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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 June 30, 2000.
OR
[x] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _____________ to
_______________.
Commission file number: 000-22673
SCHICK TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3374812
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
31-00 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 July 31, 2000, 10,136,113 shares of common stock, par value $.01 per
share, were outstanding.
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<PAGE>
SCHICK TECHNOLOGIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
<S> <C> <C>
Consolidated Balance Sheets as of June 30, 2000 (unaudited) and
March 31, 2000 .................................................. Page 1
Consolidated Statements of Operations for the three
months ended June 30, 2000 and 1999 (unaudited).................. Page 2
Consolidated Statements of Cash Flows for the three
months ended June 30, 2000 and 1999 (unaudited)................. Page 3
Notes to Consolidated Financial Statements ...................... Page 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... Page 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... Page 10
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings................................................ Page 10
Item 2. Changes in Securities and Use of Proceeds........................ Page 11
Item 3. Defaults Upon Senior Securities.................................. Page 11
Item 4. Submission of Matters to a Vote of Security Holders.............. Page 11
Item 5. Other Information................................................ Page 11
Item 6. Exhibits and Reports on Form 8-K................................. Page 11
SIGNATURES ................................................................. Page 13
EXHIBIT 27 ................................................................. Page 20
</TABLE>
<PAGE>
PART I. Financial Information
Item 1. Financial Statements --
Schick Technologies, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
-------- --------
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 987 $ 1,429
Short - term investments 10 8
Accounts receivable, net of allowance for
doubtful accounts of $2,447 and $2,449, respectively 1,397 1,535
Inventories 5,075 5,612
Income taxes receivable 127 127
Prepayments and other current assets 109 166
-------- --------
Total current assets 7,705 8,877
-------- --------
Equipment, net 4,803 5,206
Investments 815 815
Other assets 1,377 1,392
-------- --------
Total assets $ 14,700 $ 16,290
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long term debt $ 371 $ 245
Accounts payable and accrued expenses 3,289 4,255
Accrued salaries and commissions 552 878
Deferred revenue 2,163 1,681
Deposits from customers 349 666
Warranty obligations 215 278
Capital lease obligations, current 19 33
-------- --------
Total current liabilities 6,958 8,036
-------- --------
Long term debt 6,823 6,938
-------- --------
Total liabilities 13,781 14,974
-------- --------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock ($0.01 par value; 2,500,000
shares authorized; none issued and outstanding) -- --
Common stock ($0.01 par value; 25,000,000 shares authorized:
10,134,384 shares issued and outstanding) 101 101
Additional paid-in capital 42,477 42,347
Accumulated deficit (41,659) (41,132)
-------- --------
Total stockholders' equity 919 1,316
-------- --------
Total liabilities and stockholders' equity $ 14,700 $ 16,290
======== ========
</TABLE>
----------
The accompanying notes are an integral part of these consolidated financial
statements.
1
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Schick Technologies, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands, except share amounts)
Three months ended
June 30
-----------------------------
2000 1999
------------ ------------
Revenue, net $ 6,243 $ 7,238
------------ ------------
Cost of sales 3,096 5,264
Excess and obsolete inventory -- 498
------------ ------------
Total cost of sales 3,096 5,762
------------ ------------
Gross profit 3,147 1,476
------------ ------------
Operating expenses:
Selling and marketing 1,614 2,778
General and administrative 1,161 1,710
Research and development 554 884
------------ ------------
Total operating costs 3,329 5,372
------------ ------------
Loss from operations (182) (3,896)
------------ ------------
Other income (expense)
Interest income 14 13
Interest expense (359) (94)
------------ ------------
Total other expense (345) (81)
------------ ------------
Loss before income taxes (527) (3,977)
Provision for income taxes -- --
------------ ------------
Net loss $ (527) $ (3,977)
============ ============
Basic and diluted loss per share $ (0.05) $ (0.40)
============ ============
Weighted average common shares
outstanding (basic and diluted) 10,134,384 10,059,384
============ ============
----------
The accompanying notes are an integral part of these consolidated financial
statements.
