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, 2002 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to Commission file number 000-22673 SCHICK TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Delaware 11-3374812 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 30-00 47th Avenue, Long Island City, NY 11101 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (718) 937-5765 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| ---------- The aggregate market value of Common Stock held by non-affiliates of the registrant as of June 6, 2002 was approximately $20,685,491. Such aggregate market value is computed by reference to the closing sale price of the Common Stock on such date. As of June 6, 2002, the number of shares outstanding of the Registrant's Common Stock, par value $.01 per share, was 10,144,520 DOCUMENTS INCORPORATED BY REFERENCE: NONE Table of Contents Item of Form 10-K Page - -------------------------------------------------------------------------------- Part I Item 1. Business ............................................... 1 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 .................... 13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................................... 19 Item 8. Financial Statements and Supplementary Data ............ 19 Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure ................. 19 Part III Item 10. Directors and Executive Officers of the Registrant ..... 19 Item 11. Executive Compensation ................................. 23 Item 12. Security Ownership of Certain Beneficial Owners And Management ............................................. 26 Item 13. Certain Relationships and Related Transactions ......... 28 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............................................... F1 PART I ITEM 1. BUSINESS Schick Technologies, Inc. (the "Company") designs, develops and manufactures innovative digital radiographic imaging systems and devices for the dental and medical markets. The Company's products, which are based on proprietary digital imaging technologies, create instant high-resolution radiographs with reduced levels of radiation. In the field of dentistry, the Company's products include the CDR(R) computed dental radiography imaging system, introduced in March 1994. The CDR system, a leading product in its field, uses an intra-oral sensor to produce instant, full size, high-resolution dental x-ray images on a color computer monitor without film or the need for chemical development, while reducing the radiation dose by up to 80% or more as compared with conventional x-ray film. The Company also manufactures and sells the CDRCam(R) 2000, an intra-oral camera which fully integrates with the CDR system, and the CDRPan(TM), a digital panoramic imaging device. In addition, the Company is developing other products and devices for the dental field, 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, a low-cost and easy-to-operate device for the assessment of bone mineral density and fracture risk. Additionally, the Company has commenced development of a general purpose digital radiography device for various intended uses, including cephalometric imaging. The Company's core products are based primarily on its proprietary active-pixel sensor ("APS") imaging technology. In addition, certain of the Company's products are based upon its proprietary enhanced charged-coupled-device ("CCD") imaging technology. APS allows the fabrication of large-area imaging devices with high resolution at a fraction of the cost of traditional technologies. APS technology, developed by the California Institute of Technology and initially licensed to Photobit Corporation, is licensed to Micron Technology, Inc.; it is sublicensed to the Company for a broad range of health care applications. The Company's objective is to be the leading provider of high resolution, low-cost digital radiography products. The Company plans to leverage its technological advantage in the digital imaging field to penetrate a broad range of diagnostic imaging markets. The Company believes that its proprietary technologies and expertise in electronics, imaging software and advanced packaging may enable it to compete successfully in these markets. Key elements of the Company's strategy include (i) expanding market leadership in dental digital radiography through expanded sales channels, further product enhancements and strategic distribution agreements; (ii) broadening the marketing of accuDEXA(R) to the medical market through increased marketing activities; (iii) introducing new products based on patented and proprietary APS technology for other medical and industrial applications; and (iv) enhancing international distribution channels for existing and new products. The Company's business was founded in 1992 and it was incorporated in Delaware in 1997. On July 7, 1997, the Company completed an initial public offering of its Common Stock. Proceeds to the Company after expenses of the offering were approximately $33,508,000. The Company's offices are located at 30-00 47th Avenue, Long Island City, New York 11101. The Company's telephone number is (718) 937-5765, and its website address is http://www.schicktech.com. PRODUCTS/INDUSTRY Digital Imaging X-ray imaging, or radiography, is widely used as a basic diagnostic technique in a broad range of medical applications. To produce a conventional radiograph, a film cassette is placed behind the anatomy to be imaged. A generator, which produces high-energy photons known as x-rays, is positioned opposite the film cassette. The transmitted x-rays pass through soft tissue, such as skin and muscle, and are absorbed by harder substances, such as bone. These x-rays then form a latent image upon the film. After exposure, the film is passed through a series of chemicals and then dried. 1 Film, however, has certain inherent limitations, including the time, operating expense, inconvenience and uncertainty associated with film processing, as well as the cost of disposal of waste chemicals and the need for compliance with environmental regulations. Furthermore, the radiation dosage levels required to assure adequate image quality in conventional film raise concerns regarding the health risks associated with exposure to radiation. Also, conventional film images cannot be electronically retrieved from patient records or electronically transmitted to health care providers or insurance carriers at remote locations, a capability which has become increasingly important in today's managed care environment. While x-ray scanning systems convert x-rays into digital form, they add to the time and expense associated with the use of conventional film and do not eliminate the drawbacks of film processing. Digital radiography products have been developed to overcome the limitations of conventional film. These systems replace the conventional film cassette with an electronic receptor which directly converts the incident x-rays to digital images. Dental Imaging Dentists, who typically perform their own radiology work, represent the single largest group of radiologists in the world and the dental industry is, in terms of unit volume, the largest consumer of radiographic products and equipment. The Company believes that there is a potential market for approximately 1.1 million digital dental radiography devices worldwide. According to the American Dental Association, there are approximately 150,000 practicing dentists in the United States. The Company believes that each of them, on average, operates 2.5 radiological units, creating a potential market of 375,000 digital dental radiography devices in the United States. In addition, the Company believes that there are approximately 600,000 practicing dentists in the world's major healthcare markets outside of the United States and, the Company believes that each of them, on average, operates 1.25 radiological units, creating a potential market of 750,000 additional devices. The Company believes that dentists have a particularly strong motivation to adopt digital radiography. Radiographic examinations are an integral part of routine dental checkups and the dentist is directly involved in the film development process. The use of digital radiography eliminates delays in film processing, thus increasing the dentist's potential revenue stream and efficiency, and reduces overhead expenses. The use of digital radiography also allows dentists to more effectively communicate diagnosis and treatment plans to patients, which the Company believes has the potential to increase the rate of patients' treatment acceptance and resulting revenues. Finally, the radiation dosage required to produce an intra-oral dental x-ray, which is high when compared with other medical radiographs, can be reduced by up to 80% or more through the use of digital radiography. The Company's principal revenue-generating product is its CDR(R) computed dental radiography imaging system. The Company's CDR(R) system is easy to operate and can be used with any dental x-ray generator. To produce a digital x-ray image using CDR(R), the dentist selects an intra-oral sensor of suitable size and places it in the patient's mouth. The sensor converts the x-rays into a digital image that is displayed on the computer monitor within five seconds and automatically stored as part of the patient's clinical records. CDR(R) system software allows the dentist to perform a variety of advanced diagnostic operations on the image. The sensor can then be repositioned for the next x-ray. As the x-ray dose is significantly lower than that required for conventional x-ray film, concern over the potential health risk posed by multiple x-rays is greatly diminished. The process is easy and intuitive, enabling nearly any member of the dental staff to operate the CDR(R) system with minimal training. The Company manufactures digital sensors in three sizes which correspond to the three standard sizes of conventional dental x-ray film. Size 0 measures 31 x 22 x 5mm and is designed for pediatric use; size 1 measures 37 x 24 x 5mm and is designed for taking anterior dental images; and size 2 measures 43 x 30 x 5mm and is designed for taking bitewing images. All of the Company's CDR(R) sensors can be sterilized using cold solutions or gas. The typical CDR(R) configuration includes a computer, display monitor and size 2 digital sensor. The Company began selling its intra-oral camera, the CDRCam(R), in early 1997 and introduced the CDRCam(R) 2000, a redesigned version of the product, in November 1999. CDRCam(R) fully integrates with the CDR(R) system to provide color video images of the structures of the mouth. Since their introduction in 1991, intra-oral cameras have become 2 widely accepted as a dental communication and presentation tool. CDRCam(R) is "ETL Listed". "ETL" is a North American Safety Mark indicating compliance with safety standard UL-2601-1. In March 1999, the Company commenced the sale of its digital panoramic imaging device, the CDRPan(TM). This device, which is designed to be retrofitted into conventional panoramic dental x-ray machines, replaces film with electronic sensors and a computer. This obviates the need for film and provides instantaneous images, thus offering substantial savings in terms of time and costs. Additionally, the CDRPan (TM) easily integrates with practice management and other computer software applications. Bone Mineral Density / Fracture Risk Assessment Assessment of bone mineral density ("BMD") is an essential component in the diagnosis and monitoring of osteoporosis. Osteoporosis is a disease that causes progressive loss of bone mass which, in serious cases, may result in bone fractures and even death. Osteoporosis can develop over the course of many years without apparent symptoms, until bone is sufficiently degenerated and fractures occur. The National Osteoporosis Foundation has estimated that approximately 200 million people suffer from the disease worldwide, which affects one out of three postmenopausal women and one out of ten men over the age of 70. In the United States, an estimated 28 million people suffer from the disease or have low bone mass, placing them at increased risk for osteoporosis. The total estimated health care cost of osteoporosis in the United States, including indirect costs, is approximately $14 billion annually. Until recently, osteoporosis was considered neither treatable nor preventable. Because recognized treatments are now available and because osteoporosis may be preventable if detected in its early stages, the demand for BMD diagnostic equipment has significantly increased. Because of the large population segment which could benefit from BMD testing, the Company believes that there is a need for a practical, instant, cost effective, precise, compact and easy-to-use BMD testing device for the primary care physician. Primary care physicians consist of internal medicine, family, geriatric and OB/GYN practices. These practices represent approximately 172,000 potential testing sites in the United States alone. Traditional BMD assessment devices have been large, costly and difficult to operate, and are primarily found in large hospitals and diagnostic