company currently has 16 area sales manager ("ASM") territories
located throughout the United States and one in Canada to interface with and
assist Patterson in its sales effort; two individuals manage the ASM staff. In
addition, a sales and marketing support staff of seven, based at the Company's
offices in New York and at other locations throughout the United States,
supports the sales managers and the ASMs by planning events and product seminars
and developing promotional and marketing materials.
In the international market, the Company sells the CDR(R) system via
independent regional distributors. There are currently approximately 65
independent CDR(R) dealers, covering about 57 countries. A dedicated in-house
staff, as well as four individuals based in Europe, Asia and Latin America,
provide the foreign distributors with materials, sales support, technical
assistance and training, both in New York and abroad.
9
Our goal is to develop and introduce new technologies and products while
maintaining market leadership in our core domestic business, strengthening and
expanding our international distribution network and securing as many productive
sales channels as possible.
BMD / Fracture Risk Assessment
The Company currently sells the accuDEXA(R) primarily through a network of
manufacturer representatives. To date, accuDEXA(R) sales have taken place
primarily within the United States, with a relatively small number of sales
abroad. The primary end-users for accuDEXA(R) are primary care physicians,
including OB/GYN practices, and osteopathic and geriatric specialists.
COMPETITION
Competition relating to the Company's current products is intense and
includes various companies, both within and outside of the United States. Many
of the Company's competitors are large companies with financial, sales and
marketing, and other resources that are substantially greater than those of the
Company. In addition, there can be no assurance that the Company's competitors
are not currently developing, or will not attempt to develop, technologies and
products that are more effective than those of the Company or that would
otherwise render the Company's products obsolete or noncompetitive.
Dental Products
A number of companies currently sell intra-oral digital dental sensors
under various brand names. These include Eastman Kodak Co. ("Trophy"), Gendex
Dental Systems ("Visualix"), Dentrix Dental Systems, Inc. ("ImageRAYi"),
Provision Dental Systems, Inc. ("Dexis"), Sirona Dental Systems ("Sidexis") and
Suni Medical Imaging, Inc. In addition, Gendex, Air Techniques and Soredex
Corporation sell storage-phosphor based intra-oral dental systems. The Company
believes that its CDR system has thus far competed successfully against other
products. If other companies enter the digital radiography field, it may result
in a significantly more competitive market in the future. Several companies are
involved in the manufacture and sale of intra-oral cameras, including Gendex,
Henry Schein, Inc., Digital Doc and Air Techniques. Several companies, including
Kodak, Sirona, Instrumentarium Imaging, Panoramic Corporation and Planmeca,
manufacture digital panoramic dental devices.
BMD / Fracture Risk Assessment
Several companies including General Electric, Lunar, Hologic, Inc.,
Sunlight, Inc. and Norland are marketing competitive equipment, such as
peripheral ultrasound devices. A number of other companies market devices that
assess hand densitometry.
ITEM 2. PROPERTIES
The Company presently leases approximately 50,000 square feet of space in
Long Island City, New York. That lease expires in June 2007. The leased space
houses our executive offices, sales and marketing headquarters, research and
development laboratories and production and shipping facilities. The Company
believes that such space will be adequate for its needs for the foreseeable
future and that, if such space proves to be inadequate, it will be able to
procure additional or replacement space that will be adequate for its needs.
ITEM 3. LEGAL PROCEEDINGS
The Company and/or certain of its former officers are involved in the
matters described below:
In August 1999, the Company, through its outside counsel, contacted the
Division of Enforcement of the Securities and Exchange Commission ("SEC") to
advise it of certain matters related to the Company's restatement of earnings
for interim periods of fiscal 1999. The SEC subsequently conducted an
investigation of the Company and certain individuals, including current and
former officers and employees of the Company, pursuant to a Formal Order of
Investigation. The Company cooperated with the SEC staff throughout the course
of the investigation.
10
The Company has been informed that since January 2002 the SEC and/or the
United States Attorney's Office for the Southern District of New York have
served subpoenas upon and/or contacted certain individuals, including current
and former officers and employees of the Company, and a current Director, in
connection with this matter. On June 13, 2002, the Company was advised by
counsel to David Schick, the Company's former chief executive officer, that the
United States Attorney's Office for the Southern District of New York had
notified such counsel that Mr. Schick was a target of the United States
Attorney's investigation of this matter. The Company has cooperated with the SEC
staff and U.S. Attorney's Office.
On November 14, 2003, the SEC filed a civil action in the United States
District Court for the Eastern District of New York against the Company, its
former chief executive officer, and its former vice president of sales &
marketing. The SEC complaint alleges fraud, and books and records and reporting
violations under Sections 10(b), 13(a) and 13(b)(2) of the Securities Exchange
Act and various rules promulgated thereunder in connection with the financial
statements included in the Company's reports on Form 10-Q for the quarters ended
June 30, September 30 and December 31, 1998. The SEC complaint seeks to enjoin
the Company from future violations of those provisions of the Exchange Act and
the rules thereunder, as well as disgorgement of any allegedly ill-gotten gains,
which the Company does not believe to be material in amount. With respect to the
other defendants, the complaint seeks injunctive relief, civil penalties,
disgorgement and an officer/director bar.
The Company has had discussions with the Enforcement Staff of the SEC's
northeast regional office in an effort to resolve the complaint against the
Company, and the Company intends to continue such discussions. On May 4, 2005,
the Court ordered that discovery in this case be suspended until June 18, 2005
to permit the consideration of settlement proposals. Any settlement would
require approval by the Commission before it could become effective. There can
be no assurance that settlement discussions will continue and/or will be
successful.
During the three months ended December 31, 2004, the insurance coverage
available to the Company for legal fee reimbursements and indemnification costs
was fully depleted. If this matter remains unresolved, the Company will continue
to incur significant legal fees and may incur indemnification costs. However,
the Company believes that the magnitude of such expenditures will not adversely
affect its ongoing business operations.