2
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Schick Technologies, Inc.
Consolidated Statement of Cash Flows (unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Three months ended
June 30
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (527) $(3,977)
Adjustments to reconcile net loss to
Net cash used in operating activities
Depreciation and amortization 477 550
Provision for excess and obsolete inventory -- 498
Amortization of debt discount and deferred financing costs 116 --
Changes in assets and liabilities:
Accounts receivable 138 1,274
Inventories 537 1,184
Income taxes receivable -- 2,328
Prepayments and other current assets 57 51
Other assets (6) 224
Account payable and accrued expenses (1,292) (2,451)
Deferred revenue 482 (62)
Deposits from customers (317) 189
Warranty obligations (63) (43)
------- -------
Net cash used in operating activities (398) (235)
------- -------
Cash flows from investing activities
Proceeds from maturities of held-to-maturity investments -- 360
Capital expenditures, net (30) (67)
------- -------
Net cash (used in) provided by investing activities (30) 293
------- -------
Cash flows from financing activities
Principal repayments on capital lease obligations (14) (22)
------- -------
Net cash used in financing activities (14) (22)
------- -------
Net (decrease) increase in cash and cash equivalents (442) 36
Cash and cash equivalents at beginning of period 1,429 1,415
------- -------
Cash and cash equivalents at end of period $ 987 $ 1,451
======= =======
</TABLE>
----------
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
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 generally accepted accounting
principles 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 generally
accepted accounting principles 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, 2000 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 three months ended June 30,
2000, are not necessarily indicative of the results to be expected for the full
year ending March 31, 2001.
The consolidated financial statements of the Company, at June 30, 2000,
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany balances have been eliminated.
2. Inventories
Inventories are comprised of the following:
June 30, 2000 March 31, 2000
------------- --------------
Raw materials $1,108 $ 973
Work-in-process 1,636 3,278
Finished goods 2,331 1,361
------ ------
Total inventories $5,075 $5,612
====== ======
3. Debt
Long-term debt is summarized as follows:
June 30,2000 March 31,2000
------------ -------------
Term notes $6,596 $6,596
Secured credit facility 598 587
------ ------
7,194 7,183
Less current maturities 371 245
------ ------
$6,823 $6,938
====== ======
Term Notes
In June 2000, the Company amended its term note increasing its principal
balance to $6,596 ("the amended note"). The term note was originally issued in
March 1999 for $5,000 and renewed in July 1999 for $6,222 the "renewed note").
The increase in the principal amounts resulted from the conversion of certain
trade payables owed to the lender into the principal balance of the notes. The
amended note is segregated into two term loans: Term Loan A amounting to $5,000
and Term Loan B amounting to $1,596.
Term Loan A
The principal balance of term loan A is payable in 49 monthly payments
commencing April 15, 2001, with interest payable monthly at the prime rate plus
2.5% commencing April 15, 2000.
4
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Term Loan B
The principal balance of term loan B is payable in 27 monthly payments
commencing January 15, 2001 with interest payable monthly at the prime rate plus
2.5% commencing April 15, 2000.
The Company is also required to make additional principal payments equal to
fifty percent of the "positive actual cash flow", as defined. The term loans
have been classified based upon the terms of the amended note. The tangible and
intangible assets of the Company, as defined, collateralize the term loans.
In connection with the renewed note, the Company granted the lender 650,000
warrants at an exercise price of $2.19 expiring on November 15, 2004. The fair
value of the warrants amounted to $596, and is accounted for as deferred
financing costs. The costs are, included in "Other Assets" in the accompanying
balance sheet and are being amortized on a straight-line basis over the life of
the renewed note (17 months). Interest expense of approximately $104 relating to
this warrants issuance was recognized for the three months ending June 30, 2000.
In connection with the amended note, the warrants' exercise price was
reduced to $.75 and the expiration date extended to December 2006. Additional
deferred financing costs of $130 were incurred and will be amortized over the
five-year life of the amended note.