imaging centers. It is estimated that in 2000, there were approximately 7,500 such BMD assessment devices in use in the United States. The Company's accuDEXA(R) device is an innovative BMD assessment device to assist doctors in the diagnosis of low bone density and prediction of fracture risk. The Company believes that this low-cost and precise diagnostic tool assesses BMD more quickly, accurately and easily than any comparable product currently on the market, while using a minimal radiation dosage. It is a point-of-treatment tool, designed for use by primary care physicians as an integral part of a patient's regular physical examination. In December 1997, the Company received clearance from the United States Food and Drug Administration ("FDA") for the general use and marketing of the accuDEXA(R) as a BMD assessment device; in June, 1998, the FDA granted the Company additional clearance for its marketing of the accuDEXA(R) as a predictor of fracture risk. Based on APS technology, accuDEXA(R) is a small self-contained unit capable of instantly assessing the BMD of a specific portion of the patient's hand, a relative indicator of BMD elsewhere in the body. This device is the first BMD assessment instrument that is virtually automatic, requiring little operator intervention or interfacing other than the entry of relevant patient data into a built-in touch sensitive LCD screen. The device requires no external x-ray generator or computer and it exposes the patient to less than 1% of the radiation of a single conventional chest x-ray. To perform a test using the accuDEXA(R), the patient places his or her hand into a position and, upon activation by the operator, the device automatically emits two low-dosage x-ray pulses. The patient's bone density and fracture risk information is displayed on the screen in less than 30 seconds. The accuDEXA(R) is "ETL Listed". "ETL" is a North American Safety Mark indicating compliance with safety standard UL-2601-1. Cephalometric Digital Radiography The Company is also developing an 8"x 10" general-purpose digital radiography sensor for various intended uses, including cephalometric (i.e., skull) imaging. Management currently believes that the unit will be available for sale by mid-2003 pending clearance by the FDA. There can be no assurance that the Company will file for such clearance or that the FDA will grant such clearance. See "Business -- Government Regulation." 3 Schick X-Ray Corporation On September 24, 1997, the Company completed the acquisition of certain assets of Keystone Dental X-Ray, Inc., a manufacturer of x-ray equipment for the medical and dental radiology field, for $1.5 million in cash. The acquired assets were integrated into the Company's former subsidiary, Schick X-Ray Corporation ("Schick X-Ray"). In August 1999, Schick X-Ray was dissolved and its operations absorbed by the Company. MANUFACTURING The Company's products are manufactured at its facility in Long Island City, New York, which includes a controlled environment sensor production facility. This facility is subject to periodic inspection by the FDA. The Company has invested in automated and semi-automated equipment for the fabrication and machining of parts and assemblies incorporated in its products. The Company's quality assurance program includes various quality control measures from inspection of raw materials, purchased parts and assemblies through in-process and final inspection and conforms to the guidelines of the International Quality Standard, ISO 9001. In August 1998, the Company was granted ISO 9001 certification and, since that time, has been subject to semi-annual audits to ensure the maintenance of such certification. The Company manufactures most of its custom components itself in order to minimize dependence on suppliers, for quality control purposes and to help maintain process propriety. While the Company does procure certain components from outside sources which are sole suppliers, it believes that those components could be obtained from additional sources without substantial difficulty, although the need to change suppliers or to alternate between suppliers might cause significant delays in delivery or significantly increase the Company's costs. The Company procures its APS and CCD semiconductor wafers, a significant component of its products, each from a single supplier. Extended interruptions of this supply could have a material adverse effect on the Company's ability to produce its products and its results of operations. The Company's manufacturing processes are, for the most part, vertically integrated, although selective outsourcing is employed to take advantage of economies of scale at outside manufacturing facilities and to alleviate manufacturing bottlenecks. Certain components used in existing products of the Company, as well as products under development, may be purchased from single sources. DEPENDENCE ON CUSTOMERS During fiscal 2002, Patterson Dental Company accounted for annual sales by the Company of $9.9 million or 41% of annual sales. During fiscal 2001, Patterson Dental Company and RoSCH AG Medizintechnik accounted for annual sales by the Company of $4.5 million and $3.0 million, or 21% and 14%, respectively, of annual sales. During fiscal 2000, a single customer, Henry Schein, Inc., accounted for annual sales by the Company of $2.6 or 12% of annual sales. During fiscal 2002, 2001 and 2000, respectively, sales of approximately $6.2 million, $8.1 million and $6.5 million were made to foreign customers. PATENTS, TRADE SECRETS AND PROPRIETARY RIGHTS The Company seeks to protect its intellectual property through a combination of patent, trademark and trade secret protection. The Company's future success will depend in part on its ability to obtain and enforce patents for its products and processes, preserve its trade secrets and operate without infringing the proprietary rights of others. Patents The Company has an active corporate patent program, the goal of which is to secure patent protection for its technology. The Company currently has issued United States patents for an 'Intra-Oral Sensor For Computer Aided Radiography', U.S. Patent No. 5,434,418, which expires on October 16, 2012; a 'Large Area Image Detector', U.S. Patent No. 5,834,782, which expires on November 20, 2016; a 'Method and Apparatus for Measuring Bone Density', U.S. Patent No. 5,852,647, which expires on September 24, 2017; an 'Apparatus for Measuring Bone Density Using Active Pixel Sensors', U.S. Patent No. 5,898,753, which expires on June 6, 2017; a 'Dental Imaging System with Lamps and Method', U.S. Patent No. 5,908,294, which expires on June 12, 2017; an 'X-ray Detection System Using Active Pixel Sensors', U.S. Patent No. 5,912,942, which expires on June 6, 2017; a 'Dental Imaging System with White Balance Compensation', U.S. Patent No. 6,002,424, which expires on June 12, 2017; 'Dental Radiography Using an Intraoral Linear Array Sensor,' U.S. Patent No. 5,995,583, which expires on November 4 13, 2016; a 'Method for Reading Out Data from an X-Ray Detector,' U.S. Patent No. 6,069,935, which expires on June 6, 2017; and a 'Filmless Dental radiography System Using Universal Serial Bus Port', U.S. Patent No. 6,134,298, which expires on August 7, 2018. In addition, the Company is the licensee of U.S. Patent No. 5,179,579, for a 'Radiograph Display System with Anatomical Icon for Selecting Digitized Stored Images', under a worldwide, non-exclusive, fully paid license. The Company also has U.S. and foreign patent applications currently pending. The Company is the exclusive sub-licensee for use in medical radiography applications of certain patents, patent applications and other know-how (collectively, the "Intellectual Property") related to complementary metal oxide semiconductor ("CMOS") active pixel sensor technology (the "APS Technology"), which was developed by the California Institute of Technology and licensed to Photobit Corp. from which the Company obtained its sub-license. Photobit was subsequently acquired by Micron Technology, Inc., which continues to sublicense the CMOS Intellectual Property to the Company. The Company's exclusive rights to such technology are subject to government rights to use, noncommercial educational and research rights to use by California Institute of Technology and the Jet Propulsion Laboratory, and the right of a third party to obtain a nonexclusive license from the California Institute of Technology with respect to such technology. The Company believes that, as of the date of this filing, except for such third party's exercise of its right to obtain a nonexclusive license to use APS Technology in a field other than medical radiography, none of the foregoing parties have given notice of their exercise of any of their respective rights to the APS Technology. There can be no assurance that this will continue to be the case, and any such exercise could have a material adverse effect on the Company. Additionally, the agreement between the Company and Photobit Corp. requires, among other things, that the Company use all commercially reasonable efforts to timely introduce, improve and market and distribute licensed products. There can be no assurance that the Company will comply with its obligations under its agreement with Photobit Corp. Any such failure to comply could have a material adverse effect on the Company. Trademarks The Company has obtained trademark registrations from the United States Patent and Trademark Office for the marks (i) "CDR" for its digital dental radiography product; (ii) "CDRCam" (both textual and stylized) for its intra-oral camera (iii) "QuickZoom" (both textual and stylized) for a viewing feature in its digital dental radiography product; (iv) "accuDEXA" for its BMD assessment product; v) "CDR Discovery" for its x-ray generating product and (vi) "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 marketing clearance by the United States Food and Drug Administration (the "FDA"). The FDA review process typically requires extended proceedings pertaining to product safety and efficacy. The Company believes that its future success will depend to a large degree upon commercial sales of improved versions of its current products and sales of new products; the Company will not be able to market such products in the United States without FDA marketing clearance. There can be no assurance that any products developed by the Company in the future will be given clearance by 5 applicable governmental authorities or that additional regulations will not be adopted or current regulations amended in such a manner as to adversely affect the Company. Pursuant to the Federal Food, Drug and Cosmetic Act, as amended (the "FD&C Act"), the FDA classifies medical devices intended for human use into three classes: Class I, Class II, and Class III. In general, Class I devices are products for which the FDA determines that safety and effectiveness can be reasonably assured by general controls under the FD&C Act relating to such matters as adulteration, misbranding, registration, notification, records and reports. The CDRCam(R) is a Class I device. Class II devices are products for which the FDA determines that general controls are insufficient to provide a reasonable assurance of safety and effectiveness, and that require special controls such as promulgation of performance standards, post-market surveillance, patient registries or such other actions as the FDA deems necessary. The CDR(R) system, CDRPan(TM) and accuDEXA(R) have been classified as Class II devices. Class III devices are devices for which the FDA has insufficient information to conclude that either general controls or special controls would be sufficient to assure safety and effectiveness, and which are life-supporting, life-sustaining, of substantial importance in preventing impairment of human health, or present a potential unreasonable risk of illness or injury. Devices in this case require pre-market approval, as described below. None of the Company's existing products are in the Class III category. The FD&C Act further provides that, unless exempted by regulation, medical devices may not be commercially distributed in the United States unless they have been cleared by the FDA. There are two review procedures by which medical devices can receive such clearance. Some products may qualify for clearance under a Section 510(k) procedure, in which the manufacturer submits to the FDA a pre-market notification that it intends to begin marketing the product, and shows that the product is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and that it is as safe and effective as a legally marketed device, and does not raise different questions of safety and effectiveness than does a legally marketed device). In some cases, the 510(k) notification 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 February 1994, the FDA cleared the Company's 510(k) application for general use and marketing of the CDR(R) system. In November 1996, the FDA cleared the Company's 510(k) application for general use and marketing of the CDRCam(R). In December 1997, the FDA cleared the Company's 510(k) application for general use and marketing of accuDEXA(R). On June 4, 1998, the FDA