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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended December 31, 2001.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _____________ to
________________.
Commission file number: 000-22673
SCHICK TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3374812
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
30-00 47th Avenue 11101
Long Island City, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (718) 937-5765
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 [_]
As of February 1, 2002, 10,138,922 shares of common stock, par value $.01 per
share, were outstanding.
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SCHICK TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 2001
(unaudited) and March 31, 2001 ............................ Page 1
Consolidated Statements of Operations for the three and nine
months ended December 31, 2001 and 2000 (unaudited)......... Page 2
Consolidated Statements of Cash Flows for the nine
months ended December 31, 2001 and 2000 (unaudited)........ Page 3
Notes to Consolidated Financial Statements (unaudited)..... Page 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. Page 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk.. Page 11
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings........................................... Page 11
Item 2. Changes in Securities and Use of Proceeds ................. Page 12
Item 3. Defaults Upon Senior Securities............................. Page 12
Item 4. Submission of Matters to a Vote of Security Holders......... Page 12
Item 5. Other Information........................................... Page 13
Item 6. Exhibits and Reports on Form 8-K............................ Page 13
SIGNATURES ............................................................ Page 13
PART I. Financial Information
Item 1. Financial Statements
Schick Technologies, Inc.
Consolidated Balance Sheet
(In thousands, except share amounts)
Dec. 31 March 31,
2001
-------- --------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 1,151 $ 2,167
Short - term investments 4 8
Accounts receivable, net of allowance for
doubtful accounts of $1,738 and $1,818 respectively 2,572 977
Inventories 3,206 3,820
Income taxes receivable 13 21
Prepayments and other current assets 376 176
-------- --------
Total current assets 7,322 7,169
-------- --------
Equipment, net 3,103 3,489
Investment -- 815
Other assets 909 1,173
-------- --------
Total assets $ 11,334 $ 12,646
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Current maturity of long term debt $ 1,911 $ 2,851
Accounts payable and accrued expenses 1,470 1,801
Accrued salaries and commissions 370 347
Deposits from customers 58 483
Warranty obligations 50 141
Deferred revenue 3,174 3,132
-------- --------
Total current liabilities 7,033 8,755
-------- --------
Long term debt 2,569 4,080
-------- --------
Total liabilities 9,602 12,835
-------- --------
Commitments and contingencies -- --
Stockholders' equity (deficiency)
Preferred stock ($0.01 par value; 2,500,000
shares authorized; none issued and outstanding) -- --
Common stock ($0.01 par value; 50,000,000 shares authorized:
10,137,193 shares issued and outstanding) 101 101
Additional paid-in capital
42,480 42,480
Accumulated deficit (40,849) (42,770)
-------- --------
Total stockholders' equity (deficiency) 1,732 (189)
-------- --------
Total liabilities and stockholders' equity
(deficiency) $ 11,334 $ 12,646
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
1
Schick Technologies, Inc.
Consolidated Statements of Operations - (unaudited)
(In thousands, except share amounts)
Three months ended Nine months ended
December 31,
2001 2000 2001 2000
---- ---- ---- ----
Revenue, net $ 7,003 $ 5,391 $ 17,663 $ 15,024
Cost of sales 2,096 2,333 6,046 7,278
Excess and obsolete inventory 192 -- 292 552
------------ ------------ ------------ ------------
Total cost of sales 2,288 2,333 6,338 7,830
------------ ------------ ------------ ------------
Gross profit 4,715 3,058 11,325 7,194
------------ ------------ ------------ ------------
Operating expenses:
Selling and marketing 1,390 1,303 4,004 4,151
General and administrative 1,012 863 2,917 3,303
Research and development 548 544 1,610 1,648
Bad debt recovery -- (354) (43) (354)
Lease termination settlement 117 -- 117 --
------------ ------------ ------------ ------------
Total operating costs 3,067 2,356 8,605 8,748
------------ ------------ ------------ ------------
Income (loss) from operations 1,648 702 2,720 (1,554)
------------ ------------ ------------ ------------
Other income (expense)
Other income 17 -- 76 --
Interest income 4 5 32 39
Interest expense (125) (268) (907) (874)
------------ ------------ ------------ ------------
Total interest and other expense (104) (263) (799) (835)
------------ ------------ ------------ ------------
Income (loss) before income taxes 1,544 439 1,921 (2,389)
Provision for income taxes -- -- -- 14
------------ ------------ ------------ ------------
Net income (loss) $ 1,544 $ 439 $ 1,921 $ (2,403)
============ ============ ============ ============
Basis earnings per share $ 0.15 $ 0.04 $ 0.19 $ (0.24)
============ ============ ============ ============
Diluted earnings per share $ 0.14 $ 0.04 $ 0.17 $ (0.24)
============ ============ ============ ============
Weighted average common shares (basic) 10,137,193 10,137,193 10,137,193 10,135,425
============ ============ ============ ============
Weighted average common shares (diluted) 10,894,495 11,117,412 11,182,101 10,135,425
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
Schick Technologies, Inc.