Secured Credit Facility
In December 1999, the Company entered into a Loan Agreement (the "Loan
Agreement") with Greystone Funding Corporation ("Greystone") to provide up to
$7.5 million of subordinated debt in the form of a secured credit facility.
Under the Loan Agreement, the Company appointed two of Greystone's executive
officers, on as President of the Company and both as Directors. Pursuant to the
Loan Agreement, and to induce Greystone to enter into said Agreement, the
Company issued to Greystone and its designees, warrants to purchase 3,000,000
shares of the Company's Common Stock at an exercise price of $0.75 per share.
The President of the Company has been issued 750,000 warrants as a Greystone
designee. The Company agreed to issue to Greystone or its designees warrants to
purchase an additional 2,000,000 shares at an exercise price of $0.75 per share
in connection with a cash payment of $1 million by Greystone to the Company in
consideration of a sale of Photobit stock by the Company to Greystone. The sale
of the Photobit stock was made subject to a right of first refusal held by
Photobit and its founders. By letter dated February 17, 2000, counsel for
Photobit informed the Company that Photobit considers the Company's sale of its
shares to Greystone to be void on the basis of the Company's purported failure
to properly comply with Photobit's right of first refusal.
On March 17, 2000, the Company and Greystone entered into an Amended and
Restated Loan Agreement effective as of December 27, 1999 (the "Amended Loan
Agreement") pursuant to which Greystone agreed to provide up to $7.5 million of
subordinated debt in the form of a secured credit facility. The $1 million cash
payment to the Company was converted as of December 27, 1999 into an initial
advance of $1 million under the Amended Loan Agreement. Pursuant to the Amended
Loan Agreement, and to induce Greystone and its designees to enter into said
Agreement, the Company issued warrants to Greystone or its designees, consisting
of those warrants previously issued under the Loan Agreement, to purchase
5,000,000 shares of the Company's Common Stock at an exercise price of $0.75 per
share, exercisable at any time after December 27, 1999. Under the Amended Loan
Agreement, the Company also issued to Greystone or its designees warrants (the
"Additional Warrants") to purchase an additional 13,000,000 shares of common
stock, which Additional Warrants will vest and be exercisable at a rate of two
shares of Common Stock for each dollar advanced under the Amended Loan Agreement
in excess of the initial draw of $1,000,000. Any Additional Warrants which do
not vest prior to expiration or surrender of the line of credit will be
forfeited and canceled. In connection with the Greystone secured credit
facility, effective as of February 15, 2000, DVI Financial Services, Inc., the
Company's senior lender, consented to the Company's grant to Greystone of a
second priority lien encumbering the Company's assets, under and subject in
priority and right of payment to all liens granted by the Company under the term
notes.
The $1 million proceeds of the initial draw has been allocated to the loan
and 15 million warrants issued, based upon their relative fair values at
issuance. The carrying value of the note of $575 is being accreted to the face
value of $1 million using the interest method over the five-year term of the
loan. However, in the event that the loan is paid sooner, the Company will
recognize a charge for the unamortized discount remaining in such period. The
fair value of 3 million warrants issued in connection with the agreement,
amounting to $90, is being accounted for as deferred financing cost. This cost,
included in "Other Assets" in the accompanying balance sheet, is being amortized
on a straight-line basis over the five-year life of the loan. Interest under the
credit line is due monthly at an annual rate of 10% until December 2005 when the
outstanding loan is due to be repaid.
5
<PAGE>
The term notes and secured facility are subject to various financial and
restrictive covenants including, among others, interest coverage, current ratio,
and EBITDA.
Principal maturities of long-term debt are as follows:
Year ending June 30,
--------------------
2001 $371
2002 1,440
2003 1,515
2004 1,040
2005 3,230
-----
$7,596
======
4. 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. The SEC has
made a voluntary request for the production of certain documents. The Company
intends to cooperate fully with the SEC staff and has provided responsive
documents to it. In addition, investigators associated with the U.S. Attorneys
Office have made inquires of certain former employees, apparently in connection
with the same event. The inquiries are in a preliminary stage and the Company
cannot predict their potential outcome.