granted the Company additional clearance to market accuDEXA(R) as a predictor of fracture risk. In December 1998, the FDA cleared the Company's 510(k) application for CDRPan(TM). The Company has not yet submitted a 510(k) application for its general-purpose digital radiography sensor. There can be no assurance that the Company will submit such application or that it will obtain FDA clearance for such products. In addition to the requirements described above, the FD&C Act requires that all medical device manufacturers and distributors register with the FDA annually and provide the FDA with a list of those medical devices which they distribute commercially. The FD&C Act also requires that all manufacturers of medical devices comply with labeling requirements and manufacture their products and maintain their documents in a prescribed manner with respect to manufacturing, testing, and quality control activities. The FDA's Medical Device Reporting regulation subjects medical devices to post-market reporting requirements for death or serious 6 injury, and for certain malfunctions that would be likely to cause or contribute to a death or serious injury if malfunction were to recur. In addition, the FDA prohibits a device which has received marketing clearance from being marketed for applications for which marketing clearance has not been obtained. Furthermore, the FDA generally requires that medical devices not cleared for marketing in the United States receive FDA marketing clearance before they are exported, unless an export certification has been granted. The Company must obtain certain approvals by and marketing clearances from governmental authorities, including the FDA and similar health authorities in foreign countries, to market and sell its products in those countries. The FDA regulates the marketing, manufacturing, labeling, packaging, advertising, sale and distribution of "medical devices", as do various foreign authorities in their respective jurisdictions. The FDA enforces additional regulations regarding the safety of equipment utilizing x-rays. Various states also impose similar regulations. The FDA review process typically requires extended proceedings pertaining to the safety and efficacy of new products. A 510(k) application is required in order to market a new or modified medical device. If specifically required by the FDA, a pre-market approval ("PMA") may be necessary. Such proceedings, which must be completed prior to marketing a new medical device, are potentially expensive and time consuming. They may delay or hinder a product's timely entry into the marketplace. Moreover, there can be no assurance that the review or approval process for these products by the FDA or any other applicable governmental authorities will occur in a timely fashion, if at all, or that additional regulations will not be adopted or current regulations amended in such a manner as will adversely affect the Company. The FDA also regulates the content of advertising and marketing materials relating to medical devices. Failure to comply with such regulations may result in a delay in obtaining approval for the marketing of such products or the withdrawal of such approval if previously obtained. The Company is currently developing new products for the dental and medical markets. The Company expects to file 510(k) applications with the FDA in connection with its future products. There can be no assurance that the Company will file such 510(k) applications and/or will obtain pre-market clearance for the digital radiography sensors or any other future products, or that in order to obtain 510(k) clearance, the Company will not be required to submit additional data or meet additional FDA requirements that may substantially delay the 510(k) process and result in substantial additional expense. Moreover, such pre-market clearance, if obtained, may be subject to conditions on the marketing or manufacturing of the digital radiography sensors which could impede the Company's ability to manufacture and/or market the product. There can be no assurance that the general-purpose digital radiography sensor or any other products which may be developed by the Company will be approved by or receive marketing clearance from applicable governmental authorities. If the Company is unable to obtain regulatory approval for and market new products and enhancements to existing products, it will have a material adverse effect on the Company. Failure to comply with applicable regulatory requirements can, among other consequences, result in fines, injunctions, civil penalties, suspensions or loss of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. In addition, governmental regulations may be established that could prevent or delay regulatory clearance of the Company's products. Delays in receipt of clearance, failure to receive clearance or the loss of previously received clearance would have a material adverse effect on the Company's business, financial condition and results of operations. In addition to laws and regulations enforced by the FDA, the Company is subject to government regulations applicable to all businesses, including, among others, regulations related to occupational health and safety, workers' benefits and environmental protection. The extent of government regulation that might result from any future legislation or administrative action cannot be accurately predicted. Failure to comply with regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. Distribution of the Company's products in countries other than the United States may be subject to regulations in those countries. These regulations vary significantly from country to country; the Company typically relies on its independent distributors in such foreign countries to obtain the requisite regulatory approvals. The Company's products bear the "CE mark", necessary for the marketing of its products in the member countries of the European Union. The "CE mark" is a European Union symbol of adherence to quality assurance standards and compliance with the European Union's Medical Device Directives. The Company has developed 7 and implemented a quality assurance program in accordance with the guidelines of the International Quality Standard, ISO 9001. In August 1998, the Company was granted ISO 9001 certification. The Company's current products also comply with the requirements for the "U.L." 2601-1 (U.S.A.) and "CSA" (Canada) standards and bear the "ETL" mark indicating such compliance. PRODUCT LIABILITY INSURANCE The Company is subject to the risk of product liability and other liability claims in the event that the use of its products results in personal injury or other claims. Although the Company has not experienced any product liability claims to date, any such claims could have an adverse impact on the Company. The Company maintains insurance coverage related to product liability claims, but there can be no assurance that product liability or other claims will not exceed its insurance coverage limits, or that such insurance will continue to be maintained or that it will be available on commercially acceptable terms, or at all. RESEARCH AND DEVELOPMENT During fiscal 2002, 2001 and 2000, research and development expenses were $2.2 million, $2.2 million, and $2.8 million, respectively. BACKLOG The backlog of orders was approximately 0.5 million, $0.5 million and $2.0 million at June 1, 2002, 2001 and 2000, respectively. Such figures include approximately 0.4 million, $0.1 million and $0.6 million of orders on hold pending credit approval at June 1, 2002, 2001 and 2000, respectively. Orders included in backlog may generally be cancelled or rescheduled by customers without significant penalty. EMPLOYEES As of June 7, 2002, the Company had 127 full-time employees, engaged in the following capacities: sales and marketing (29); general and administrative (25); operations (55); and research and development (18). The Company believes that its relations with its employees are good. No Company employees are represented by a labor union or are subject to a collective bargaining agreement, nor has the Company experienced any work stoppages due to labor disputes. SALES AND MARKETING Dental Products In April 2000, the Company and Patterson Dental Company ("Patterson") entered into an exclusive distribution agreement and, as of May 1, 2000, the Company began marketing and selling its CDR(R) dental products in the United States and Canada through Patterson. The Company believes that Patterson is one of the largest distributors of dental products in North America, with more than 1,000 field sales personnel in the U.S. and Canada. In addition, the Company has an in-house sales program which focuses on universities and continuing education programs. As of March 31, 2002, CDR(R) had been sold to 47 of the 54 dental schools in the United States. The Company also employs a government sales program to sell directly to the Armed Services, Veterans Administration hospitals, United States Public Health Service and other government-sponsored health institutions. The Company employs 19 area sales managers ("ASM"s) located throughout the United States and one in Canada to interface with and assist Patterson in its sales effort. Two individuals, based at the Company's corporate offices in New York, manage the ASM staff. In addition, a sales and marketing support staff of 3 individuals, also based at the Company's offices in New York, supports the sales managers and the ASM's by planning events and developing promotional and marketing materials. In the international market, the Company sells the CDR(R) system via independent regional distributors. There are currently approximately 30 independent CDR(R) dealers, covering about 40 countries. A dedicated in-house staff, as well as 3 individuals based in Europe, Latin America and Canada, provide the foreign distributors with materials, sales support, technical assistance and training, both in New York and abroad. 8 The Company's goal is to utilize its leading position in the industry, secure as many productive sales channels as possible and to penetrate additional segments of the international market. 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. Pharmaceutical companies are currently involved in wide-scale osteoporosis education and awareness programs targeted at physicians. A number of such companies, including Novartis Pharma AG, Wyeth-Ayerst Laboratories, Eli Lilly Co., Merck & Co. and Procter & Gamble, currently have FDA-approved therapies for the treatment of osteoporosis. The Company believes that several other companies, including Boehringer-Mannheim GmbH, Sanofi-Synthelabo, Inc. and Pfizer Inc., have additional products that are currently in clinical trials. The Company expects that the efforts of pharmaceutical companies to develop medicines and treatment programs will result in the expansion of doctors' involvement in initial screening and routine management of osteoporosis, thereby increasing the market for BMD assessment devices. The Company intends to capitalize on these efforts both in the United States and abroad. The Company has successfully completed a number of research studies and has collected normative reference data for the accuDEXA(R) databases. These research studies addressed issues of long-term importance such as the detection of osteoporosis and patient risk for bone fracture. The Company has established normative reference databases for Asian female, African-American female, Hispanic female, Caucasian female and Caucasian male populations. The Company will utilize these databases to address the needs of healthcare markets in different countries and regions and expects them to positively impact upon sales of accuDEXA(R) abroad. The Company is currently conducting research studies to investigate the accuDEXA's ability to successfully monitor a course of therapy over a period of time. COMPETITION Competition relating to the Company's current products is intense and includes various companies, both within and outside of the United States. Many of the Company's competitors are large companies with financial, sales and marketing, and other resources which are substantially greater than those of the Company. In addition, they may have substantially greater experience in obtaining regulatory approvals than that of the Company. In addition, there can be no assurance that the Company's competitors are not currently developing, or will not attempt to develop, technologies and products that are more effective than those of the Company or that would otherwise render the Company's products obsolete or uncompetitive. No assurance can be given that the Company will be able to compete successfully. Dental Products A number of companies currently sell intra-oral digital dental sensors. These include Provisions Dental Systems, Inc., Sirona Dental Systems and Cygnus Imaging, Inc. In addition, Dentsply International and Soredex Corporation sell a storage-phosphor based intra-oral dental system. The Company believes that the CDR(R) system has thus far competed successfully against other products. If other companies enter the digital radiography field, it may result in a significantly more competitive market