The Company could become a party to a variety of legal actions (in
addition to that referred to above), such as employment and employment
discrimination-related suits, employee benefit claims, breach of contract
actions, tort claims, shareholder suits and intellectual property related
litigation. In addition, because of the nature of its business, the Company is
potentially subject to a variety of legal actions relating to its business
operations. Recent court decisions and legislative activity may increase the
Company's exposure for any of these types of claims. In some cases, substantial
punitive damages could be sought. The Company currently has insurance coverage
for some of these potential liabilities. Other potential liabilities may not be
covered by insurance, insurers may dispute coverage, or the amount of insurance
may not be sufficient to cover the damages awarded. In addition, certain types
of damages, such as punitive damages, may not be covered by insurance and
insurance coverage for all or certain forms of liability may become unavailable
or prohibitively expensive in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended March 31, 2005.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since January 30, 2002, the Company's Common Stock has been traded on the
over-the-counter Bulletin Board under the symbol "SCHK".
The following table sets forth, for the periods indicated, the high and
low bid prices of the Company's Common Stock as quoted on the over-the-counter
Bulletin Board for each of the fiscal quarters during the years ended March 31,
2005 and 2004.
11
Fiscal Year Ended March 31, 2005 High Low
- -------------------------------- ------ -----
First Quarter ............................................ $13.95 $9.65
Second Quarter ........................................... $13.90 $8.55
Third Quarter ............................................ $16.50 $9.50
Fourth Quarter ........................................... $19.20 $14.90
Fiscal Year Ended March 31, 2004 High Low
- -------------------------------- ------ -----
First Quarter ............................................ $8.80 $4.30
Second Quarter ........................................... $8.58 $6.85
Third Quarter ............................................ $8.40 $6.50
Fourth Quarter ........................................... $12.15 $7.05
On June 8, 2005, the closing bid and asked prices per share of the
Company's Common Stock, as quoted on the over-the-counter Bulletin Board, were
$19.20 and $19.35 per share, respectively. Such prices represent quotations
between dealers, without dealer mark-up, markdown or commission, and may not
represent actual transactions. On June 8, 2005, there were one hundred
forty-three (143) holders of record of the Company's Common Stock. However, the
Company believes that the number of beneficial owners of such stock is
substantially higher.
To date, the Company has retained its earnings to finance the growth and
development of the Company's business, and has not paid any dividends on its
Common Stock. The Company may consider paying dividends in the future, but
currently has no plans to do so. The payment of dividends is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements, financial condition and other relevant
factors.
Equity Compensation Plan Information
The following table sets forth the following information, as of March 31,
2005, with respect to compensation plans (including individual compensation
arrangements) under which equity securities of the Company are authorized for
issuance: the number of securities to be issued upon the exercise of outstanding
options, warrants and rights; the weighted-average exercise price of such
options, warrants and rights; and, other than the securities to be issued upon
the exercise of such options, warrants and rights, the number of securities
remaining available for future issuance under the plan:
- ------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- ------------------------------------------------------------------------------------------------------------
Plan category Number of Weighted-average Number of securities
securities to be exercise price remaining available
issued upon of outstanding for future issuance
exercise of options, under equity
outstanding warrants and compensation plans
options, rights (excluding
warrants and securities reflected
rights in column (a) )
- ------------------------------------------------------------------------------------------------------------
Equity compensation plans approved 2,728,747 $5.52 968,753
by security holders
- ------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved
by security holders -- -- --
- ------------------------------------------------------------------------------------------------------------
Total 2,728,747 $5.52 968,753
- ------------------------------------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from, and are qualified
by reference to, the audited financial statements of the Company for the period
indicated. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 and the Financial Statements included in Item 15 of this
Report.
12
Schick Technologies, Inc.
Selected Financial Data
Year ended March 31,
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
(in thousands, except per share data)
Statement of Operations Data:
Revenue, net $ 52,418 $ 39,393 $ 29,817 $ 24,399 $ 21,252
Total cost of sales 14,857 11,495 9,628 8,832 10,306
-------- -------- -------- -------- --------
Gross profit 37,561 27,898 20,189 15,567 10,946
Operating expenses:
Selling and marketing 7,107 6,118 5,911 5,291 5,314
General and administrative 6,851 6,291 5,041 4,148 4,161
Research and development 4,812 3,301 2,598 2,176 2,220
Bad debt expense (recovery) -- 105 -- (93) (454)
Abandonment of leasehold -- -- -- 118 275
-------- -------- -------- -------- --------
Total operating expenses 18,770 15,815 13,550 11,640 11,516
-------- -------- -------- -------- --------
Income (loss) from operations 18,791 12,083 6,639 3,927 (570)
Total other income (expense) 468 109 (174) (839) (1,068)
-------- -------- -------- -------- --------
Income (loss) before income taxes 19,259 12,192 6,465 3,088 (1,638)
Income tax provision(benefit) 7,187 (5,917) (5,360) -- --
-------- -------- -------- -------- --------
Net income (loss) $ 12,072 $ 18,109 $ 11,825 $ 3,088 $ (1,638)
======== ======== ======== ======== ========
Basic earnings (loss) per share $ 0.78 $ 1.69 $ 1.17 $ 0.30 $ (0.16)
======== ======== ======== ======== ========
Diluted earnings (loss) per share $ 0.70 $ 1.07 $ 0.78 $ 0.26 $ (0.16)
======== ======== ======== ======== ========
As of March 31,
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
Balance Sheet Data:
Cash and cash equivalents $ 39,725 $ 20,734 $ 7,100 $ 1,622 $ 2,167
Working capital / (deficiency) 47,109 27,400 9,157 1,133 (1,586)
Total assets 57,534 42,743 22,610 11,957 12,646
Long-term obligations -- -- -- 2,039 4,080
Total liabilities 8,285 7,715 7,747 9,057 12,835
Retained earnings (accumulated deficit) 2,324 (9,748) (27,857) (39,682) (42,770)
Stockholders' equity 49,249 35,028 14,863 2,900 (189)
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements included elsewhere in this Report. This
discussion contains forward-looking statements based on current expectations
that involve risks and uncertainties. Actual results and the timing of certain
events may differ significantly from those projected in such forward-looking
statements due to a number of factors, including those set forth in "Results of
Operations" in this Item and elsewhere in this Report. See "ITEM 1 -- Business
- -- Forward-Looking Statements" and Exhibit 99.1 to this Report.