Consolidated Statements of Cash Flows - (unaudited)
(In thousands)
Nine months ended
December 31,
------------
2001 2000
---- ----
Cash flows from operating activities
Net income (loss) $ 1,921 $(2,403)
Adjustments to reconcile net loss to
net cash provided by (used) in operating activities
Depreciation and amortization 1,168 1,587
Bad debt recovery (43) (354)
Provision for excess and obsolete inventory 292 552
Amortization of deferred financing charges 146 --
Interest accretion 365 36
Gain on sale of held to maturity investment (7) --
Changes in assets and liabilities:
Accounts receivable (1,399) 437
Inventories 322 920
Income taxes receivable 8 82
Prepayments and other current assets (200) (39)
Other assets -- 6
Account payable and accrued expenses (308) (1,906)
Income taxes payable -- 24
Deferred revenue 42 714
Deposits from customers (425) (493)
Warranty obligations (91) (109)
------- -------
Net cash provided by (used in) operating activities 1,791 (946)
------- -------
Cash flows from investing activities
Proceeds of held to maturity investments 11 2
Proceeds of liquidation of investment 662 --
Capital expenditures (664) (165)
------- -------
Net cash provided by (used in) investing activities 9 (163)
------- -------
Cash flows from financing activities
Net proceeds from issuance of common stock -- 3
Payment of long term debt (2,816) --
------- -------
Net cash (used in) provided by financing activities (2,816) 3
------- -------
Net decrease in cash and cash equivalents (1,016) (1,106)
Cash and cash equivalents at beginning of period 2,167 1,429
------- -------
Cash and cash equivalents at end of period $ 1,151 $ 323
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
Schick Technologies, Inc.
Notes to Consolidated Financial Statements (unaudited)
(in thousands, except share and per share amounts)
1. Basis of Presentation
The consolidated financial statements of Schick Technologies, Inc. (the
"Company") have been prepared in accordance with accounting principles generally
accepted in the United States of America ("US GAAP") for interim financial
information and the rules of the Securities and Exchange Commission (the "SEC")
for quarterly reports on Form 10-Q, and do not include all of the information
and footnote disclosures required by US GAAP for complete financial statements.
These statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended March 31, 2001
included in the Company's Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation of results of operations for the
interim periods. The results of operations for the nine months ended December
31, 2001 are not necessarily indicative of the results to be expected for the
full year ending March 31, 2002.
The consolidated financial statements of the Company, at December 31, 2001
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany balances have been eliminated.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. Liquidity
The Company had net profit of $1,544 and $439 for the three months ended
December 31, 2001 and 2000, respectively. The Company incurred net losses of
$1,638, $12,331 and $29,606 in the years ended March 31, 2001, 2000 and 1999,
respectively. The Company has an accumulated deficit of $40,849 and working
capital of $289 at December 31, 2001.
During the nine months ended December 31, 2001 cash provided by operations
was $1.8 million compared to $0.9 million used in operations in fiscal 2001.
Increases in cash were primarily provided by improved operating performance. The
Company's capital expenditures increased to $0.7 million in the first nine
months of fiscal 2002 from $0.2 in fiscal 2001. The Company received $0.7
million from the liquidation of its investment in November 2001. Fiscal 2002
capital expenditures (principally leasehold improvements) were incurred in
connection with Company's consolidation and relocation of its facility into a
portion of its space after fiscal 2001. The Company used $2.8 million in
repayment of its debt during the nine months ended December 31, 2001.