in the future. Several companies are involved in the manufacture and sale of intra-oral cameras, including Dentsply International Inc., Henry Schein Co., Ultra-Cam and Air Technics. Several companies, including Sirona, Signet, Instrumentarium Imaging and Planmeca manufacture digital panoramic dental devices. Of those, only the device manufactured by Signet is designed to be incorporated into existing conventional panoramic devices. BMD/Fracture Risk Assessment Two other companies, GE Lunar Corporation and Norland Medical Systems, Inc., are currently marketing peripheral dual-X-Ray-absorptiometry (DXA) BMD densitometers. Several companies including GE Lunar, Hologic, Inc. and Norland are marketing peripheral ultrasound devices. A number of other companies market other devices including ones which assess hand densitometry. Two companies, Ostex International Inc. and Quidel Corp., Inc., have developed 9 biochemical markers which indicate the rate at which the body is resorbing (i.e., breaking down) bone. FORWARD-LOOKING STATEMENTS This Form 10-K Annual Report contains forward-looking statements that involve risk and uncertainties. All statements, other than statements of historical facts, included in this Annual Report regarding the Company, its financial position, business strategy and plans and objectives of management of the Company for future operations, are forward-looking statements. When used in this Annual Report, words such as "anticipate," "believe," "estimate," "expect," "intend," "objectives," "plans" and similar expressions, or the negatives thereof or variations thereon or comparable terminology as they relate to the Company, its products or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company's management, as well as assumptions made by and information currently available to the Company's management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of various factors, including, but not limited to, those contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report and the "Risk Factors" set forth in Exhibit 99 to this Annual Report. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this paragraph. ITEM 2. PROPERTIES The Company presently leases approximately 50,000 square feet of space in Long Island City, New York. This space houses the Company's executive offices, sales and marketing headquarters, research and development laboratories and production and shipping facilities. The Company believes that such space will be adequate for its needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS The Company and/or certain of its officers and former officers, are involved in the proceedings described below: I. 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. On May 23, 2000, the Company entered into an agreement in principle with the plaintiffs for the settlement of the class action lawsuit, as reflected in a Memorandum of Understanding. On June 5, 2001, a Stipulation of Settlement was executed, under which all claims against the Company and the Individual Defendants were to be dismissed without presumption or admission of any liability or wrongdoing. The principal terms of the settlement agreement called 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. In an Order and Final Judgment entered by the Court on February 12, 2002, the terms of the settlement were approved by the Court and the Complaint was dismissed with prejudice. 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 for interim periods of fiscal 1999. Subsequent thereto, the SEC requested the voluntary production of certain documents and the Company provided the SEC with the requested materials. On August 17, 2000, the SEC served a subpoena upon the Company, pursuant to a formal order of investigation, requiring the production of certain documents. The Company provided the SEC with the subpoenaed materials. 10 The Company has been informed that since January 2002 the SEC and 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 Chief Executive Officer, that the United States Attorney's Office for the Southern District of New York had recently notified such counsel that Mr. Schick was a target of the United States Attorney's investigation of this matter. The Company has cooperated fully with the SEC staff and U.S. Attorney's Office, and intends to continue such cooperation. The Company cannot predict the potential outcome of the inquiry. 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 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, 2002. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS The Company's Common Stock began trading on The Nasdaq National Market under the symbol "SCHK" on July 1, 1997. Prior to such date, there was no established public trading market for the Company's Common Stock. From September 15, 1999, following the Company's delisting from the Nasdaq National Market, as described below, to January 29, 2002, there was no established trading market for the Company's stock, which traded in the over-the-counter market. Since January 30, 2002, the Company's Common Stock has been traded on the over-the-counter Bulletin Board. By letter dated September 15, 1999, the Nasdaq Stock Market's Listing Qualifications Panel (the Panel") advised the Company that the Company's Common Stock would no longer be listed on the Nasdaq National Market effective with the close of business on September 15, 1999. The Panel's action was based on the Company's inability to timely file its Annual Report on Form 10-K for the fiscal year ended March 31, 1999 and Form 10-Q for the quarter ended June 30, 1999, as well as the revenue recognition and sales practices which had been the subject of an investigation by the Audit Committee of the Company's Board of Directors and had led to the filing delays and the need for the restatement of the Company's financial reports. The Company timely requested a review of this decision and, on May 25, 2000, the Nasdaq Listing and Hearing Review Council informed the Company of its determination to affirm the Panel's decision. The following table sets forth, for the periods indicated, the high and low closing bid prices of the Company's Common Stock in the over-the-counter market through January 29, 2002, as reported on the "pink sheets" published by Pink Sheets LLC (formerly known as National Quotation Bureau LLC), and the high and low bid prices of the Company's Common Stock as quoted on the over-the-counter Bulletin Board commencing January 30, 2002. Fiscal Year Ended March 31, 2001 High Low -------------------------------- ------ ----- First Quarter $2.625 $1.25 Second Quarter 1.625 1.15 Third Quarter 1.30 0.40 Fourth Quarter 1.15 0.42 Fiscal Year Ended March 31, 2002 High Low -------------------------------- ------ ----- First Quarter 1.05 0.70 Second Quarter 1.05 0.55 Third Quarter 1.06 0.51 Fourth Quarter (through January 29, 2002) 2.15 1.07 Fourth Quarter (commencing January 30,2002) 2.40 1.50 11 On June 6, 2002, the closing bid and asked prices per share of the Company's Common Stock, as quoted on the over-the-counter Bulletin Board, were $2.80 and $3.00 per share, respectively. Such prices represent quotations between dealers, without dealer mark-up, markdown or commission, and may not represent actual transactions. On June 4, 2002, there were 192 holders of record of the Company's Common Stock. However, the Company believes that the number of beneficial owners of such stock is substantially higher. To date, the Company has not paid any dividends on its Common Stock. The Company currently intends to retain future earnings to finance the growth and development of the Company's business and does not anticipate paying any dividends in the foreseeable future. The payment of dividends is within the discretion of the Board of Directors and will depend upon the Company's earnings, its capital requirements, financial condition and other relevant factors. The following table sets forth the following information, as of March 31, 2002, 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 Number of securities securities to be remaining available issued upon Weighted-average for future issuance exercise of exercise price under equity outstanding of outstanding compensation options, options, (excluding warrants and warrants and securities reflected rights rights in column (a) ------------------------------------------------------------------------------------------- Equity compensation plans approved by security holders 1,840,435 $2.47 1,459,656 ------------------------------------------------------------------------------------------- Equity compensation plans not approved by security holders -- -- -- ------------------------------------------------------------------------------------------- Total 1,840,435 $2.47 1,459,656 ------------------------------------------------------------------------------------------- ITEM 6. SELECTED FINANCIAL DATA The following selected financial data are derived from, and are qualified by reference to, the audited financial statements of the Company for the period indicated. The information presented below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in ITEM 7 and the Financial Statements included in ITEM 8 of this Report. 12 Schick Technologies, Inc. Selected Financial Data Year Ended March 31, -------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (in thousands, except per share data) Statement of Operations Data: Revenue, net $ 24,399 $ 21,252 $ 21,989 $ 45,605 $38,451 -------- -------- -------- -------- ------- Cost of sales 8,540 9,736 15,393 34,611 17,658 Excess and obsolete inventory 292 570 898 5,466 -- -------- -------- -------- -------- ------- Total cost of sales 8,832 10,306 16,291 40,077 17,658 -------- -------- -------- -------- ------- Gross profit 15,567 10,946 5,698 5,528 20,793 -------- -------- -------- -------- ------- Operating expenses: Selling and marketing 5,291 5,314 7,636 18,440 10,645 General and administrative 4,148 4,161 7,339 7,338 3,954 Research and development 2,176 2,220 2,830 4,354 3,852 Bad debt expense (recovery) (93) (454) -- 5,598 164 Abandonment of leasehold 118 275 -- -- -- Patent litigation settlement -- -- -- -- 600 -------- -------- -------- -------- ------- Total operating costs 11,640 11,516 17,805 35,730 19,215 -------- -------- -------- -------- ------- Income (loss) from operations 3,927 (570) (12,107) (30,202) 1,578 Total other income (expense) (839) (1,068) (224) 244 1,111 -------- -------- -------- -------- ------- Income (loss) before income taxes 3,088 (1,638) (12,331) (29,958) 2,689 Provision (benefit) for income taxes -- -- -- (352) 328 Net income (loss) $ 3,088 $ (1,638) $(12,331) $(29,606) $ 2,361 ======== ======== ======== ======== ======= Basic earnings (loss) per share $ 0.30 $ (0.16) $ (1.23) $ (2.96) $ 0.25 ======== ======== ======== ======== ======= Diluted earnings (loss) per share $ 0.26 $ (0.16) $ (1.23) $ (2.96) $ 0.24 ======== ======== ======== ======== ======= 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- Balance Sheet Data: Cash and cash equivalents $ 1,622 $ 2,167 $ 1,429 $ 1,415 $ 6,217 Working capital/(deficiency) 1,133 (1,586) 841 2,902 33,745 Total assets 11,957 12,646 16,290 29,386 51,674 Total liabilities 9,057 12,835 14,974 16,850 9,565 Retained earnings (accumulated deficit) (39,682) (42,770) (41,132) (28,801) 805 Stockholders' equity 2,900 (189) 1,316 12,536 42,109 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Report. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those set forth in "Results of Operations" in this Item and elsewhere in this Report. See "ITEM 1 - Business -- Forward-Looking Statements" and Exhibit 99 to this Report. Overview The Company designs, develops and manufactures digital imaging systems for the 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) a digital panoramic radiography sensor (CDRPAN) and an intra-oral camera system (CDRCam). The Company has also developed a bone mineral density assessment device (accuDEXA) to assist in the diagnosis and treatment of osteoporosis, which was introduced in December 1997. In addition, the Company has commenced development of a general-purpose digital radiography device for various intended uses, including cephalometric imaging. All of the Company's products are CE marked and are sold worldwide. 13 The Company's revenues during fiscal 2002 were derived primarily from sales of its CDR(R) and accuDEXA(R) products. The Company records sales revenue upon shipment to international dealers and to end-users in the U.S. In the case of sales made by Patterson, revenue arising from inventory in Patterson's possession is recorded in deferred revenue, and revenue is recognized upon shipment from Patterson's warehouses to end-users. Revenues from the sales of extended warranties are recognized on a straight-line basis over the life of the extended warranty, which is generally a one-year period. The Company utilizes Patterson Dental Company as the exclusive distributor for sales of its dental products within North America. The Company's accuDEXA product is sold through a network of independent sales representatives in the United States. International sales are made primarily through a network of independent foreign distributors. In fiscal 2002, 2001 and 2000, sales to customers within the United States were approximately 75%, 62%, and 68% of total revenues, respectively. The Company's international sales are made primarily to distributors in Europe. All of the Company's sales are denominated in United States dollars. Costs of sales consists of raw materials manufacturing labor, facilities overhead, product support, warranty costs and installation 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. 