Overview
The Company designs, develops and manufactures digital imaging systems for
the worldwide dental and medical markets. In the field of dentistry, the Company
currently manufactures and markets a variety of digital imaging products
including an intra-oral digital radiography system (CDR(R) and CDR
Wireless(TM)), a digital panoramic radiography sensor (CDRPan(R)) and integrated
device (CDRPanX(TM)), an intra-oral camera system (USBCam(R)), and a DC dental
x-ray generator (SDX(TM)). The Company also manufactures and sells a bone
mineral density assessment device (accuDEXA(R)) which it developed to assist in
the diagnosis and treatment of osteoporosis. The Company's revenues during
fiscal 2005 were derived primarily from sales of its CDR(R) system.
The Company records sales revenue upon shipment to international dealers
and to end-users in the U.S. In the case of sales made to Patterson, revenue
arising from inventory in Patterson's possession is recorded in deferred
revenue, and revenue is recognized upon shipment from Patterson's distribution
centers. Revenues from the sales of extended warranties are recognized on a
straight-line basis over the life of the extended warranty, which is generally a
period of up to two years. The Company utilizes Patterson as the exclusive
distributor for non-governmental sales of its dental products within the United
States and Canada. The Company's accuDEXA(R) product is sold through a network
of independent sales representatives in the United States. International sales
of the Company's products are made primarily through a network of independent
foreign distributors. In fiscal 2005, 2004, and 2003, sales to customers within
North America were approximately 73%, 75% and 78% of total revenues,
respectively. The Company's international sales are principally made to
distributors in Europe and Asia. The Company's sales are primarily denominated
in United States dollars.
Cost of sales consists of raw materials, manufacturing labor, facilities
overhead, product support, and warranty costs. Excess and obsolete inventory
expense relates to the overstocking or obsolescence of various dies and/or
obsolete x-ray inventory that the Company may not use or otherwise salvage.
Operating expenses include selling and marketing expenses, general and
administrative expenses and research and development expenses, and bad debt
expense. Selling and marketing expenses consist of salaries and commissions,
advertising, promotional and sales events and travel. General and administrative
expenses include executive salaries, professional fees, facilities overhead,
accounting, human resources, and general office administration expenses.
Research and development expenses are comprised of salaries, consulting fees,
facilities overhead and testing materials used for basic scientific research and
the development of new and improved products and their uses. Research and
development costs are expensed as incurred. Bad debt expense is a result of
product shipments that were determined to be uncollectible or not collected. Bad
debt recovery is a result of the receipt, in cash, for shipments previously
deemed uncollectible.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the Company to make
estimates and assumptions that affect amounts reported in the accompanying
consolidated financial statements and related footnotes. These estimates and
assumptions are evaluated on an ongoing basis based on historical developments,
market conditions, industry trends and other information the Company believes to
be reasonable under the circumstances. There can be no assurance that actual
results will conform to the Company's estimates and assumptions, and that
reported results of operations will not be materially adversely affected by the
need to make accounting adjustments to reflect changes in these estimates and
assumptions from time to time. The following policies are those that the Company
believes to be the most sensitive to estimates and judgments. The Company's
significant accounting policies are more fully described in Note 1 to the
consolidated statements.
14
Revenue recognition
The Company recognizes revenue when each of the following four criteria
are met: 1) a contract or sales arrangement exists; 2) products have been
shipped and title has been transferred or services have been rendered; 3) the
price of the products or services is fixed or determinable; and 4)
collectibility is reasonably assured. Revenues from sales of the Company's
hardware and software products are recognized at the time of shipment to
customers, and when no significant obligations exist and collectibility is
reasonably assured. The Company provides its exclusive domestic distributor with
a 30-day return policy but allows for an additional 15 days, and accordingly
recognizes allowances for estimated returns pursuant to such policy at the time
of shipment. Revenue from shipments to foreign customers is recognized at the
time of shipment in accordance with foreign sales orders. With respect to
products shipped to its exclusive domestic distributor, the Company defers
revenue until Patterson ships such inventory from its distribution centers.
Amounts received from customers in advance of product shipment are classified as
deposits from customers. Revenues from the sale of extended warranties on the
Company's products are recognized on a straight-line basis over the life of the
extended warranty. Deferred revenues relate to extended warranty fees paid by
customers prior to the performance of extended warranty services, and to certain
shipments to Patterson, as described above.
Accounts receivable
The Company primarily sells on open credit terms to Patterson and to the
U.S. Government, and upon signed purchase orders to hospitals and universities.
The Company's international sales are generally prepaid, guaranteed by
irrevocable letter of credit or underwritten by credit insurance. In a limited
number of cases, international dealers are granted open credit terms. Warranty
shipments are prepaid. Revenue from customers is subject to agreements allowing
limited rights of return. Accordingly, the Company reduces revenue recognized
for estimated future returns. The estimate of future returns is adjusted
periodically based upon historical rates of return. The Company provides an
allowance for doubtful accounts based upon its analysis of aged accounts
receivable.
Inventories
Inventories are stated at the lower of cost or market. The cost of
inventories is determined principally on the standard cost method for
manufactured goods and on the average cost method for other inventories, each of
which approximates actual cost on the first-in, first-out ("FIFO") method. The
Company establishes reserves for inventory estimated to be obsolete,
unmarketable or slow moving inventory equal to the difference between the cost
of inventory and estimated market value based upon assumptions about future
demand and market conditions. If actual market conditions are less favorable
than those anticipated or if changes in technology affect the Company's
products, additional inventory reserves could be required.
Goodwill and other long-lived assets
Effective April 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and other Intangible
Assets". This statement requires that the amortization of goodwill be
discontinued and instead an annual impairment approach be applied. The
impairment tests were performed upon adoption and are performed annually
thereafter (or more often if adverse events occur) and will be based upon a fair
value approach rather than an evaluation of undiscounted cash flows. If the
asset has been impaired, the resulting charge reflects the excess of the asset's
carrying value over the recalculated goodwill. Impairment tests performed in
August 2002, March 2003, March 2004 and April 2005 indicated that goodwill had
not been impaired.
Other long-lived assets, such as patents and property and equipment, are
amortized or depreciated over their estimated useful lives. These assets are
reviewed for impairment whenever events or circumstances provide evidence that
suggest that the carrying amount of the asset may not be recoverable, with
impairment being based upon an evaluation of the identifiable undiscounted cash
flows. If the asset has been impaired, the resulting charge reflects the excess
of the asset's carrying cost over its fair value.