Anticipated principal and interest payments associated with the Company's
term loan over the coming 12 months are $2.2 million.
In July 2001, a Director of the Company made a commitment ("the
Commitment") to make an equity investment in the Company in the minimum amount
of $1 million, subject to the approval and acceptance of the Company's Board of
Directors. In December 2001 the Board of Directors declined to accept any equity
investment pursuant to the Commitment and is not presently exploring
supplemental or alternative financing sources.
Based upon the Company's present operating conditions, management
anticipates that it will be able to meet its financing requirements on a
continuing basis. The ability of the Company to meet its cash requirements is
dependent, in part, on the Company's ability to maintain adequate sales and
profit levels, to satisfy warranty obligations without incurring expenses
substantially in excess of related warranty revenue and to collect its accounts
receivable on a timely basis. Management believes that its existing capital
resources and other potential sources of credit are adequate to meet its current
4
cash requirements. However, if the Company's cash needs are greater than
anticipated the Company will be required to seek additional or alternative
financing sources and could consider the reduction of certain discretionary
expenses and the sale of certain assets. There can be no assurance that such
financing will be available or available on terms acceptable to the Company.
3. Inventories
Inventories at December 31, 2001 and March 31, 2001 are comprised of the
following:
December 31, March 31,
2001 2001
------ ------
Raw materials $2,214 $3,046
Work-in-process 75 119
Finished goods 917 655
------ ------
Total inventories $3,206 $3,820
====== ======
4. Recently Issue Accounting Standards
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets".
The new standards require that all business combinations initiated after June
30, 2001 must be accounted for under the purchase method. In addition, all
intangible assets acquired that are obtained through contractual or legal right,
or are capable of being separately sold, transferred, licensed, rented or
exchanged shall be recognized as an asset apart from goodwill. Goodwill and
intangibles with indefinite lives will no longer be subject to amortization, but
will be subject to at least an annual assessment for impairment by applying a
fair value based test.
The Company will continue to amortize under its current method until April
1, 2002. Thereafter, annual goodwill and quarterly goodwill amortization of $107
and $27, respectively, will no longer be recognized. By September 30, 2002, the
Company will perform a transitional fair value based impairment test and if the
fair value is less than the recorded value at April 1, 2002, the Company will
record an impairment loss in the June 30, 2002 quarter, as a cumulative effect
of a change in accounting principle.
In August 2001, the FASB issued statement of Financial Accounting Standard
No. 144 "Accounting for the Impairment or Disposal of Long Lived Assets," ("SFAS
144"). This statement is effective for the fiscal years beginning after December
15, 2001. This supercedes SFAS 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed of", while retaining many of the
requirements of such statement. The Company is currently evaluating the impact
of the statement.
5. Debt
Long-term debt at December 31, 2001 and March 31, 2001 is summarized as
follows:
December 31, March 31,
2001 2001
------ ------
Term notes $4,480 $6,296
Secured credit facility -- 635
------ ------
4,480 6,931
Less current maturities 1,911 2,851
------ ------
Total long-term debt $2,569 $4,080
====== ======
5
Term Notes
In May 2001, the Company made a prepayment of $750 in satisfaction of a
provision of the term note agreement whereby it is required to make additional
principal payments equal to fifty percent of the "positive actual cash flow" as
defined.
Secured Credit Facility
On July 5, 2001, the Company repaid all outstanding advances under the
Greystone Amended Loan Agreement, together with all unpaid accrued interest
thereunder ($1.05 million), and concurrently terminated said Amended Loan
Agreement. Warrants held by Greystone to purchase 13,000,000 shares of common
stock were thereby forfeited and canceled. Approximately $423 representing the
unamortized discount and deferred financing costs relating to the Amended Loan
Agreement was charged to expense in July 2001.