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. 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. The Company records sales revenue upon shipment to international dealers and to end-users in the U.S. In the case of sales made by Patterson, revenue is recognized upon shipment from Patterson's warehouses to end-users. Revenue arising from inventory in Patterson's possession is recorded in deferred revenue. The Company records warranty renewal revenue over the warranty renewal period (generally one-year). The unamortized portion of warranty revenue is recorded in deferred revenue. Accounts receivable The Company primarily sells on open credit terms to Patterson and to the US Government, hospitals and universities based upon signed purchase orders. 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 limited open credit terms. Warranty shipments are prepaid. The Company's estimate of doubtful 14 accounts relates, primarily to shipments made before fiscal 2000, when credit policies were less restrictive. 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. 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 may 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 will be performed upon adoption and annually thereafter (or more often if adverse events occur) and will be based upon a fair value approach rather than an evaluation of the undiscounted cash flows. If impaired, the resulting charge reflects the excess of the asset's carrying value to the extent it exceeds the recalculated goodwill. Other long-lived assets such as patent 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 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. 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 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. A valuation allowance has been established for deferred tax assets for which realization is not likely. At March 31, 2002 the deferred tax asset ($19.8 million) has been fully reserved. In assessing the valuation allowance, the Company has considered future taxable income and ongoing tax planning strategies. Changes in these circumstances, such as a decline in future taxable income, may result in the continuation of a full valuation allowance being required. Warranty obligations Products sold are generally covered by a warranty against defects in material and workmanship for a period of one year. The Company accrues a warranty reserve for estimated costs to provide warranty services. The Company estimates costs to service warranty obligations based on historical experience and expectation of future conditions. To the extent the Company experiences increased warranty claim activity or increased costs associated with servicing those claims, warranty accrual will increase, resulting in decreased gross profit. 15 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 be reasonably estimated. These estimates are based on an analysis made by internal and external legal counsel who consider information known at the time. The Company believes it has estimated well in the past; however court decisions 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, 2002: PAYMENTS DUE BY PERIOD ---------------------------------------------- Less than 1 1-3 4-5 After 5 CONTRACTUAL OBLIGATIONS Total year years years years Long-Term Debt $3,854 $1,815 $1,961 $ 78 $ -- Operating leases 2,567 445 953 1,032 137 Employment agreements 1,827 857 970 -- -- ------ ------ ------ ------ ---- Total Contractual Cash Obligations $8,248 $3,117 $3,884 $1,110 $137 ====== ====== ====== ====== ==== 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, -------------------- 2002 2001 2000 ---- ---- ---- Revenue, net 100.0% 100.0% 100.0% ----- ----- ----- Cost of sales 35.0% 45.8% 70.0% Excess and obsolete inventory 1.2% 2.7% 4.1% ----- ----- ----- Total cost of sales 36.2% 48.5% 74.1% ----- ----- ----- Gross profit 63.8% 51.5% 25.9% Operating expenses: Selling and marketing 21.7% 25.0% 34.7% General and administrative 17.0% 19.6% 33.3% Research and development 8.9% 10.4% 12.9% Bad debt expense (recovery) -0.4% -2.1% 0.0% Abandonment of leasehold 0.5% 1.3% 0.0% ----- ----- ----- Total operating costs 47.7% 54.2% 80.9% ----- ----- ----- Operating income (loss) 16.1% -2.7% -55.0% ===== ===== ===== Fiscal Year Ended March 31, 2002 as Compared to Fiscal Year Ended March 31, 2001 Net revenues increased $3.1 million (14.8%) to $24.4 million in fiscal 2002 from $21.3 million in fiscal 2001. The revenue increase is due to higher sales of both CDR(R) dental radiography product and accuDEXA(R) bone mineral density assessment device. Domestic revenues increased $5.1 million (38.8%) to $18.3 million (74.9% of net revenue) from $13.2 million (61.2% of net revenue) in fiscal 2001. International sales declined $2.0 million (24.2%) to $6.1 million (25.1% of net revenue) from $8.1 million (38.8% of net revenue in fiscal 2001. CDR(R) product sales increased $2.7 million (17.2%) to $18.4 million during fiscal 2002 from $15.7 million during fiscal 2001. AccuDEXA(R) product sales increased $0.1 million (14.3%) to $0.8 million during fiscal 2002 from $0.7 million during fiscal 2001. Warranty 16 revenues increased $0.8 million (18.2%) to $5.2 million during fiscal 2002 from $4.4 million during fiscal 2001. This increase is the result of the expansion of the Company's warranty program. Domestic sales increased due to higher sales to Patterson and higher warranty revenue. International sales declined due to lower sales to certain distributors in Europe. Overall sales returns have fallen to 0.2% of revenue in fiscal 2002 from 2.0% in fiscal 2001. The Company believes this improvement is the result of its continuing product improvement. Total cost of sales for fiscal 2002 decreased $1.5 million (14.3%) to $8.8 million (36.2% of net revenue) from $10.3 million (48.5% of net revenue) in fiscal 2001. Total cost of sales declined due to improved operating efficiency as the Company reduced overhead 10% as a result of the consolidation of its facilities into a single location after fiscal 2001. Additionally product improvements resulted in reduced expense in support of its warranty program. The Company's reserve for excess and obsolete inventory decreased to 1.2% of net revenue in fiscal 2002 from 2.7% in fiscal 2001 as a result of improved inventory management. Selling and marketing expense remained unchanged at $5.3 million (21.7% and 25.0% of net revenue in fiscal 2002 and 2001, respectively). Increases in payroll and creative development expenses were offset by reduced advertising and occupancy costs. General and administrative expense remained unchanged at $4.2 million (17.0% and 19.6% of net revenue in fiscal 2002 and 2001, respectively). Research and development expense remained unchanged at $2.2 million (8.9% and 10.4% of net revenue in fiscal 2002 and 2001, respectively). Bad debt recoveries declined $0.4 million to $0.1 million from $0.5 million in fiscal 2001. Recoveries are related to receipt of prior fiscal year reserved receivables which declined during fiscal 2002. Interest expense increased $0.1 million in fiscal 2002 due to the Company's July 2001 prepayment in full of $1 million it had borrowed from Greystone Funding Corporation. The prepayment resulted in the write off of $0.4 million of deferred interest expense. This increase was offset by declines in the level of borrowing and the prime interest rate during fiscal 2002. Fiscal Year Ended March 31, 2001 as Compared to Fiscal Year Ended March 31, 2000 Net revenues decreased $0.7 million (3.4%) to $21.3 million in fiscal 2001 from $22.0 million in fiscal 2000. The revenue decline is due to lower sales of the CDR(R) dental radiography product and accuDEXA (R) bone mineral density assessment device, offset in part by higher sales of CDR(R) warranties. CDR(R) sales declined $1.7 million (9.8%) to $15.7 million from $17.4 million during fiscal 2000. The Company believes that this decline was due to the Company's consolidation of its sales channels in North America in May 2000. At that time, the Company ceased selling the CDR(R) product line through a combination of its direct sales force and non-exclusive-dealer network 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, with the Company retaining direct relationships for hospitals, universities and governmental agencies. The Company believes that the establishment and phasing-in of this new distribution channel resulted in lower CDR(R) sales as the Patterson sales force became familiar with the CDR(R) product line. CDR(R) warranty revenue increased $2.9 million (200.5%) to $4.4 million from $1.5 million during fiscal 2000. The Company believes that this increase was due primarily to improvements made in the implementation of its product warranty programs, including policy enforcement and timely notification of warranty-coverage expirations. AccuDEXA(R) sales declined $1.9 million (73.7%) to $0.7 million from $2.6 million during fiscal 2000. The Company believes that this decline resulted from its discontinuing direct accuDEXA(R) sales during fiscal 2001. The Company reintroduced accuDEXA(R) via a network of manufacturer's representatives. Total cost of sales decreased $6.0 million (36.6%) to $10.3 million (48.6% of net revenues) in fiscal 2001 from $16.3 million (74.1% of net revenues) in fiscal 2000. The total cost of sales decreased due to lower direct and indirect labor costs, warranty expenditures, material costs and overhead costs as a result of lower levels of product discounting, decreased provision for excess and obsolete inventory, increased manufacturing efficiency and an improved rate of recovery of warranty replacement inventory from customers. 17 Selling and marketing expenses decreased $2.3 million (30.4%) to $5.3 million (25.0% of net revenues) in fiscal 2001 from $7.6 million (34.7% of net revenues) in fiscal 2000. This decrease is principally due to 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. General and administrative expenses decreased $3.1 million (43.2%) to $4.2 million (19.6% of net revenues) in fiscal 2001 from $7.3 million (33.4% of net revenues) in fiscal 2000. The decrease in general and administrative expenses was primarily attributable to a decrease in payroll and professional fees. Research and development expenses decreased $0.6 million (21.6%) to $2.2 million (10.4% of net revenues) in fiscal 2001 from $2.8 million (12.9% of net revenues) in fiscal 2000. This decrease was principally attributable to decreased payroll and a decrease in related costs due to a reduction in materials purchased. All research and development costs are expensed as incurred. In March 2001 the lease for a portion of the Company's premises expired. The cost of leasehold improvements for the remaining premises, approximately $0.5 million, will be amortized over the remaining six-year life of the lease. The unamortized cost of leasehold improvements associated with the portion of the former premises ($0.3 million) has been charged to operations. Interest expense increased $0.2 million in fiscal 2001 from $0.9 million in fiscal 2000 due to the cost of increased borrowing provided by DVI Financial Services Inc. and term note financing arrangements provided by Greystone Funding Corporation's secured credit facility. As a result of the above items, the loss for the year ended March 31, 2001 was $1.6 million as compared to a loss of $12.3 million for the period ending March 31, 2000. Liquidity and Capital Resources At March 31, 2002, the Company had $1.6 million in cash and cash equivalents and working capital of $1.1 million compared to $2.2 million in cash and cash equivalents and $1.0 million in working capital deficiency at March 31, 2001. In addition, The Company had short-term investments of 0.5 million as of March 31, 2002. The increase in working capital is primarily attributable to operating profit during fiscal 2002. During fiscal 2002 cash provided by operations was $3.5 million compared to $1.2 million provided by operations during fiscal 2001. Accounts receivable increased to $2.8 million at March 31, 2002 compared to $1.0 million at March 31, 2001 due to increased sales activity. Inventories decreased to $2.8 million at March 31, 2002 compared to $3.8 million at March 31, 2001 due to the Company's planned reduction of inventory levels. The Company's capital expenditures increased to $0.8 million in fiscal 2002 from $0.3 million in fiscal 2001. Fiscal 2002 capital expenditures were primarily related to the Company's consolidation into a portion of its premises during the first quarter. In January 1999, DVI Financial Services, Inc. ("DVI") provided the Company with financing evidenced by notes payable for $6.6 million which are secured by first priority liens on substantially all of the Company's assets. The Company issued promissory notes (amended in June 2000)(the "DVI 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 March 31, 2002) plus 2.5%. In connection with the DVI Notes, the Company granted DVI 650,000 warrants at an exercise price of $2.19 per share. In connection with the amended DVI Notes, the warrants' exercise price was reduced to $.75 and the expiration date extended to December 2006. In connection with the DVI loan, the Company prepaid $236 and $750 of outstanding principal during the first quarter of fiscal 2003 and 2002, respectively. As of June 10, 2002, the outstanding principal balance of the DVI loan is $3.5 million. Effective August 28, 2000, DVI sold all its right, title and interest in, to and under the warrants and DVI Notes, as described above, to Greystone Funding Corporation ("Greystone"). By letter dated October 11, 2000, DVI directed the Company to make all remaining payments due under the DVI Notes directly to Greystone. 