If market conditions become less favorable, future cash flows, the key
variable in assessing the impairment of these assets, may decrease and as a
result the Company may be required to recognize impairment charges.
15
Deferred tax asset and income taxes
Income taxes are determined in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), which requires recognition of
deferred income tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income tax liabilities and assets are
determined based on the difference between financial statements and tax bases of
liabilities and assets using enacted tax rates in effect for the year in which
the differences are expected to reverse. SFAS 109 also provides for the
recognition of deferred tax assets if it is more likely than not that the assets
will be realized in future years. Through March 31, 2003, a valuation allowance
of $11.4 million was established for deferred tax assets for which it was not
more likely than not that the deferred tax asset would be realized. During the
year ended March 31, 2003 the Company reduced its valuation allowance by $5.8
million. At March 31, 2004, the Company reduced its valuation allowance to zero,
because it determined that it was more likely than not that the total deferred
tax asset would be realized. During fiscal 2005, 2004, and 2003, the Company's
utilization of its net operating losses resulted in a reduction of current taxes
in the amount of $6.8 million, $4.8 million and $2.7 million, respectively. In
assessing the valuation allowance, the Company considered future taxable income
and ongoing tax planning strategies and determined that it was more likely than
not that the deferred tax asset would be realized.
Warranty obligations
Products sold are generally covered by a warranty against defects in
material and workmanship for a period of up to two years. The Company accrues a
warranty reserve for estimated costs to provide warranty services. The Company
estimates costs to service warranty obligations based on historical experience
and expectation of future conditions. To the extent the Company experiences
increased warranty claim activity or increased costs associated with servicing
those claims, warranty accrual will increase, resulting in decreased gross
profit.
Stock-based compensation
Stock based compensation is accounted for under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. In February 2000, an executive was
awarded 75,000 shares of the Company's common stock, subject to a risk of
forfeiture, which vested as to 25,000 shares on each of December 31, 2000, 2001
and 2002. Upon the sale of any such vested shares, the employee is required to
pay the Company $1.32 per share sold within six months following such sale. The
Company recorded a note receivable, which is presented as a reduction of Paid in
Capital amounting to $99, relating to the stock issuance. The charge to
operations relating to this stock award is not material to the financial
statements. The Company determines the fair value of options issued based on the
intrinsic value method.
Litigation and contingencies
The Company and its subsidiary are from time to time parties to lawsuits
and regulatory administrative proceedings arising out of their respective
operations. The Company records liabilities when a loss is probable and can
reasonably be estimated. The Company believes it has estimated appropriately in
the past; however court decisions and/or other unforeseen events could cause
liabilities to be incurred in excess of estimates.
Contractual Obligations and Commercial Commitments
The following table summarizes contractual obligations and commercial
commitments at March 31, 2005:
================================================================================
PAYMENTS DUE BY PERIOD (in thousands)
-----------------------------------------------
Less
CONTRACTUAL than 1 1-3 4-5 After 5
OBLIGATIONS Total year years years years
- --------------------------------------------------------------------------------
Operating leases $1,169 $ 506 $ 663 $ -- $ --
- --------------------------------------------------------------------------------
Employment agreements 1,067 593 474 -- --
- --------------------------------------------------------------------------------
Purchase obligations 850 850 -- -- --
- --------------------------------------------------------------------------------
Consulting agreement 751 340 411 -- --
- --------------------------------------------------------------------------------
Total Contractual
Cash Obligations $3,837 $2,289 $1,548 $ -- $ --
================================================================================
16
Results Of Operations
The following table sets forth, for the fiscal years indicated, certain
items from the Statement of Operations expressed as a percentage of net
revenues:
Year ended March 31,
2005 2004 2003
------ ------ ------
Revenue, net 100.0% 100.0% 100.0%
------ ------ ------
Total cost of sales 28.3% 29.2% 32.3%
------ ------ ------
Gross profit 71.7% 70.8% 67.7%
Operating expenses:
Selling and marketing 13.6% 15.5% 19.8%
General and administrative 13.1% 16.0% 16.9%
Research and development 9.2% 8.4% 8.7%
Bad debt expense -- 0.3% --
------ ------ ------
Total operating costs 35.8% 40.1% 45.4%
------ ------ ------
Operating income 35.8% 30.7% 22.3%
Other income (expense), net 0.9% 0.3% (0.6%)
------ ------ ------
Income before tax expense (benefit) 36.7% 30.9% 21.7%
------ ------ ------
Income tax expense (benefit), net 13.7% (15.0%) (18.0%)
------ ------ ------
Net income 23.0% 46.0% 39.7%
====== ====== ======
Fiscal Year Ended March 31, 2005 as Compared to Fiscal Year Ended March 31, 2004
We design, manufacture and sell innovative digital products for the dental
market. Our primary products are sensors that replace film in the x-ray process.
Growing acceptance of these products have resulted in double-digit revenue
growth in domestic and international markets. In fiscal 2005, we introduced the
SDX(TM), a DC x-ray generator designed to optimize wired and wireless digital
radiography.
During fiscal 2005, consolidation of the dental products market continued
with Danaher Corporation's February 2005 acquisition of Dexis, a seller of
dental digital radiography products. Previously, in March 2004, Danaher had
acquired Kavo, a manufacturer of capital dental equipment, and in February 2004,
it had acquired Gendex, a division of Dentsply International, Inc. which
manufactures dental imaging products. In addition, during fiscal 2004, Eastman
Kodak Company entered the digital dental market when it acquired PracticeWorks,
a practice management software company with a digital sensor manufacturing and
marketing subsidiary located in France. Management believes that the trend
towards consolidation in the marketplace is likely to continue into the
foreseeable future. The Company will consider acquisitions whenever appropriate.
Management believes that the consolidation of the market did not significantly
affect the Company's revenues or operating margins in fiscal 2005.
For the fiscal year ended March 31, 2005, the Company's domestic dental
product revenues increased 39% to $33.3 million, or 64% of revenue. Foreign
dental product revenues, principally from Europe and Asia, increased 41% to
$13.9 million, or 26% of revenue. Management believes that wider acceptance of
the Company's products as well as continued expansion of sales through our
exclusive domestic distributor and improvements in our international
distribution network are the primary factors underlying our improved
performance.