Litigation
In May 2000, the Company entered into an agreement for the settlement of the
class action lawsuit naming the Company, certain of its officers and former
officers and various third parties as defendants. The complaint alleged 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. Under the settlement
agreement, reflected in a memorandum of understanding, all claims against the
Company and the other defendants are to be dismissed without presumption or
admission of any liability or wrongdoing. The principal terms of the settlement
agreement call for payment to the plaintiffs, for the benefit of the class, of
the sum of $3.4 million. The settlement amount will be paid in its entirety by
the Company's insurance carrier and is not expected to have any material impact
on the financial results of the Company. The terms of the settlement are subject
to approval by the Court.
During 1996, the Company was named as defendant in patent infringement
litigation commenced by a competitor in the United States and France. The
Company is vigorously defending itself against such allegations and believes the
claims to be without merit. The Company has filed a countersuit against the
competitor for infringement of a U.S. Patent which has been exclusively licensed
to the Company. The Company has obtained a formal opinion of intellectual
property counsel that its products do not infringe on the competitor's U.S.
patent. The Company has filed motions for Summary Judgment seeking the dismissal
of the action in the United States. Such motions are currently pending. The
Company is unable to predict the ultimate outcome of this litigation. The
outcome, if unfavorable, could have a material adverse effect on the financial
position and results of operations of the Company. No provision has been made
for any potential losses at June 30, 2000 and 1999 as the range of potential
loss, if any cannot be reasonably estimated.
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
6
<PAGE>
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.
7
<PAGE>
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
circumstances could differ materially from those set forth in such statements
due to various factors. Such factors include risks relating to recent
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. The Company has also developed a bone mineral density
assessment device to assist in the diagnosis and treatment of osteoporosis. The
Company is also developing a radiographic imaging device for digital
mammography, and has commenced development of a general digital radiography
device for intended use in various applications.
Results of Operations
Net revenues for the three months ended June 30, 2000 decreased $1.0
million (14%) to $6.2 million from $7.2 million during the comparable period of
fiscal 2000. The Company believes the decrease in revenue is due to lower sales
of the Company's accuDEXA bone density assessment device due to a decrease in
promotional activity of the product line. During the first quarter of fiscal
2001, the Company discontinued third party dealers order solicitation and began
a direct mail solicitation for a rental program for the accuDEXA. The Company
will evaluate this marketing approach during the second and third quarter of
fiscal 2001. In the first quarter of fiscal 2001, accuDEXA represented
approximately $.2 million (3%) of the Company's net revenues and CDR represented
approximately $6.0 million (97%) of the Company's net revenues as compared to
$1.4 million (19%) and $5.8 million (81%) in the first quarter of fiscal 2000
for accuDEXA and CDR, respectively.
In May 2000 the Company consolidated its marketing efforts for its CDR(R)
dental products and entered into an exclusive distribution agreement with
Patterson Dental Company ("Patterson"). This agreement grants Patterson
exclusive rights to distribute the Company's dental products in the United
States and Canada. However, the Company retains direct relationships for
hospitals, universities and governmental agencies. The Company believes that
Patterson's strong perception in the marketplace will improve its sales and
customer service capabilities.
Total cost of sales for the three months ended June 30, 2000 decreased $2.7
million (46%) to $3.1 million (50% of net revenue) from $5.8 million (80% of net
revenue) from the comparable period of fiscal 2000. The decrease in the relative
total cost of sales is due to several factors including increased prices,
improved product mix, increased warranty revenues and reduction in the provision
for excess and obsolete inventory. Additionally, indirect labor costs, warranty
expenditures, material costs, royalty costs, rent and overhead costs decreased
due to a January 2000 reduction in plant and facilities, improve utilization of
facilities and an improved rate of recovery of warranty replacement inventory
from customers.
Selling and marketing expenses for the three months ended June 30, 2000,
decreased $1.3 million (42%) to $1.6 million (26% of net revenue) from $2.8
million (38% of net revenue) for the comparable period of fiscal 2000. This
decrease is principally attributable to a reduction in direct selling expenses
of the CDR, a reduction in the Company's direct sales force and reduction in
other promotional and trade show expenses principally as a result of the
Patterson distribution agreement.