On July 12, 2001, the Company and Greystone entered into a Termination
Agreement effective as of March 31, 2001, acknowledging the repayment and
surrender of the line of credit and agreeing that all the Company's obligations
thereunder have been fully satisfied. The Company and Greystone further agreed,
among other matters, that: (i) five million vested warrants held by Greystone
and its assigns to purchase Common Stock of the Company remain in full force and
effect; (ii) the Registration Rights Agreement between Greystone and the Company
dated as of December 27, 1999 remains in full force and effect; and (iii) for so
long as Jeffrey Slovin holds the office of President of the Company, the Company
shall reimburse Greystone in the amount of $17 monthly. Effective November 1,
2001 Mr. Slovin joined the Company on a full-time basis thereby canceling this
reimbursement provision of the agreement.
Principal maturities of long-term debt are as follows:
Year ending December 31,
--------------------------
2002 $1,911
2003 1,231
2004 1,323
2005 15
------
$4,480
======
6. Income Taxes
No provision for income taxes is recorded in these financial statements
since available tax carryovers exceed taxable income.
7. Common Stock
In December 2001 the stockholders of the Company voted to increase the
authorized Common Stock to 50,000,000 shares from 25,000,000 shares.
8. Liquidation of investment
In November 2001 Photobit Corporation ("Photobit") was acquired by Micron
Technologies, Inc. and subsequently adopted a plan of dissolution, winding up
and liquidating Photobit. The Company received $662, the initial proceeds of the
liquidation of its investment. A second and final distribution is to be paid in
November 2002. The Company deferred recognition of gain (as much as $42) until
such payment is received and has classified the balance of its investment ($153)
in prepayments and other current assets.
6
9. Commitments and Contingencies
Product Liability
The Company is subject to the risk of product liability and other liability
claims in the event that the use of its products results in personal injury or
other claims. Although the Company has not experienced any product liability
claims to date, any such claims could have an adverse impact on the Company. The
Company maintains insurance coverage related to product liability claims, but
there can be no assurance that product or other claims will not exceed its
insurance coverage limits, or that such insurance will continue to be available
on commercially acceptable terms, or at all.
SEC Investigation and Other
In August 1999, the Company, through its outside counsel, contacted the
Division of Enforcement of the Securities and Exchange Commission ("SEC") to
advise it of certain matters related to the Company's restatement of earnings
for the first, second and third quarters of fiscal year 1999. Subsequent
thereto, the SEC requested the voluntary production of certain documents and the
Company provided the SEC with the requested materials. On August 17, 2000, the
SEC served a subpoena upon the Company, pursuant to a formal order of
investigation, requiring the production of certain documents. The Company is
cooperating fully with the SEC staff and has provided responsive documents to
it. In addition, investigators associated with the U.S. Attorney's Office have
made inquires of certain former and current employees, apparently in connection
with the same event. The inquiries are in a preliminary stage and the Company
cannot predict their potential outcome.
Litigation
The Company may be a party to a variety of legal actions (in addition to
those referred to above), such as employment and employment
discrimination-related suits, employee benefit claims, breach of contract
actions, tort claims, shareholder suits, including securities fraud, and
intellectual property related litigation. In addition, because of the nature of
its business, the Company is subject to a variety of legal actions relating to
its business operations. Recent court decisions and legislative activity may
increase the Company's exposure for any of these types of claims. In some cases,
substantial punitive damages may 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.
Employment Contracts
In November and December 2001, the Company entered into three-year
employment contracts with its Chief Executive Officer and its President/Chief
Operating Officer, respectively. Each contract provides for base salary, annual
cost of living increases and incentive compensation based upon operating results
as defined. The combined base compensation of both contracts amounts to $482.
The contracts provide for a grant to each officer of 150,000 stock options.
Fifty thousand options for each officer become exercisable on each anniversary
of grant.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The words or
phrases "believes," "may," "will likely result," "estimates," "projects,"
"anticipates," "expects" or similar expressions and variations thereof are
intended to identify such forward-looking statements. Actual results, events and
7
circumstances could differ materially from those set forth in such statements
due to various factors. Such factors include risks relating to past substantial
operating losses, dependence on financing, dependence on products, competition,
the changing economic and competitive conditions in the medical and dental
digital radiography markets, dependence on key personnel, dependence on
distributors, ability to manage growth, fluctuation in results and seasonality,
governmental approvals and investigations, technological developments,
protection of technology utilized by the Company, patent infringement claims and
other litigation, need for additional financing and further risks and
uncertainties, including those detailed in the Company's other filings with the
Securities and Exchange Commission.