Operating expenses, with the exception of expenses related to compliance
with new internal control reporting requirements and expenses related to
research and development activity, declined as a percent of revenue as the
Company leveraged its fixed expense advantage. Income tax expense increased
significantly because of increasing profits and the prior year reduction of the
reserve for deferred income tax assets to zero. At
17
year end the Company had utilized all of its net operating loss carryover.
Total revenue increased $13.0 million (33%) to $52.4 million in fiscal
2005, from $39.4 million in fiscal 2004. The revenue increase was due to higher
sales of CDR(R) dental radiography products principally through expansion of
sales through the Company's exclusive domestic distributor, Patterson Dental
Company ("Patterson") and through foreign distributors, principally in Europe
and Asia. Total domestic revenues increased $9.0 million (31%) to $38.5 million
(73% of revenue) from $29.4 million (75% of revenue) in fiscal 2004. Total
international revenues increased $4.0 million (40%) to $13.9 million (27% of
revenue) from $9.9 million (25% of revenue) in fiscal 2004.
CDR(R) product revenue increased $13.4 million (40%) to $47.1 million (90%
of revenue) during fiscal 2005 from $33.7 million (86% of revenue) during fiscal
2004. AccuDEXA(R) product revenue decreased to $0.4 million from $0.6 million
(1% of revenue during each of fiscal 2005 and fiscal 2004, respectively) as a
result of a decline in the Company's sales of the product in fiscal 2005.
Warranty revenues decreased $0.2 million (4%) to $4.9 million (9% of revenue)
during fiscal 2005 from $5.1 million (13% of revenue) during fiscal 2004. This
decrease in warranty revenues results primarily from the continued transition of
Pre-Patterson legacy customers to Patterson for their service and warranty
needs.
Patterson revenue amounted to 61% and 55% of total revenue in fiscal 2005
and 2004, respectively. No other individual customer exceeded 10% of total
revenue. Overall sales returns remained under 1% of revenue in fiscal 2005 and
2004.
Total cost of sales for fiscal 2005 increased $3.4 million (29%) to $14.9
million (28% of revenue) from $11.5 million (29% of revenue) in fiscal 2004. The
relative cost of sales declined as a result of the Company's improved operating
efficiency and its ability to leverage relatively fixed overhead. This overall
improvement is net of lower gross margins from the Company's newest product
offerings as the Company seeks to expand its product base.
Selling and marketing expense for fiscal 2005 increased $1.0 million (16%)
to $7.1 million (14% of revenue) from $6.1 million (16% of revenue) in fiscal
2004. Increased sales and sales activities resulted in higher payroll and
commission expenses.
General and administrative expense for fiscal 2005 increased $0.6 million
(9%) to $6.9 million (13% of revenue) from $6.3 million (16% of revenue) in
fiscal 2004. Increases are principally the result of fees incurred to comply
with Sarbanes-Oxley Act internal control reporting requirements.
Research and development expense in fiscal 2005 increased $1.5 million
(46%) to $4.8 million (9% of revenue) from $3.3 million (8% of revenue) in
fiscal 2004. The increase is the result of higher payroll and research-materials
expenses that related to new and ongoing projects and to charges relating to the
Company's three-year consulting agreement with a former executive, who is a
current shareholder, entered into in May 2004.
Interest expense in fiscal 2005 decreased to zero from $0.2 million in
fiscal 2004 due to the Company's June 2003 prepayment of the outstanding balance
of its loan from Greystone Funding Corporation ("Greystone"). Interest income in
fiscal 2005 increased $0.3 million to $0.5 million as the Company increased the
amount of cash equivalents it held in short-term investments.
Income before income taxes in fiscal 2005 increased $7.1 million (58%) to
$19.3 million (37% of revenue) from 12.2 million (31% of revenue) in fiscal 2004
as a result of the items discussed above.
During fiscal 2005, income tax expenses increased $13.1 million to $7.2
million from a tax benefit of $5.9 million in fiscal 2004. In fiscal 2004, the
deferred tax valuation allowance was reduced to zero, more than offsetting that
year's current and deferred income tax charges. Consequently, net income for the
year ended March 31, 2004 was $11.4 million ($0.67 per diluted share) higher
than would otherwise have been reported if such reduction had not been recorded.
During fiscal 2005, the Company's utilization of its net operating losses
resulted in a reduction of current taxes of $6.9 million. At March 31, 2005, the
Company used all of its net operating loss carryforward. Tax credits
approximating $2.4 million are available to offset future income taxes.
As a result of all of the foregoing items, the Company's net income in
fiscal 2005 decreased by $6.0 million
18
(33%) to $12.1 million from $18.1 million in fiscal 2004.
Fiscal Year Ended March 31, 2004 as Compared to Fiscal Year Ended March 31, 2003
In fiscal 2004, we introduced the first digital wireless sensor and a
fully integrated digital panoramic machine. Continued acceptance of these and
other digital products is important to our success.
During fiscal 2004, Eastman Kodak Company entered the digital dental
market when it acquired PracticeWorks, a practice management software company
with a digital sensor manufacturing and marketing subsidiary located in France.
The entry of Kodak into the market did not adversely affect the Company's
revenues or operating margins in fiscal 2004.
Domestic dental product revenues increased 30% to $23.9 million, or 61% of
revenue. Foreign dental product revenues, principally from Europe and Asia,
increased 64% to $9.8 million, or 25% of revenue. Management believes that
continued improvement in the international distribution network and wider
acceptance of the Company's products were the key elements of improving
performance. The pace of our international revenue increase far exceeded the 15%
decline in the value of the U.S. dollar during the year.
Operating expenses, with the exception of legal fees, which are
principally related to the SEC/US attorney investigation and SEC civil action,
declined as a percent of revenue as the Company leveraged its fixed expense
advantage. After several years of increasingly profitable operations, the
Company reduced the reserve for deferred income taxes to zero and recorded a
$6.6 million tax benefit at March 31, 2004.