8
<PAGE>
General and administrative expenses for the three months ended June 30,
2000, decreased $0.5 million (32%) to $1.2 million (19% of net revenue) from
$1.7 million (24% of net revenue) for the comparable period of fiscal 2000. The
decrease in general and administrative expenses was primarily attributable to a
decrease in payroll and related costs and a decrease in professional services
rendered in connection with the restatement of the Company's interim financial
statements for fiscal 1999.
Research and development expenses for the three months ended June 30, 2000,
decreased $0.3 million (37%) to $0.6 million (9% of net revenue) from $0.9
million (12% of net revenue) for the comparable period of fiscal 2000. The
decrease is primarily attributable to a decrease in payroll and related costs
due to a reduction in personnel and decreases in test services and supply
expenses.
Interest expense for the three-month period ended June 30, 2000 increased
$0.3 million to $0.4 million from $0.1 million for the comparable period of
fiscal 2000. The increase was principally attributable to the amortization of
deferred financing costs in connection with the term notes and the secured
credit facility entered into in the third quarter of fiscal 2000.
Liquidity and Capital Resources
At June 30, 2000, the Company had $1.0 million in cash and cash equivalents
and a working capital of $0.7 million, compared to $1.4 million in cash and cash
equivalents and $0.8 million in working capital at March 31, 2000.
During the three months ended June 30, 2000, cash used in operations was
$0.4 million compared to $0.2 million used in operations during the comparable
period of fiscal 2000. The increase in cash used in operations is primarily
attributable to the reduction in the Company's accounts payable and accrued
expenses and deposits from customers, offset by decreases in accounts
receivable, inventory levels and deferred revenue. Accounts receivable decreased
from $1.5 million at March 31, 2000 to $1.4 million at June 30, 2000 due to
lower rates of sale and limiting the availability of credit to select dealers,
hospitals, universities and governmental agencies. The decrease in inventory of
$0.5 million from $5.6 million at March 31, 2000 to $5.1 million at June 30,
2000 is primarily attributable to planned reductions.
The Company's capital expenditures during the three-month period ended June
30, 2000 amounted to $30 thousand. Such expenditures included leasehold
improvements, computers, and production equipment.
DVI Financial Services, Inc. ("DVI") has provided the Company with term
notes aggregating $6.6 million 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
creation of any additional lien or encumbrance on the Company's property or
assets. The notes are due in varying installments through fiscal 2006. Interest
is paid monthly at the prime rate (9-1/2% at June 30, 2000) plus 2-1/2%.
In December 1999 and as later amended in March 2000, the Company entered
into a Secured Loan Agreement ("Amended Loan Agreement") with Greystone Funding
Corporation ("Greystone") to provide up to $7.5 million of subordinated debt in
the form of a secured credit facility. Pursuant to the Loan Agreement, and to
induce Greystone to enter into said Agreement, the Company issued to Greystone
or its designees, warrants to purchase 5,000,000 shares of Company's Common
Stock at an exercise price of $0.75 per share, exercisable at any time after
December 27, 1999. Under the Amended Loan Agreement, the Company also issued to
Greystone or its designees warrants (the "Additional Warrants") to purchase an
additional 13,000,000 shares of common stock, which Additional Warrants will
vest and be exercisable at a rate of two shares of Common Stock for each dollar
advanced under the Amended Loan Agreement in excess of the initial draw of $1
million. Any additional warrants, which do not vest prior to expiration or
surrender of the line of credit, will be forfeited and canceled. In connection
with the Greystone secured credit facility, effective as of February 15, 2000,
DVI consented to the Company's grant to Greystone of a second priority lien
encumbering the Company's assets, under and subject in priority and right of
payment to all liens granted by the Company to DVI. To date, no additional funds
have been advanced under the Amended Loan Agreement in excess of the initial
draw of $1 million.