General
The Company designs, develops and manufactures digital imaging systems for
the dental and medical markets. In the field of dentistry, the Company has
developed, and currently manufactures and markets, an intra-oral digital
radiography system, a panoramic digital radiology system and an intra-oral
camera system. The Company has also developed a bone mineral density ("BMD")
assessment device to assist in the diagnosis and treatment of osteoporosis. In
addition, the Company is involved in the development of a general digital
radiography device for intended use in various applications. Since May 2000, the
Company has distributed its dental products in North America exclusively through
Patterson Dental Company. Internationally, the Company's dental products are
distributed through a network of independent dealers. The Company's BMD
assessment device is distributed, domestically and internationally, through a
network of independent dealers.
Results of Operations
Net revenues for the three months ended December 31, 2001 increased $1.6
million (30%) to $7.0 million from $5.4 million during the comparable period of
fiscal 2001. AccuDEXA(R) represented approximately $0.1 million (2%) and CDR(R)
represented approximately $6.9 million (98%) of the Company's net revenues in
the third quarter of fiscal 2002 as compared to $ 0.1 million (3%) and $5.3
million (97%) in the third quarter of fiscal 2001 for accuDEXA and CDR,
respectively. The Company believes that the increase in net revenue was due to
increased sales of CDR products in North America (an increase of $2.4 million
(122%) to $4.4 million for the three months ended December 31, 2001 from $2.0
million during the comparable period of fiscal 2001), which more than offset a
decrease in sales of CDR products abroad, principally in Europe (a decrease of
$0.8 million (-40%) to $1.2 million for the three months ended December 31, 2001
from $2.0 million during the comparable period of fiscal 2001). CDR warranty
revenue for the three months ended December 31, 2001 increased $0.1 million (8%)
to $1.3 million from $1.2 million for the comparable period in fiscal 2001. Net
revenues for the nine months ended December 31, 2001 increased $2.7 million
(18%) to $17.7 million from $15.0 million during the comparable period of fiscal
2001 primarily for the reasons described above.
Total cost of sales for the three months ended December 31, 2001 was $2.3
million, unchanged from the comparable period of fiscal 2001 (33% and 43% of net
revenues in fiscal 2002 and 2001, respectively). The decrease in the relative
total cost of sales for the third quarter of fiscal 2002 is due to several
factors including increased product yield and improved production efficiency and
product mix. Additionally, warranty expenditures, and material costs, decreased
and facilities utilization increased. Rent and overhead costs decreased due to
the April 2001 reduction in plant and facilities. These improvements more than
offset the increases in labor, supplies, royalties and the provision for excess
and obsolete inventory. Total cost of sales for the nine months ended December
31, 2001 decreased $1.5 million (19%) to $6.3 million (36% of net revenues) from
$7.8 million (52% of net revenues) during the comparable period of fiscal 2001.
The provision for excess and obsolete inventory for the nine months ended
December 31, 2001 decreased by $0.3 million (47%) to $0.3 million (2% of net
revenues) from $0.6 million (4% of revenues) during the comparable period of
fiscal 2001. Charges to excess obsolete reserves result from the accuDEXA
product.
8
Selling and marketing expenses for the three months ended December 31, 2001
increased $0.1 million (7%) to $1.4 million (20% of net revenues) from $1.3
million (24% of net revenues) for the comparable period of fiscal 2001.
Decreases in payroll, printing, postage and telephone expenses were offset by
increases in consultants and creative development. Selling and marketing
expenses for the nine months ended December 31, 2001, decreased $0.2 million
(5%) to $4.0 million (23% of net revenues) from $4.2 million (28% of net
revenues) during the comparable period of fiscal 2001.
General and administrative expenses for the three months ended December 31,
2001, increased $0.1 million (17%) to $1.0 million (14% of net revenues) from
$0.9 million (9% of net revenues) for the comparable period of fiscal 2001.
General and administrative expenses for the nine months ended December 31, 2001,
decreased $0.4 million (14%) to $2.9 million (17% of net revenues) from $3.3
million (20% of net revenues) during the comparable period of fiscal 2001. The
increase in general and administrative expenses for the three months ended
December 31, 2001 was attributable primarily to an increase in payroll and
related costs, and reflects a change in the Company's vacation policy in the
prior year which reduced vacation expense by $0.2 million in fiscal 2001.