Total revenue increased $9.6 million (32%) to $39.4 million in fiscal 2004
from $29.8 million in fiscal 2003. The revenue increase was due to higher sales
of CDR(R) dental radiography products principally through expansion of sales
through its exclusive domestic distributor, Patterson, and through foreign
distributors, principally in Europe and Asia. Total domestic revenues increased
$5.8 million (24%) to $29.4 million (75% of revenue) from $23.6 million (79% of
revenue) in fiscal 2003. Total international revenues increased $3.8 million
(62%) to $9.9 million (25% of revenue) from $6.2 million (21% of revenue) in
fiscal 2003.
CDR(R) product revenue increased $9.3 million (38%) to $33.7 million (86%
of revenue) during fiscal 2004 from $24.4 million (82% of revenue) during fiscal
2003. AccuDEXA(R) product revenue was unchanged at $0.6 million (1% and 2% of
revenue during fiscal 2004 and fiscal 2003, respectively). Warranty revenues
increased $0.3 million (6%) to $5.1 million (13% of revenue) during fiscal 2004
from $4.8 million (16% of revenue) during fiscal 2003.
Patterson revenue amounted to 55% and 52% of total revenue in fiscal 2004
and 2003, respectively. No other individual customer exceeded 10% of total
revenue. Overall sales returns remained under 0.5% of revenue in fiscal 2004 and
2003.
Total cost of sales for fiscal 2004 increased $1.8 million (19%) to $11.5
million (29% of revenue) from $9.7 million (32% of revenue) in fiscal 2003. The
relative cost of sales declined as a result of the Company's improved operating
efficiency. The Company leveraged fixed overhead over the increase in revenue
while improved product mix resulted in higher margins. Additionally, product
improvements resulted in an overall reduction of expense in support of its
warranty obligations. The Company's provision for excess and obsolete inventory
decreased to 0.5% of net revenue in fiscal 2004 from 0.9% in fiscal 2003.
Selling and marketing expense for fiscal 2004 increased $0.2 million (3%)
to $6.1 million (16% of revenue) from $5.9 million (20% of revenue) in fiscal
2003. Increased sales and sales activities resulted in higher payroll and
commission expenses.
General and administrative expense for fiscal 2004 increased $1.3 million
(25%) to $6.3 million (16% of revenue) from $5.0 million (17% of revenue) in
fiscal 2003. Increases were principally the result of legal fees incurred in
connection with the SEC/US attorney investigation and other corporate business,
other professional fees, a non-cash payroll charge, higher payroll expense,
corporate governance costs and insurance expenses.
19
Research and development expense in fiscal 2004 increased $0.7 million
(27%) to $3.3 million (8% of revenue) from $2.6 million (9% of revenue) in
fiscal 2003. The increase was the result of higher payroll and
research-materials expenses related to new and ongoing projects.
Interest expense in fiscal 2004 decreased $0.1 million (44%) to $0.2
million from $0.3 million in fiscal 2003 due to the Company's June 2003
prepayment of the outstanding balance of its loan from Greystone. The prepayment
resulted in the write-off of $0.2 million of deferred interest expense in fiscal
2004. Interest income in fiscal 2004 increased $0.1million to $0.2 million as
the Company increased investment in bank certificates of deposit.
During fiscal 2004, the Company reduced its deferred tax valuation
allowance to zero and recorded a $6.6 million income tax benefit. The Company
reduced the valuation allowance because it believed it more likely than not that
the net operating loss carryforward would be realized. During fiscal 2004, the
Company's utilization of its net operating losses resulted in a reduction of
current taxes in the amount of $4.8 million.
As a result of all of the foregoing items, the Company's net income in
fiscal 2004 increased by $6.3 million (53%) to $18.1 million from $11.8 million
in fiscal 2003.
Liquidity and Capital Resources
At March 31, 2005, the Company had $39.7 million in cash and cash
equivalents, and working capital of $47.1 million, compared to $20.7 million in
cash and cash equivalents, and $27.4 million in working capital, at March 31,
2004. The increase in working capital is primarily attributable to the Company's
increased operating profit during fiscal 2005.
During fiscal 2005, cash provided by operations increased $5.2 million
(37%) to $19.0 million, as compared to $13.8 million during fiscal 2004.
Accounts receivable increased to $5.7 million at March 31, 2005, as compared to
$4.0 million at March 31, 2004, due to increased sales activity. The allowance
for doubtful accounts decreased $81, to $57, at March 31, 2005 from $138 at
March 31, 2004, due to a settlement between the Company and the single account
that had disputed the amount it owed to the Company. The amount due from
Patterson which was included in accounts receivable ($2.8 million at March 31,
2005) was fully collected after year-end. Inventories increased to $3.5 million
at March 31, 2005 compared to $3.1 million at March 31, 2004 due to products
introduced in fiscal 2005. The Company's capital expenditures increased to $0.6
million in fiscal 2005 from $0.3 million in fiscal 2004. The Company's capital
expenditures in fiscal 2005 and 2004 primarily consisted of tooling costs and
computer upgrades.
Management believes that its existing capital resources and other
potential sources of credit are adequate to meet its current cash requirements.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet financing arrangements or interests
in so-called special purpose entities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included as a separate section of this Annual
Report on Form 10-K, beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DATA
None.
20
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and
principal accounting officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a and 15d-15(e) under the
Securities and Exchange Act of 1934), as of March 31, 2005. Based upon this
evaluation, our chief executive officer and principal accounting officer
concluded that, as of March 31, 2005, the Company's disclosure controls and
procedures: (1) were designed to ensure that material information relating to
the Company, including our consolidated subsidiary, is made known to our chief
executive officer and principal accounting officer by others within those
entities, particularly during the period in which this report was being
prepared, and (2) were effective, in that they provide reasonable assurance that
information required to be disclosed by the Company in the reports we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over the Company's financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act). Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Our management assessed the effectiveness of the Company's internal
control over financial reporting as of March 31, 2005. In making this
assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment, management believes that,
as of March 31, 2005, our internal control over financial reporting is effective
based on those criteria.
The independent registered public accounting firm which audited the
Company's financial statements included in this Form 10-K has issued an
attestation report on management's assessment of the Company's internal control
over financial reporting. The attestation report appears below.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Schick Technologies, Inc.
We have audited management's assessment, included in the accompanying
Management's Annual Report on Internal Control over Financial Reporting, that
Schick Technologies, Inc. and subsidiary (the "Company") maintained effective
internal control over financial reporting as of March 31, 2005, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the Company's internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A Company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
21
accordance with accounting principles generally accepted in the United States of
America. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate.