The Company has also undertaken various cost-cutting measures including
reduction of facilities and personnel from peak levels of fiscal 1999. The
Company discontinued certain promotional programs, which had resulted in
increased credit risk, and concomitantly limited credit to selected domestic
dealers. The Company continues efforts to improve its products and methods of
production. Effective May 1, 2000 the Company entered an exclusive
9
<PAGE>
distribution agreement with Patterson Dental Company ("Patterson"). Under the
terms of this agreement the Company discontinued all direct domestic sales of
its dental products, with the exception of those to governmental agencies and
universities. As a result of the agreement, the Company further reduced its
sales force. Remaining domestic sales representatives have become manufacturer
representatives charged with support of the Patterson sales effort. The Company
terminated all existing dealer agreements including its agreement with Henry
Schein, Inc.
The Company believes that its financing agreements, cost reductions and
distribution agreement with Patterson should permit the Company to generate
sufficient working capital to meet its obligations as they mature. The ability
of the Company to meet its cash requirements is dependent, in part, on the
Company's ability to attain adequate sales and profit levels and to satisfy its
existing warranty obligations without incurring expenses substantially in excess
of related warranty revenue and to collect its accounts receivable on a timely
basis. Management believes that existing capital resources and sources of
credit, including the Greystone credit facility, are adequate to meet its
current cash requirements. However, if the Company's cash needs are greater than
anticipated or the Company does not satisfy drawdown conditions under the
Amended Loan Agreement, the Company will be required to seek additional or
alternative financing sources. There can be no assurance that such financing
will be available or available on terms acceptable to the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The DVI term notes bear an annual interest rate based on the prime rate
plus 2.5%, provided however, that if any payments to DVI are past due for more
than 60 days, interest will thereafter accrue at the prime rate plus 5.5%.
Because the interest rate is variable, the Company's cash flow may be adversely
affected by increases in interest rates. Management does not, however, believe
that any risk inherent in the variable-rate nature of the loan is likely to have
a material effect on the Company's interest expense or available cash.
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. The Company is a named defendant in two lawsuits instituted by Trophy
Radiologie, S.A. (`Trophy S.A.'), a subsidiary of Trex Medical Corporation. One
lawsuit was instituted in France and the other in the United States.
The French lawsuit was filed in November 1995, in the tribunal de Grande
Instance de Bobigny, the French patent court, and originally alleged that the
Company's CDR(R) system infringes French Patent No. 2,547,495, European Patent
No. 129,451 and French Certificate of Addition No. 2,578,737. These patents, all
of which are related, are directed to a CCD-based intra-oral sensor. Since
filing its lawsuit, Trophy S.A. has withdrawn its allegation of infringement
with respect to the Certificate of Addition. Trophy S.A. is seeking a permanent
injunction and unspecified damages, including damages for its purported lost
profits. The Company believes that the lawsuit is without merit and is
vigorously defending it.
The lawsuit in the United States was filed in March 1996 by Trophy S.A.,
Trophy Radiology, Inc., a United States subsidiary of Trophy S.A. (`Trophy
Inc.') and the named inventor on the patent in suit, Francis Mouyen, a French
citizen. The suit was brought in the United States District Court for the
Eastern District of New York, and alleges that the Company's CDR(R) system
infringes United States Patent No. 4,593,400 (the `400 patent'), which is
related to the patents in the French lawsuit. Trophy S.A., Trophy Inc. and
Mouyen are seeking a permanent injunction and unspecified damages, including
damages for purported lost profits, enhanced damages for the Company's purported
willful infringement and an award of attorney fees. The Company believes that
the lawsuit is without merit and is vigorously defending it. The Company's
counsel in the United States suit has issued a formal opinion that the CDR
system does not infringe the 400 patent.
In addition, the Company has counter-sued Trophy S.A. and Trophy Inc. for
infringement of United States Patent No. 4,160,997, an expired patent which was
exclusively licensed to the Company by its inventor, Dr. Robert Schwartz, and
for false advertising and unfair competition. The Company believes that its
counter-suit is meritorious, and is vigorously pursuing it.