18 Effective as of December 17, 1999 (as amended on March 17, 2000), the Company entered into a Loan Agreement (the "Amended Loan Agreement") with Greystone to provide up to $7.5 million of subordinated debt in the form of a secured credit facility. No funds were advanced under the Amended Loan Agreement in excess of an 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 Greystone Amended Loan Agreement, together with all unpaid accrued interest thereunder, and concurrently terminated the Amended Loan Agreement. 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 termination of the Amended 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 for 0.75 per share 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 (who was seconded by Greystone) holds the office of President of the Company, the Company would reimburse Greystone in the amount of $17 thousand monthly. Effective November 1, 2001 Mr. Slovin joined the Company on a full-time basis as President and Chief Operating Officer, thereby canceling this reimbursement provision of the agreement. 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 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The DVI 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is included as a separate section of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DATA 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 71, has served as a Director of the Company since April 1992. Dr. Barrekette's current term on the Board expires at the Company's Annual Meeting of Stockholders in 2002. Dr. Barrekette 19 is a licensed Professional Engineer in New York State. Since 1986 Dr. Barrekette has been a consulting engineer and physicist. From 1984 to 1986 Dr. Barrekette was Group Director of Optical Technologies of the IBM Large Systems Group. From 1960 to 1984 Dr. Barrekette was employed at IBM's T.J. Watson Research Center in various capacities, including Assistant Director of Applied Research, Assistant Director of Computer Science, Manager of Input/Output Technologies and Manager of Optics and Electrooptics. Dr. Barrekette holds an A.B. degree from Columbia College, a B.S. degree from Columbia University School of Engineering, an M.S. degree from its Institute of Flight Structures and a Ph.D. from the Columbia University Graduate Faculties. Dr. Barrekette is a fellow of the American Society of Civil Engineers, a Senior Member of the Institute of Electronic & Electrical Engineers, and a member of The National Society of Professional Engineers, The New York State Society of Professional Engineers, The Optical Society of America and The New York Academy of Science. Dr. Barrekette is the uncle of David B. Schick and the brother-in-law of Dr. Allen Schick. David B. Schick Age 41, is a founder of the Company and, since its inception in April 1992, has served as the Company's Chief Executive Officer and Chairman of the Board of Directors. From the Company's inception to December 1999, Mr. Schick also served as the Company's President. Mr. Schick's current term on the Board expires at the Company's Annual Meeting of Stockholders in 2003. Mr. Schick is also a member of the Board of Directors of Photobit Corporation. From September 1991 to April 1992, Mr. Schick was employed by Philips N.V. Laboratories, where he served as a consulting engineer designing high-definition television equipment. From February 1987 to August 1991, Mr. Schick was employed as a senior engineer at Cox and Company, an engineering firm in New York City. From January 1985 to January 1987, Mr. Schick was employed as an electrical engineer at Grumman Aerospace Co. Mr. Schick holds a B.S. degree in electrical engineering from the University of Pennsylvania's Moore School of Engineering. Mr. Schick is the son of Dr. Allen Schick and the nephew of Dr. Barrekette. Allen Schick, Ph.D. Age 67, has served as a Director of the Company since April 1992. Dr. Schick's current term on the Board expires at the Company's Annual Meeting of Stockholders in 2003. Since 1981, Dr. Schick has been a professor at the University of Maryland and since 1988 has been a Visiting Fellow at the Brookings Institution. Dr. Schick holds a Ph.D. degree from Yale University. Dr. Schick is David B. Schick's father and the brother-in-law of Dr. Barrekette. Jeffrey T. Slovin Age 37, has served as the Company's President and as a Director since December 1999. Mr. Slovin's current term on the Board expires at the Company's Annual Meeting of Stockholders in 2004. 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. Jonathan Blank, Esq. Age 57, has served as a Director of the Company and as a member of the Audit Committee of the Board of Directors since April 2000. Mr. Blank's current term on the Board expires at the Company's Annual Meeting of Stockholders in 2002. Since 1979, Mr. 20 Blank has been a member of the law firm of Preston Gates Ellis & Rouvelas Meeds LLP, a managing partner of the firm since 1995 and a member of the Executive Committee of Preston Gates Ellis LLP since 1995. William Hood Age 78, has served as a Director of the Company and as a member of the Audit Committee of the Board of Directors since February 2002. Mr. Hood's current term on the Board expires at the Company's Annual Meeting of Stockholders in 2004. Mr. Hood is also a member of the Board of Directors of Photobit Corporation. From 1972 to 1980, Mr. Hood was President and Chief Executive Officer of Hunt-Wesson Foods, Inc. From 1981 to 1983, he served as Dean of the Chapman University School of Business Management. From 1983 to 1988, Mr. Hood was Senior Vice-President of American Bakeries Company. From 1989 to 1996, he served as a consultant to Harlyn Products, Inc. and as a member of its Board of Directors. Mr. Hood is a Trustee of Chapman University, a Director of the Orange County Council Boy Scouts of America and a consultant to E Com Technologies Inc. Curtis M. Rocca III Age 39, has served as a Director of the Company and as a member of the Audit Committee of the Board of Directors since May 30, 2002. Mr. Rocca's current term on the Board expires at the Company's Annual Meeting of Stockholders in 2004. Mr. Rocca is also a member of the Board of Directors of Zila, Inc. Since 2000, Mr. Rocca has been the Chief Executive Officer of Douglas, Curtis & Allyn, LLC. From 1998 to 2000, he served as Chief Executive Officer of Dental Partners, Inc. From 1990 to 1998, Mr. Rocca was Chairman and Chief Executive Officer of Bio-Dental Technologies Corp. (b) The following table shows the names and ages of all executive officers of the Company, the positions and offices held by such persons and the period during which each such person served as an officer. The term of office of each person is generally not fixed since each person serves at the discretion of the Board of Directors of the Company. Officer Name Age Position Since ---- --- -------- ------- David B. Schick....... 41 Chairman of the Board and Chief Executive Officer 1992 Jeffrey T. Slovin..... 37 President, Chief Operating Officer and Director 1999 Michael Stone......... 49 Executive Vice-President 2000 Stan Mandelkern....... 42 Vice President of Engineering 1999 Ari Neugroschl........ 31 Vice President of Management Information Systems 2000 Zvi N. Raskin......... 39 Secretary and General Counsel 1992 William Rogers........ 62 Vice President of Operations 1999 Ronald Rosner......... 55 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 since September 2000 and as the Company's Vice President of Sales and Marketing from January 2000 to September 21 2000. From September 1993 to January 2000, Mr. Stone was General Manager of the Dental Division of Welch-Allyn Company, and from October 1989 to September 1993 was Director of Marketing for Welch-Allyn. Mr. Stone holds an MBA degree from the University of Rochester. STAN MANDELKERN has served as the Company's Vice President of Engineering since November 1999. From 1998 to 1999, Mr. Mandelkern was the Company's Director of Electrical Engineering, and was a Senior Electrical Engineer at the Company from 1997 to 1998. From 1996 to 1997 Mr. Mandelkern was at Satellite Transmission Systems as Project Leader for the Digital Video Products Group. From 1989 to 1996 Mr. Mandelkern held various design and management positions at Loral Corp. Mr. Mandelkern holds a M.S. Degree in electrical engineering from Syracuse University. ARI NEUGROSCHL has served as the Company's Vice President of Management Information Systems since July 2000. From November 1997 to July 2000, Mr. Neugroschl was the Company's Director of Management Information Systems, and from February 1996 to November 1997 he served as the Company's Director of Customer Service and Support. Mr. Neugroschl holds a B.S. in Economics from Yeshiva University. ZVI N. RASKIN has served as Secretary of the Company since April 1992 and as General Counsel of the Company since September 1995. From April 1992 to May 1996, Mr. Raskin was a Director of the Company. Mr. Raskin is admitted to practice law before the Bars of the State of New York, the United States District Courts for the Southern and Eastern Districts of New York and the United States Court of Appeals for the Second Circuit. From 1992 to 1995, Mr. Raskin was a senior associate at the New York law firm of Townley & Updike. Mr. Raskin holds a J.D. degree from Yale Law School. WILLIAM ROGERS has served as the Company's Vice President of Operations since January 2000. From August 1998 to January 2000, Mr. Rogers was the Company's Director of Manufacturing Engineering. From June 1995 to August 1998, Mr. Rogers was Director of Operations at Veeco Instruments Co., and from May 1993 to February 1995 was Director of Manufacturing for Scully Signal Company. Mr. Rogers holds a B.S. Degree in electrical engineering from Northeastern University. 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. (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 Company's Directors or Officers which are reportable hereunder, with the following exception: Mr. Hood served as a member of the Board of Directors of Harlyn Products, Inc. from May 1989 until November 1996. On March 21, 1997, Harlyn Products filed for bankruptcy in the United States Bankruptcy Court, Central District of California, under Chapter 11, and emerged from bankruptcy on April 25, 2000 under Chapter 7 with no remaining assets or liabilities. 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 22 required by the regulations of the Commission to furnish the Company with copies of all Section 16(a) reports they file. Based solely on a review of the copies of such reports furnished to the Company and written representations from the executive officers and directors, the Company believes that all Section 16(a) filing requirements applicable to its executive officers and directors and greater than 10% beneficial owners were complied with, except that a Form 3 for Mr. Rosner was not filed following his appointment as the Company's Director of Finance and Administration. Subsequently, a Form 5 has been filed for Mr. Rosner. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information concerning compensation received for the fiscal years ended March 31, 2002, 2001 and 2000 by the Company's chief executive officer and each of the four most highly compensated executive officers of the Company whose total salary and other compensation exceeded $100,000 (the "Named Executives") for services rendered in all capacities (including service as a director of the Company) during the year ended March 31, 2002. Summary Compensation Table Long-Term Annual Compensation Compensation Awards ------------ ------ Other Annual Securities All Other Name and Principal Fiscal Compensa Underlying Compensa Position Year Salary($) Bonus($) Tion(1) Options(#)(2) tion($)(3) -------- ---- --------- -------- ------- ------------- ---------- - --------------------------------------------------------------------------------------------------------- 2002 $225,246 $50,000 -- 160,709 4,362 David B. Schick Chairman of the Board and 2001 200,000 16,308 -- -- 4,468 Chief Executive Officer 2000 217,500 -- -- 12,251 3,980 - --------------------------------------------------------------------------------------------------------- Michael Stone 2002 193,577 48,154 -- 135,207 4,491 Executive Vice President 2001 175,000 -- -- -- 2,861 2000 23,558 -- -- -- -- - --------------------------------------------------------------------------------------------------------- 2002 204,154 20,000 -- 36,018 4,527 Zvi N. Raskin, Esq. General Counsel and 2001 200,001 20,000 -- -- 4,038 Secretary 2000 132,500 -- -- 17,006 3,286 - --------------------------------------------------------------------------------------------------------- Will Rogers 2002 136,651 7,500 -- 33,089 -- Vice President of Operations 2001 135,000 -- -- -- -- 2000 105,214 -- -- -- -- - --------------------------------------------------------------------------------------------------------- Stan Mandelkern 2002 154,615 -- -- 30,108 3,865 Vice President of Engineering 2001 121,878 -- -- -- 3,048 2000 118,500 -- -- -- 3,346 - --------------------------------------------------------------------------------------------------------- (1) Does not include compensation if the aggregate amount thereof does not exceed the lesser of $50,000 or 10% of the total annual salary and bonus for the named officer. (2) Represents options to purchase shares of Common Stock granted during fiscal 2002, 2001, and 2000 pursuant to the Company's 1996 Employee Stock Option Plan. (3) Reflects amounts contributed by the Company in the form of matching contributions to the Named Executive's Savings Plan account during fiscal 2002, 2001 and 2000. 23 Employment Agreements and Termination of Employment Arrangement In January 2002, the Company entered into two-year employment agreement with Michael Stone, pursuant to which Mr. Stone is employed as the Company's Executive Vice President. Mr. Stone's annual base salary is $210,000. In addition to base salary, Mr. Stone is eligible to receive annual merit and/or cost-of-living increases as may be determined by the Executive Compensation Committee of the Board of Directors. Mr. Stone is also eligible to receive a performance bonus by August 1, 2003 equal to 0.5% of the Company's earnings before income taxes, depreciation and amortization for the 2003 fiscal year in the event that the Company's net revenue for fiscal 2003 exceeds $28 million. Pursuant to the Agreement, Mr. Stone also received 75,000 employee stock options which vest as follows: 12,500 options upon grant, an additional 25,000 options on January 14, 2003, an additional 25,000 options on January 14, 2004, and the final 12,500 options on January 14, 2005. In the event that Mr. Stone is terminated from employment with the Company without cause, he would receive 6 months of severance pay, a pro-rated performance bonus and immediate vesting of all unvested Company stock options. Additionally, all unvested Company stock options held by Mr. Stone will immediately vest in the event that the Company has a change in control or is acquired by another entity. In December 2001, the Company entered into a three-year employment agreement with David Schick, replacing the previous employment agreement between the Company and Mr. Schick, entered into in February 2000. Pursuant thereto, Mr. Schick is employed as Chief Executive Officer of the Company. The term of the agreement is renewable thereafter on a year-to-year basis unless either party gives 60-day written notice of termination before the end of the then-current term. Mr. Schick's initial base annual salary under the Agreement is $242,000. In addition to base salary, Mr. Schick is eligible to receive annual merit or cost-of-living increases as may be determined by the Executive Compensation Committee of the Board of Directors. Mr. Schick will also receive an increase in base salary as well as incentive compensation in the form of a bonus based on the Company's EBITDA. Such incentive compensation is capped at $100,000 per fiscal year. Pursuant to the Agreement, as amended by a letter agreement dated March 4, 2002, Mr. Schick also received 150,000 employee stock options which vest as follows: 50,000 options on December 20,2002, an additional 50,000 options on December 20, 2003, and the final 50,000 options on December 20, 2004. Additionally, all Company stock options held by, or to be issued to, Mr. Schick will immediately be granted and vest in the event that the Company has a change in control or is acquired by another company or entity. In the event that Mr. Schick is terminated from employment with the Company without cause, he would receive severance pay for two years or the remainder of the term of the Agreement, whichever time period is shorter. Under certain circumstances, where the Company effects a change in Mr. Schick's title or diminishes, in any significant manner, his duties or responsibilities of employment, Mr. Schick may unilaterally resign from employment. In this instance, he would act as a consultant to the Company for a period of one year following his resignation and receive severance pay for one year. In February 2000, the Company entered into a three-year employment agreement with Zvi Raskin, effective January 1, 2000, pursuant to which Mr. Raskin is employed as General Counsel of the Company. Mr. Raskin's annual base annual salary is currently $220,000. In addition to base salary, Mr. Raskin will receive a minimum bonus of $20,000 per calendar year and is eligible to receive additional performance bonuses at the sole discretion of the Executive Compensation Committee of the Board of Directors. Mr. Raskin was also awarded 75,000 shares of the Company's Common Stock, subject to a risk of forfeiture which expires as to 25,000 shares on each of December 31, 2000, 2001 and 2002. Upon the sale of any such vested shares, Mr. Raskin is required to pay the Company the sum of $1.32 per share sold within 30 days following such sale. In the event that Mr. Raskin is terminated from employment with the Company without cause, he would receive 12 months of severance pay. 24 Compensation of Directors Directors who are also paid-employees of the Company are not separately compensated for any services they provide as directors. In fiscal 2002, each director of the Company who is not a paid-employee received $500 for each meeting of the Board of Directors attended and $300 for each committee meeting attended. The Company was permitted to, but did not, pay such fees in Common Stock. In addition, directors who are not paid-employees of the Company are eligible to receive annual grants of stock options under the Company's Directors Stock Option Plan. On April 30, 2002, the Board of Directors modified the Board's compensation as follows: each Director of the Company who is not a paid employee thereof shall receive $1000 for each meeting of the Board of Directors attended in person and $1000 for each Committee meeting attended in person. No fees are to be paid for meetings attended telephonically. Compensation Committee Interlocks and Insider Participation The Executive Compensation Committee reviews and makes recommendations regarding the compensation for top management and key employees of the Company, including salaries and bonuses. The members of the Executive Compensation Committee during the fiscal year ended March 31, 2002 were Jonathan Blank (for the entire year) and Robert J. Barolak (until December 20, 2001). None of such persons is an officer or employee, or former officer or employee, of the Company or any of its subsidiaries. No interlocking relationship existed during the fiscal year ended March 31, 2002, between the members of the Company's Board of Directors or Compensation Committee and the board of directors or compensation committee of any other company, nor had any such interlocking relationship existed in the past. Mr. Barolak is an executive officer of Greystone Funding Corporation, a former lender to the Company under the Amended and Restated Loan Agreement between the Company and Greystone. See "Item 7 -- Management's Discussion and Analysis - Liquidity and Capital Resources" and "Item 13 - Certain Relationships and Related Transactions." Stock Option Grants The following table sets forth information regarding grants of options to purchase Common Stock made by the Company during the year ended March 31, 2002 to each of the Named Executives. Option Grants in Fiscal 2002 Individual Grants Number of Percent of Securities Total Options Underlying Granted to Exercise Options Employees in Price Expiration Grant Date Name Granted(#) Fiscal 2002(1) ($/Share) Date Value - ---- ---------- -------------- --------- ---- ----- David B. Schick 50,000 6.0% $1.05 12/20/06 100,000 11.9 2.37 2/19/06 10,709 1.3 0.66 10/1/06 -- Michael Stone 10,207 1.2 0.90 10/1/11 75,000 8.9 1.11 1/14/12 25,000 3.0 0.95 12/12/11 -- Stan Mandelkern 9,228 1.1 0.90 10/1/11 -- Zvi N. Raskin 11,018 1.3 0.90 10/1/11 25,000 3.0 0.96 12/20/11 -- William Rogers 10,000 1.2 0.95 12/12/11 -- (1) The Company granted employees options to purchase a total of 859,739 shares of Common Stock in fiscal 2002. Option Exercises and Year-End Value Table The following table sets forth information regarding the exercise of stock options during fiscal 2002 and the number and value of unexercised options held at March 31, 2002 by each Named Executive. 25 Aggregated Option Exercises in Fiscal 2002 and Fiscal 2002 Year-End Option Values Number of Securities Value of Underlying Unexercised Unexercised "In-the-Money" Options at Options at Shares March 31, 2002 March 31, 2002 Acquired on Value Exercisable/ Exercisable/ Name Exercise(#) Realized ($) Unexercisable Unexercisable(1) - ---- ----------- ------------ ------------- ---------------- David B. Schick -- -- 12,455/163,772 $--/67,422.44 Michael Stone -- -- 37,500/122,707 $40,937.50/141,321.30 Stan Mandelkern -- -- 31,900/36,888 $31,049.50/48,425.50 Zvi N. Raskin -- -- 21,347/33,890 $7437.50/36,085 Will Rogers -- -- 30,450/17,639 $38,102.50/20,258.75 (1) Options are "in-the-money" if the fair market value of the underlying securities exceeds the exercise price of the options. The amounts set forth represent the difference between $2.15 per share, the closing price per share on March 28, 2002, and the exercise price of the option, multiplied by the applicable number of options. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of June 6, 2002 by (i) each person who is known by the Company to own beneficially more than 5% of the Common Stock, (ii) each director, (iii) each Named Executive of the Company and (iv) all directors and executive officers of the Company as a group. Unless otherwise noted, the stockholders listed in the table have sole voting and investment powers with respect to the shares of Common Stock owned by them. Number of Shares Percentage of Name Beneficially Owned(1) Outstanding Shares ---- --------------------- ------------------ David B. Schick(2) 2,205,499(3) 21.7% Jeffrey T. Slovin(2) 877,500(12) 8.0% Michael Stone(2) 127,300(4) 1.2% Stan Mandelkern(2) 20,360(5) * Zvi N. Raskin(2) 98,099(7) 1.0% Will Rogers(2) 73,100(6) * Euval S. Barrekette(8) 162,740(9) 1.6% Allen Schick(10) 618,124(11) 6.0% William K. Hood (13) 25,000(14) * Jonathan Blank(15) 160,075(16) 1.6% Curtis M. Rocca(20) 0 * Greystone Funding Corp.(17) 4,802,500(18) 32.1% All current executive Officers and Directors as a group(19) 4,405,889 38.7% * Less than 1% (1) Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission and includes voting power and/or investment power with respect to securities. Shares of Common Stock subject to options or warrants currently exercisable or exercisable within 60 days of June 6, 2002 are deemed outstanding for computing the number and the percentage of outstanding shares beneficially owned by the person holding such options but are not deemed outstanding for computing the percentage beneficially owned by any other person. (2) Such person's business address is c/o Schick Technologies, Inc., 30-00 47th Avenue, Long Island City, New York 11101. (3) Consists of 2,183,300 shares held jointly by Mr. Schick and his wife; 5,715 shares issuable upon the exercise of stock options granted to Mr. Schick in July 1996; 2,450 shares issuable upon the exercise of stock options granted to Mr. Schick in July 1997; 2251 shares issuable upon the exercise of stock options granted to Mr. Schick in April 1998; 4283 shares issuable upon the exercise of stock options granted to Mr. Schick in 26 October 2001 and 7,500 shares issuable upon the exercise of stock options granted to Mr. Schick in October 1998, pursuant to the 1996 Employee Stock Option Plan. (4) Consists of 71,050 shares held by Mr. Stone; 12,500 shares issuable upon the exercise of stock options granted to Mr. Stone in July 2000; 12,500 shares issuable upon the exercise of stock options granted to Mr. Stone in January 2001; 12,500 shares issuable upon the exercise of stock options granted to Mr. Stone in April 2001; 6250 shares issuable upon the exercise of stock options granted to Mr. Stone in December 2001 and 12,500 shares issuable upon the exercise of stock options granted to Mr. Stone in January 2002. (5) Consists of 1,000 shares held by Mr. Mandelkern; 2,000 shares issuable upon the exercise of stock options granted to Mr. Mandelkern in April 1999; 5,000 shares issuable upon the exercise of stock options granted to Mr. Mandelkern in July 1999; 1,920 shares issuable upon the exercise of stock options granted