In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of March 31, 2005, is
fairly stated, in all material respects, based on the COSO criteria. Also in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2005, based on the COSO
criteria.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of the Company as of March 31, 2005 and 2004 and the related consolidated
statements of income, changes in stockholder's equity and cash flows for each of
the three years in the period ended March 31, 2005 and financial statement
schedule as of and for the three years ended March 31, 2005 of the Company, and
our report dated May 13, 2005 expressed an unqualified opinion on those
financial statements and financial statements schedule.
/s/ Grant Thornton LLP
New York, New York
May 13, 2005
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in
rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
quarter ended March 31, 2005 that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The Directors of the Company are as follows:
Euval Barrekette, Ph.D. Age 74, has served as a Director of the Company since April 1992 and as a member
of the Executive Compensation Committee of the Board of Directors since November
2002. Dr. Barrekette's current term on the Board expires at the Company's Annual
Meeting of Stockholders in 2005. Dr. Barrekette is a licensed Professional
Engineer in New York State. Since 1986 Dr. Barrekette has been a consulting
engineer and physicist. From 1984 to 1986 Dr. Barrekette was Group Director of
Optical Technologies of the IBM Large Systems Group. From 1960 to 1984 Dr.
Barrekette was employed at IBM's T.J. Watson Research Center in various
capacities, including Assistant Director of Applied Research, Assistant Director
of Computer Science, Manager of Input/Output Technologies and Manager of Optics
and Electrooptics. Dr. Barrekette holds an A.B. degree from
22
Columbia College, a B.S. degree from Columbia University School of Engineering,
an M.S. degree from its Institute of Flight Structures and a Ph.D. from the
Columbia University Graduate Faculties. Dr. Barrekette is a fellow of the
American Society of Civil Engineers, a Senior Member of the Institute of
Electrical & Electronics Engineers, and a member of The National Society of
Professional Engineers, The New York State Society of Professional Engineers,
The Optical Society of America and The New York Academy of Science. Dr.
Barrekette is the brother-in-law of Dr. Allen Schick.
William K. Hood Age 81, has served as Chairman of the Board of Directors since June 2004, as a
Director of the Company and as Chairman of the Audit Committee of the Board of
Directors since February 2002, as a member of the Executive Compensation
Committee of the Board of Directors since November 2002, as a member of the
Special Litigation Committee of the Board of Directors since September 2003, and
as a member of the Nominating Committee of the Board of Directors since
September 2004. Mr. Hood's current term on the Board expires at the Company's
Annual Meeting of Stockholders in 2007. From 1989 to 1996, Mr. Hood served as a
consultant to Harlyn Products, Inc. and as a member of its Board of Directors.
From 1983 to 1988, he was Senior Vice-President of American Bakeries Company.
From 1981 to 1983, Mr. Hood served as Dean of the Chapman University School of
Business and Management. From 1972 to 1980, he was President and Chief Executive
Officer of Hunt-Wesson Foods, Inc. Mr. Hood is currently a Trustee of Chapman
University.
Arthur D. Kowaloff Age 58, has served as a Director of the Company since October 2004 and as a
member of the Audit Committee of the Board of Directors, the Executive
Compensation Committee of the Board of Directors, and Chairman of the Special
Litigation Committee of the Board of Directors since November 2004. Mr.
Kowaloff's current term on the Board expires at the Company's Annual Meeting of
Stockholders in 2005. From 1998 to 2003, Mr. Kowaloff served as a Managing
Director of BNY Capital Markets, Inc. From 1991 to 1998, he was Chief Operating
Officer and Senior Managing Director of Patricof & Company Capital Corporation.
Prior to that, Mr. Kowaloff was an attorney at the New York City firm of Willkie
Farr & Gallagher, where he served as Senior Partner and Executive Committee
Member and specialized in corporate and securities law and mergers and
acquisitions. Mr. Kowaloff is currently President and Director of the PBP
Foundation of New York and a Director of the Orange County Capital Development
Corporation. Mr. Kowaloff holds a Juris Doctor degree from Yale Law School.
Curtis M. Rocca III Age 42, has served as a Director of the Company and as a member of the Audit
Committee of the Board of Directors since May 2002, as Chairman of the Executive
Compensation Committee of the Board of Directors since November 2002, as a
member of the Special Litigation Committee of the Board of Directors since
September 2003 and as a member of the Nominating Committee of the Board of
Directors since September 2004. Mr. Rocca's current term on the Board expires at
the Company's Annual Meeting of Stockholders in 2007. Since 2000, Mr. Rocca has
been the Managing Partner of Douglas, Curtis & Allyn, LLC. From 1998 to 2000, he
served as Chief Executive Officer of Dental Partners, Inc. From 1990 to 1998,
Mr. Rocca was Chairman and Chief Executive Officer of Bio-Dental Technologies
Corp. (NASDAQ: BDTC).
Allen Schick, Ph.D. Age 70, has served as a Director of the Company since April 1992, and as a
member of the Executive Compensation Committee of the Board of Directors since
November 2002. Dr. Schick's current term on the Board expires at the Company's
Annual Meeting of Stockholders in 2006. Since 1981, Dr. Schick has been a
professor at the University of Maryland and, in 2000, was elected "Distinguished
University Professor", a title reserved for fewer than 2% of the faculty. Since
23
1988, Dr. Schick has been a Visiting Fellow at the Brookings Institution. Dr.
Schick holds a Ph.D. degree from Yale University. Dr. Schick is the
brother-in-law of Dr. Barrekette.
Jeffrey T. Slovin Age 40, has served as the Company's Chief Executive Officer since June 2004 and
as its President since December 1999. Mr. Slovin has also served as a Director
of the Company since December 1999. In addition, from November 2001 to June 15,
2004, Mr. Slovin served as the Company's Chief Operating Officer. Mr. Slovin's
current term on the Board expires at the Company's Annual Meeting of
Stockholders in 2007. Since November 2002, Mr. Slovin has been a member of the
Board of Directors of Electronic Global Holdings Ltd. From 1999 to November
2001, Mr. Slovin was a Managing Director of Greystone & Co., Inc. From 1996 to
1999, Mr. Slovin served in various executive capacities at Sommerset Investment
Capital LLC, including Managing Director, and as President of Sommerset Realty
Investment Corp. During 1995, Mr. Slovin was a Manager at Fidelity Investments
Co. From 1991 to 1994, Mr. Slovin was Chief Financial Officer of Sports Lab USA
Corp. and, from 1993 to 1994, was also President of Sports and Entertainment
Inc. From 1987 to 1991, Mr. Slovin was an associate at Bear Stearns & Co., Inc.,
specializing in mergers and acquisitions and corporate finance. Mr. Slovin holds
an MBA degree from Harvard Business School.