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On September 12, 1997, after having been given permission to do so by the
Court, the Company served two motions for summary judgment seeking dismissal of
the action pending in the United States District Court for the Eastern District
of New York, on the grounds of non-infringement and patent invalidity. On
February 22, 2000, the Court heard oral argument on these motions. The motions
are currently pending.
While the Company believes such suits against it are without merit, there
can be no assurance that the Company will be successful in its defense of any of
these actions, or in its counter-suit. If the Company is unsuccessful in its
defense of any of these actions, it could have a material adverse effect upon
the Company. Moreover, regardless of their outcome, the Company may be forced to
expend significant amounts of money in legal fees in connection with these
lawsuits.
II. In late 1998 through early 1999, nine shareholder complaints purporting
to be class action lawsuits were filed in the United States District Court for
the Eastern District of New York. Plaintiffs filed a Consolidated and Amended
Complaint on or about May 27, 1999 and, on or about November 24, 1999, filed a
Second Amended and Consolidated Complaint (the "Complaint"). The Complaint names
as defendants the Company, David B. Schick, Thomas E. Rutenberg, and David
Spector (collectively, the "Individual Defendants"), as well as
PricewaterhouseCoopers LLP.
The Complaint alleged, inter alia, that certain defendants issued false and
misleading statements concerning the Company's publicly reported earnings in
violation of the federal securities laws. The Complaint sought certification of
a class of persons who purchased the Company's Common Stock between July 1, 1997
and February 19, 1999, inclusive, and did not specify the amount of damages
sought.
On May 23, 2000, the Company entered into an agreement in principle with
the plaintiffs for the settlement of the class action lawsuit. Under the
settlement agreement, reflected in a Memorandum of Understanding, all claims
against the Company and the Individual Defendants are to be dismissed without
presumption or admission of any liability or wrongdoing. The principal terms of
the settlement agreement call for payment to the Plaintiffs, for the benefit of
the class, of the sum of $3.4 million. The settlement amount will be paid in its
entirety by the Company's insurance carrier and is not expected to have any
material impact on the financial results of the Company. The settlement is
subject to approval by the Court.
III. In August 1999, the Company, through its outside counsel, contacted
the Division of Enforcement of the Securities and Exchange Commission ("SEC") to
advise it of certain matters related to the Company's restatement of earnings
for interim periods of fiscal 1999. The SEC has made a request for the voluntary
production of certain documents. The Company intends to cooperate fully with the
SEC staff and has provided responsive documents to it. This matter is in a
preliminary stage and the Company cannot predict its potential outcome.
Item 2. Changes in Securities and Use of Proceeds
(a) On August 4, 2000, Article I, Section 7(c) of the Company's By-laws was
amended to provide that, except as otherwise required by the Delaware General
Corporation Law, the Certificate of Incorporation or the By-laws, any matter
submitted to a vote at a meeting of stockholders "shall have been approved only
if...the holders of a majority of the issued and outstanding shares of the
capital stock of the Corporation present in person or by proxy at such meeting
and entitled to vote on such matter shall have voted to approve such matter."
Previously, such provision of the Company's By-laws required that "...the
holders of a majority of the issued and outstanding shares of the capital stock
of the Corporation entitled to vote on such matter shall have voted to approve
such matter."
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.2 Bylaws of the Company, as amended.
27 Financial Data Schedule (Filed in electronic format only).
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(b) Reports on Form 8-K
1. A Form 8-K was filed on April 13, 2000 and reported on the
Distributorship Agreement entered into on April 6, 2000 between the
Company and Patterson Dental Company in Item 5, "Other Events," of
said Form 8-K.
2. A Form 8-K was filed on May 23, 2000 and reported on the settlement of
the consolidated securities class action lawsuit pending against the
Company in Item 5, "Other Events," of said Form 8-K.
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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: August 7, 2000 By: /S/ David Schick
David B. Schick
Chief Executive Officer
By: /S/ Ronald Rosner
Ronald Rosner
Controller
(Principal Financial Officer)
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