Research and development expenses for the three months ended December 31,
2001 remained unchanged from the comparable period of fiscal 2001, at $0.5
million (8% and 10% of net revenues in fiscal 2002 and 2001, respectively).
Research and development expenses for the nine months ended December 31, 2001
remained unchanged from the comparable period of fiscal 2001, at $1.6 million
(9% and 11% of net revenues in fiscal 2002 and 2001, respectively).
Interest expense for the three months ended December 30, 2001 decreased
$0.2 million (53%) to $0.1 million from $0.3 million for the comparable period
in fiscal 2001. The decrease results from the prepayment of the $1 million in
borrowings outstanding under the secured credit facility provided by Greystone
Funding Corporation ("Greystone"), the reduction of principal in the term loan
and the reduction of interest rates due to Federal Reserve action during the
period. Interest expense for the nine months ended December 31, 2001 is
unchanged at $0.9 million from fiscal 2001. The July 2001 prepayment of the $1
million outstanding under the Greystone secured credit facility and the
resulting write off of unamortized discounts and deferred finance charges of
$0.4 million related to the prepayment had offsetting effects.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No.142, "Goodwill and Other Intangible Assets".
The new standards require that all business combinations initiated after June 30
2001 must be accounted for under the purchase method. In addition, all
intangible assets acquired that are obtained through contractual or legal right,
or are capable of being separately sold, transferred, licensed, rented or
exchanged shall be recognized as an asset apart from goodwill. Goodwill and
intangibles with indefinite lives will no longer be subject to amortization, but
will be subject to at least an annual assessment for impairment by applying a
fair-value-based test.
The Company will continue to amortize under its current method until April
1, 2002. Thereafter, annual goodwill and quarterly goodwill amortization of $107
and $27 respectively, will no longer be recognized. By September 30, 2002, the
Company will perform a transitional fair-value-based impairment test and if the
fair value is less than the recorded value at April 1, 2002, the Company will
record an impairment loss in the June 30, 2002 quarter, as a cumulative effect
of a change in accounting principle.
In August 2001, the FASB issued statement of Financial Accounting Standard
No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets,"
("SFAS 144"). This statement is effective for the fiscal years beginning after
December 15, 2001. This supercedes SFAS 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of", while retaining
many of the requirements of such statement. The Company is currently evaluating
the impact of the statement.
9
Liquidity and Capital Resources
At December 31, 2001, the Company had $1.2 million in cash and cash
equivalents and working capital of $0.3 million, compared to $2.2 million in
cash and cash equivalents and $1.6 million in working capital deficiency at
March 31, 2001.
During the nine months ended December 31, 2001, cash provided by operations
was $1.8 million compared to $0.9 million used in operations during the
comparable period of fiscal 2001. The improvement in cash provided by operations
is primarily attributable to the Company's operating profit and addition of non
cash expense and reduction of the Company's inventory, partially offset by
increases in accounts receivable and reduction of accounts payable and deposits
from customers and warranty reserves. Accounts receivable increased from $1.0
million at March 31, 2001 to $2.7 million at December 31, 2001 due to increased
sales. The decrease in inventory of $0.6 million from $3.8 million at March 31,
2001 to $3.2 million at December 31, 2001 is primarily attributable to planned
reductions and an increase in the reserve for excess and obsolete inventory.
The Company's capital expenditures during the nine-month period ended
December 31, 2001 amounted to $0.7 million. Fiscal 2002 capital expenditures
(principally leasehold improvements) were incurred in connection with Company's
consolidation and relocation of its facility into a portion of its space after
fiscal 2001. The Company received $0.7 million from the liquidation of its
investment in November 2001. The Company used $2.8 million in repayment of its
debt during the nine months ended December 31, 2001.
DVI Financial Services, Inc. ("DVI") provided the Company with financing
evidenced by term notes payable which are secured by first priority liens on
substantially all of the Company's assets. The Company issued promissory notes
and security agreements that provide, in part, that the Company may not permit
the creation of any additional lien or encumbrance on the Company's property or
assets. The DVI Notes are due in varying installments through fiscal 2006.