(b) The following table shows the names and ages of all executive officers of
the Company, the positions and offices held by such persons and the period
during which each such person has served as an officer. The term of office of
each person is generally not fixed since each person serves at the discretion of
the Board of Directors of the Company.
Officer
Name Age Position Since
- ---- ----- ------------ -------
Jeffrey T. Slovin........ 40 Chief Executive Officer, President 1999
and Director
Michael Stone............ 52 Executive Vice-President of Sales 2000
and Marketing
Stan Mandelkern.......... 45 Vice President of Engineering 1999
Ari Neugroschl........... 34 Vice President of Management 2000
Information Systems
Zvi N. Raskin............ 42 Secretary and General Counsel 1992
Will Autz................ 51 Vice President of Manufacturing 2003
Ronald Rosner............ 58 Director of Finance and
Administration 2000
The business experience of each of the executive officers who is not a
Director is set forth below.
MICHAEL STONE has served as the Company's Executive Vice President of Sales and
Marketing since September 2000 and as the Company's Vice President of Sales and
Marketing from January 2000 to September 2000. From September 1993 to January
2000, Mr. Stone was General Manager of the Dental Division of Welch-Allyn
Company, and from October 1989 to September 1993 was Director of Marketing for
Welch-Allyn. Mr. Stone holds an MBA degree from the University of Rochester.
STAN MANDELKERN has served as the Company's Vice President of Engineering since
November 1999. From 1998 to 1999, Mr. Mandelkern was the Company's Director of
Electrical Engineering, and was a Senior Electrical Engineer at the Company from
1997 to 1998. From 1996 to 1997, Mr. Mandelkern was employed at Satellite
Transmission Systems as Project Leader for the Digital Video Products Group.
From 1989 to 1996, Mr. Mandelkern held various design and management positions
at Loral Corp. Mr. Mandelkern holds an M.S. Degree in electrical engineering
from Syracuse University.
24
ARI NEUGROSCHL has served as the Company's Vice President of Management
Information Systems since July 2000. From November 1997 to July 2000, Mr.
Neugroschl was the Company's Director of Management Information Systems, and
from February 1996 to November 1997 he served as the Company's Director of
Customer Service and Support. Mr. Neugroschl holds a B.S. in Economics from
Yeshiva University.
ZVI N. RASKIN has served as Secretary of the Company since April 1992 and as
General Counsel of the Company since September 1995. From April 1992 to May
1996, Mr. Raskin was a Director of the Company. Mr. Raskin is admitted to
practice law before the Bars of the State of New York, the United States
District Courts for the Southern and Eastern Districts of New York and the
United States Court of Appeals for the Second Circuit. From 1992 to 1995, Mr.
Raskin was a senior associate at the New York law firm of Townley & Updike. Mr.
Raskin holds a J.D. degree from Yale Law School.
WILL AUTZ has served as the Company's Vice President of Manufacturing since
January 2003. From January 2000 to December 2002, Mr. Autz was the Company's
Director of Manufacturing. From 1996 to 1999, Mr. Autz was the Manager of
Manufacturing Engineering at Trident International Inc., a division of Illinois
Tool Works Inc. From 1991 to 1996, Mr. Autz was the Director of Manufacturing &
Manufacturing Engineering at General Signal Networks, a division of General
Signal Inc. Mr. Autz holds a BS in Electromechanical Technology from the New
York Institute of Technology and is a member of the American Society of
Manufacturing Engineers.
RONALD ROSNER has served as the Company's Director of Finance and Administration
since August 2000. From March 1999 to August 2000, Mr. Rosner served the Company
in several senior accounting and financial capacities. From October 1998 to
February 1999, Mr. Rosner was a Consultant at Mercantile Ship Corporation, and
from April 1997 to October 1998 was the CFO at Coast MFG. Mr. Rosner holds a
B.S. degree in Accounting from Brooklyn College and has been a Certified Public
Accountant in the State of New York since May 1972. Prior to 1999, for a period
of approximately four years, Mr. Rosner was an audit manager with the
predecessor to Ernst & Young LLP.
(c) Not applicable.
(d) Family Relationships
See Item 10(a).
(e) Business Experience
See Items 10(a) and 10(b).
(f) Involvement in Certain Legal Proceedings
There are no legal proceedings involving any of the Company's Directors or
Officers which are reportable hereunder.
Audit Committee Financial Experts
The Company's Board of Directors has determined that three members of the
Audit Committee, Mr. Hood, Mr. Rocca and Mr. Kowaloff, are "independent
directors" and "audit committee financial experts," as those terms are defined
by the Securities and Exchange Commission.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Commission. Such executive officers and
directors and greater than 10% beneficial owners are required by the regulations
of the Commission to furnish the Company with copies of all Section 16(a)
reports they file.
Based solely on a review of the copies of such reports furnished to the
Company and/or written representations from executive officers and directors,
the Company believes that all Section 16(a) filing
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requirements applicable to its executive officers and directors and greater than
10% beneficial owners were complied with.
Code of Ethics
On June 2, 2004, by resolution of its Board of Directors, the Company
adopted a code of ethics governing the conduct of Company personnel, including
its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions. A
copy of the current code of ethics is available on the Company's Internet
website at http://www.schicktech.com. In addition, a copy of the code may be
obtained by shareholders upon request by contacting Michael Friedlander,
Associate General Counsel, at 718-937-5765.
In the event that any amendment is made to the code of ethics, and such
amendment is applicable to the Company's principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, the Company shall disclose the nature of any such
amendment on its Internet website within five business days following the date
of the amendment. In the event that the Company grants a waiver, including an
implicit waiver, from a provision of the code of ethics, to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, th