Interest is paid monthly at the prime rate (4-3/4% at December 31, 2001) plus
2.5%. In connection with the DVI loan, the Company prepaid $750 of outstanding
principal during the first quarter of fiscal 2002 in satisfaction of a
prepayment provision of that Agreement. Effective August 28, 2000, DVI sold all
its right, title and interest in the warrants and DVI Notes, to Greystone.
In December 1999, the Company entered into a Loan Agreement with Greystone
to provide up to $7.5 million of subordinated debt in the form of a secured
credit facility. An initial advance of $1 million was made under the Loan
Agreement. No additional funds were advanced under the Loan Agreement in excess
of the initial draw of $1 million. On July 5, 2001, the Company remitted payment
to Greystone in the amount of $1.05 million, repaying all outstanding advances
under the Loan Agreement, together with all unpaid accrued interest thereunder,
and concurrently terminated the Loan Agreement. Approximately $423 representing
the unamortized discount and deferred financing costs relating to the Loan
Agreement was charged to expense in July 2001.
On July 12, 2001, the Company and Greystone entered into a Termination
Agreement effective as of March 31, 2001, acknowledging the repayment and
termination of the Loan Agreement and agreeing that all of the Company's
obligations thereunder have been fully satisfied. The Company and Greystone
further agreed, among other matters, that: (i) five million warrants held by
Greystone and its assigns to purchase Common Stock of the Company remain in full
force and effect; (ii) the Registration Rights Agreement between Greystone and
the Company dated as of December 27, 1999 remains in full force and effect; and
(iii) for so long as Jeffrey Slovin holds the office of President of the
Company, the Company shall reimburse Greystone in the amount of $17 thousand
monthly. On November 1, 2001 Mr. Slovin joined the Company on a full- time
basis, thereby canceling this reimbursement provision of the agreement.
In July 2001, a Director of the Company made a commitment (the
"Commitment") to make an equity investment in the Company in the minimum amount
of $1 million, subject to the approval and acceptance of the Company's Board of
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Directors. In December 2001 the Board of Directors declined to accept any equity
investment pursuant to the Commitment.
Based upon the Company's present operating conditions, management
anticipates that it will be able to meet its financing requirements on a
continuing basis. The ability of the Company to meet its cash requirements is
dependent, in part, on the Company's ability to maintain adequate sales and
profit levels, to satisfy warranty obligations without incurring expenses
substantially in excess of related warranty revenue and to collect its accounts
receivable on a timely basis. Management believes that its existing capital
resources and other potential sources of credit are adequate to meet its current
cash requirements. However, if the Company's cash needs are greater than
anticipated the Company will be required to seek additional or alternative
financing sources and could consider the reduction of certain discretionary
expenses and the sale of certain assets. There can be no assurance that such
financing will be available or available on terms acceptable to the Company.
Critical Accounting Policies
Accounting policies that management believes are most critical to the
Company's financial condition and operating results pertain to the valuation of
accounts receivable, inventory and goodwill and revenue recognition. In deriving
accounting estimates management considered available information and exercised
reasonable judgment. However actual results could differ from these estimates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The term notes bear an annual interest rate based on the prime rate plus
2.5%, provided however, that if any payments are past due for more than 60 days,
interest will thereafter accrue at the prime rate plus 5.5%. Because the
interest rate is variable, the Company's cash flow may be adversely affected by
increases in interest rates. Management does not, however, believe that any risk
inherent in the variable-rate nature of the loan is likely to have a material
effect on the Company's interest expense or available cash.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and/or certain of its officers and former officers, are
involved in the proceedings described below:
I. In late 1998 through early 1999, nine shareholder complaints purporting
to be class action lawsuits were filed in the United States District Court for
the Eastern District of New York. Plaintiffs filed a Consolidated and Amended
Complaint on or about May 27, 1999 and, on or about November 24, 1999 filed a
Second Amended and Consolidated Complaint (the "Complaint"). The Complaint named
as defendants the Company, David B. Schick, Thomas E. Rutenberg, and David
Spector (collectively, the "Individual Defendants"), as well as
PricewaterhouseCoopers LLP.
The Complaint alleged, inter alia, that certain defendants issued false and
misleading statements concerning the Company's publicly reported earnings in
violation of the federal securities laws. The Complaint sought certification of
a class of persons who purchased the Company's Common Stock between July 1, 1997
and February 19, 1999, inclusive, and did not specify the amount of damages
sought.
In May 2000, an agreement was reached to settle the consolidated securities
class action lawsuit. Under the agreement, all claims against the Company and
individuals named as defendants will be dismissed without presumption or
admission of any liability or wrongdoing. The principal terms of the agreement
call for payment to the Plaintiffs, for the benefit of the class, of the sum of
$3.4 million. The settlement amount is to be paid in its entirety by the
Company's insurance carrier and is not expected to have any direct material
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impact on the financial results of the Company. The terms of the settlement are
subject to approval by the Court.
II. 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.
Subsequent thereto, the SEC requested the voluntary production of certain
documents and the Company provided the SEC with the requested materials. On
August 17, 2000, the SEC served a subpoena upon the Company, pursuant to a
formal order of investigation, requiring the production of certain documents.
The Company is cooperating fully with the SEC staff and has provided responsive
documents to it. The inquiry is in a preliminary stage and the Company cannot
predict its potential outcome.
The Company could become a party to a variety of legal actions (in addition
to those referred to above), such as employment and employment
discrimination-related suits, employee benefit claims, breach of contract
actions, tort claims, shareholder suits, including securities fraud, and
intellectual property related litigation. In addition, because of the nature of
its business, the Company is subject to a variety of legal actions relating to
its business operations. Recent court decisions and legislative activity may
increase the Company's exposure for any of these types of claims. In some cases,
substantial punitive damages could be sought. The Company currently has
insurance coverage for some of these potential liabilities. Other potential
liabilities may not be covered by insurance, insurers may dispute coverage, or
the amount of insurance may not be sufficient to cover the damages awarded. In
addition, certain types of damages, such as punitive damages, may not be covered
by insurance and insurance coverage for all or certain forms of liability may
become unavailable or prohibitively expensive in the future.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders (the "Annual
Meeting") on December 20, 2001.
(b) The following matter concerning the election of a Director was voted
upon at the Annual Meeting with the accompanying result:
Election of Director:
--------------------
Number of Votes
Number of Votes For Withheld Authority
--------- -------------
Jeffrey T. Slovin 8,942,133 190,921
(New term expires in 2004)
The other directors of the Company will continue in office for their
existing terms, as follows: Euval Barrekette and Jonathan Blank serve in the
class whose term expires in 2002 and Allen Schick and David Schick serve in the
class whose term expires in 2003. Robert Barolak's tenure as a Director of the
Corporation terminated as of the Annual Meeting. Following said Annual Meeting,
the Corporation's Board of Directors is to consist of five Directors. Upon the
expiration of the term of a class of Directors, the member or members of such
class will be elected for three-year terms at the annual meeting of stockholders
held in the year in which such term expires.
(c) The following additional matters were voted upon at the meeting held on
December 20, 2001 with the following results:
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1. Approval of the proposal to amend the Company's Certificate of Incorporation
to increase the number of shares of the Company's common stock issuable
thereunder from 25,000,000 to 50,000,000:
Number of votes for: 8,351,090
Number of votes against: 645,599
Number of abstentions: 136,365
2. Ratification of the selection of Grant Thornton LLP as the Company's
independent accountants for the fiscal year ending March 31, 2002:
Number of votes for: 9,028,528
Number of votes against: 22,168
Number of abstentions: 82,360
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.36 Employment Agreement between Schick Technologies, Inc. and Jeffrey
T. Slovin, dated November 9, 2001
10.37 Employment Agreement between Schick Technologies, Inc. and David
Schick, dated December 20, 2001
(b) Reports on Form 8-K
None.
SCHICK TECHNOLOGIES, INC.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCHICK TECHNOLOGIES, INC.
Date: February 1, 2002 By: /S/ David B. Schick
David B. Schick
Chief Executive Officer
By: /S/ Ronald Rosner
Ronald Rosner
Director of Finance
(Principal Financial and Accounting Officer)
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