to Mr. Mandelkern in March 2000 and 10,440 shares issuable upon the exercise of stock options granted to Mr. Mandelkern in April 2001. (6) Consists of 36,000 shares held by Mr. Rogers;10,000 shares issuable upon the exercise of stock options granted to Mr. Rogers in July 2000; 3,750 shares issuable upon the exercise of stock options granted to Mr. Rogers in March 1999; 8350 shares issuable upon the exercise of stock options granted to Mr. Rogers in December 2001 and 15,000 shares issuable upon the exercise of stock options granted to Mr. Rogers in April 2001. (7) Consists of 75,000 shares (the "Shares") issued by the Company to Mr. Raskin on February 6, 2000, which are subject to the following restrictions on their sale or transfer: (i) none of the Shares may be sold or transferred prior to December 31, 2000, (ii) one-third (i.e., 25,000) of the Shares may be sold or transferred on or after December 31, 2000, (iii) an additional one-third (i.e., an additional 25,000) of the Shares may be sold or transferred on or after December 31, 2001, and (iv) the final one-third i.e., the final 25,000) of the Shares may be sold or transferred on or after December 31, 2002. The aforementioned 75,000 shares are subject to a risk of forfeiture which expires as to 25,000 shares on each of December 31, 2000, 2001 and 2002; 2,343 shares issuable upon the exercise of stock options granted to Mr. Raskin in July 1997; 2006 shares issuable upon the exercise of options granted to Mr. Raskin in April 1998; 5,000 shares issuable upon the exercise of options granted to Mr. Raskin in July 1998; 7,500 shares issuable upon the exercise of options granted to Mr. Raskin in October 1998, and 6250 shares issuable upon the exercise of stock options granted to Mr. Raskin in December 2001. (8) Such person's address is 90 Riverside Drive, New York, New York 10024. (9) Consists of 115,240 shares held by Dr. Barrekette; 2,500 shares issuable upon the exercise of stock options granted to Dr. Barrekette in July, 1998; 30,000 shares issuable upon the exercise of stock options granted to Dr. Barrekette in June, 2000, pursuant to the 1997 Directors Stock Option Plan and 15,000 shares issuable upon the exercise of stock options granted to Mr. Barrekette in December 2001, pursuant to the 1997 Directors Stock Option Plan. (10) Such person's address is 1222 Woodside Parkway, Silver Spring, Maryland 20910. (11) Consists of 525,824 shares held jointly by Dr. Schick and his wife; 44,800 shares held by Dr. Schick as custodian for the minor children of David Schick; 2,500 shares issuable upon the exercise of stock options granted to Dr. Schick in July 1998; 30,000 shares issuable upon the exercise of stock options granted to Dr. Schick in June, 2000, pursuant to the 1997 Directors Stock Option Plan and 15,000 shares issuable upon the exercise of stock options granted to Dr. Schick in December 2001, pursuant to the 1997 Directors Stock Option Plan. Dr. Schick disclaims beneficial ownership of the 44,800 shares held as custodian. (12) Consists of 847,500 shares issuable upon the exercise of warrants held by Mr. Slovin (which Mr. Slovin received as designee of Greystone) and 30,000 shares issuable upon the exercise of stock options granted to Mr. Slovin in June, 2000, pursuant to the 1997 Directors Stock Option Plan. (13) Such person's address is 444 Via Lido Nord, Newport Beach, CA 92663. 27 (14) Consists of 10,000 shares held by Mr. Hood and 15,000 shares issuable upon the exercise of stock options granted to Mr. Hood in February 2002, pursuant to the 1997 Directors Stock Option Plan. (15) Such person's business address is c/o Preston Gates Ellis & Rouvelas Meeds LLP, 1735 New York Avenue, N.W., Washington, D.C. 20006. (16) Consists of 115,075 shares held by Mr. Blank; 30,000 shares issuable upon the exercise of stock options granted to Mr. Blank in June 2000, pursuant to the 1997 Directors Stock Option Plan and 15,000 shares issuable upon the exercise of stock options granted to Mr. Blank in December 2001, pursuant to the 1997 Directors Stock Option Plan. (17) Greystone's address is 152 West 57th Street, New York, New York 10019. (18) Consists of 4,802,500 shares issuable upon the exercise of warrants held by Greystone and does not include the 13,000,000 shares issuable upon exercise of warrants held by Greystone which vest as, and only in the event that, additional amounts are advanced under the Greystone Loan Agreement. See "Item 7 - Management's Discussion and Analysis -- Liquidity and Capital Resources." (19) Includes the shares underlying warrants described in Note 12 as well as shares subject to options held by current officers and directors. (20) Such person's business address is c/o Douglas, Curtis & Allyn, LLC, 2998 Douglas Boulevard, Suite 300, Roseville, CA 95661 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In connection with the Loan Agreement with Greystone, the Company issued to Greystone 4,250,000 warrants to purchase the Company's Common Stock, and to Jeffrey Slovin, as Greystone's designee, 750,000 warrants to purchase the Company's Common Stock. Mr. Slovin is the Company's President and Chief Operating Officer and serves as a Director of the Company. On July 5, 2001, the Company repaid all outstanding advances under the Greystone Amended Loan Agreement, together with all unpaid accrued interest thereunder, and concurrently terminated said Amended Loan Agreement. 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 Amended Loan Agreement 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 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. In addition, DVI Financial Services, Inc. ("DVI") has provided the Company with notes payable for $6.6 million which are secured by first priority liens on substantially all of the Company's assets. See "Item 7 -- Management's Discussion and Analysis - Liquidity and Capital Resources." Effective August 28, 2000, DVI transferred its rights, title and interest in, to, and under the DVI Notes payable and related loan documents to Greystone. In connection with such transfer, DVI directed the Company to make all remaining payments due under the loan documents to Greystone. Concurrently, DVI transferred 650,000 warrants to purchase the Company's Common Stock to Greystone, of which 97,500 warrants were transferred to Mr. Slovin, as Greystone's designee. During the first quarter of fiscal 2003, the Company prepaid to Greystone $236K of outstanding principal of the DVI loan. As of June 10, 2002, the outstanding principal balance of that loan is $3.5 million, subject to periodic prepayment in accordance with the terms of the loan documents. In November 2001, the Company entered into a three-year employment agreement with Jeffrey T. Slovin. Pursuant to the Agreement, Mr. Slovin is employed as President and Chief Operating Officer of the Company. Mr. Slovin's initial base annual salary under the Agreement is $240,000. In addition to base salary, Mr. Slovin is eligible to receive annual merit or 28 cost-of-living increases as may be determined by the Executive Compensation Committee of the Board of Directors. Mr. Slovin will also receive an increase in base salary as well as incentive compensation in the form of a bonus based on the Company's EBITDA. Such incentive compensation is capped at $100,000 per fiscal year. Pursuant to the Agreement, Mr. Slovin also received 150,000 employee stock options which vest as follows: 50,000 options on October 31, 2002, an additional 50,000 options on October 31, 2003, and the final 50,000 options on October 31, 2004. Additionally, all Company stock options held by, or issued to, Mr. Slovin will immediately vest in the event that the Company has a change in control or is acquired by another company or entity. In the event that Mr. Slovin is terminated from employment with the Company without cause, he would receive severance pay for two years or the remainder of the term of the Agreement, whichever time period is shorter. Under certain circumstances, where the Company effects a change in Mr. Slovin's title or diminishes, in any significant manner, his duties or responsibilities of employment, Mr. Slovin may unilaterally resign from employment. In this instance, he would act as a consultant to the Company for a period of one year following his resignation and receive severance pay for one year. 29 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND SCHEDULES SCHICK TECHNOLOGIES, INC. Index to Consolidated Financial Statements F1 Report of Independent Certified Public Accountants F1 Consolidated Balance Sheets as of March 31, 2002 and 2001 F2 Consolidated Statements of Operations for the years ended March 31, 2002, 2001 and 2000 F3 Consolidated Statements of Changes in Stockholders' Equity (Deficiency) for the years ended March 31, 2002, 2001 and 2000 F4 Consolidated Statements of Cash Flows for the years ended March 31, 2002, 2001 and 2000 F5 Notes to Consolidated Financial Statements F6 Schedule II/Valuation and Qualifying Accounts F17 Report of Independent Certified Public Accountants To the Board of Directors and Stockholders of Schick Technologies, Inc. We have audited the accompanying consolidated balance sheets of Schick Technologies, Inc. and subsidiary (the "Company") as of March 31, 2002 and 2001, and the related consolidated statements of operations, changes in stockholders' equity (deficiency) and cash flows for each of the three years in the period ended March 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Schick Technologies, Inc. and subsidiary as of March 31, 2002 and 2001, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended March 31, 2002, in conformity with accounting principles generally accepted in the United States of America. We have also audited Schedule II - Valuation and Qualifying Accounts of Schick Technologies, Inc. and subsidiary for each of the three years in the period ended March 31, 2002. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. /s/ GRANT THORNTON LLP New York, New York May 29, 2002, except for the second paragraph of Note 12, under the subheading "SEC Investigation and other," as to which the date is June 13, 2002 F 1 Schick Technologies, Inc. and Subsidiary Consolidated Balance Sheet (In thousands, except share amounts) March 31, --------- 2002 2001 ---- ---- Assets Current assets Cash and cash equivalents $ 1,622 $ 2,167 Short - term investments 472 8 Accounts receivable, net of allowance for doubtful accounts of $717 and $1,818 respectively 2,812 977 Inventories 2,805 3,820 Income taxes receivable 13 21 Prepayments and other current assets 427 176 -------- -------- Total current assets 8,151 7,169 -------- -------- Equipment, net 2,939 3,489 Investment -- 815 Other assets 867 1,173 -------- -------- Total assets $ 11,957 $ 12,646 ======== ======== Liabilities and Stockholders' Equity (Deficiency) Current liabilities Current maturity of long term debt $ 1,815 $ 2,851 Accounts payable and accrued expenses 957 1,801 Accrued salaries and commissions 565 347 Deposits from customers 30 483 Warranty obligations 72 141 Deferred revenue 3,579 3,132 -------- -------- Total current liabilities 7,018 8,755 -------- -------- Long term debt 2,039 4,080 -------- -------- Total liabilities 9,057 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: 10,138,360 shares issued and outstanding) 101 101 Additional paid-in capital 42,481 42,480 Accumulated deficit (39,682) (42,770) -------- -------- Total stockholders' equity (deficiency) 2,900 (189) -------- -------- Total liabilities and stockholders' equity (deficiency) $ 11,957 $ 12,646 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. F 2 Schick Technologies, Inc. and Subsidiary Consolidated Statements of Operations (In thousands, except share amounts) Year ended March, 31 -------------------- 2002 2001 2000 ---- ---- ---- Revenue, net $ 24,399 $ 21,252 $ 21,989 ------------ ------------ ------------ Cost of sales 8,540 9,736 15,393 Excess and obsolete inventory 292 570 898 ------------ ------------ ------------ Total cost of sales 8,832 10,306 16,291 ------------ ------------ ------------ Gross profit 15,567 10,946 5,698 ------------ ------------ ------------ Operating expenses: Selling and marketing 5,291 5,314 7,636 General and administrative 4,148 4,161 7,330 Research and development 2,176 2,220 2,830 Bad debt (recovery) expense (93) (454) 9 Lease termination 118 275 -- ------------ ------------ ------------ Total operating costs 11,640 11,516 17,805 ------------ ------------ ------------ Income (loss) from operations 3,927 (570) (12,107) ------------ ------------ ------------ Other income (expense) Other income 140 -- -- Gain on sale of investment -- -- 565 Interest income 33 60 101 Interest expense (1,012) (1,128) (890) ------------ ------------ ------------ Total interest and other income (expense) (839) (1,068) (224) ------------ ------------ ------------ Net income (loss) $ 3,088 $ (1,638) $ (12,331) ============ ============ ============ Basic earnings (loss) per share $ 0.30 $ (0.16) $ (1.23) ============ ============ ============ Diluted earnings (loss) per share $ 0.26 $ (0.16) $ (1.23) ============ ============ ============ Weighted average common shares (basic) 10,137,209 10,135,867 10,059,384 ============ ============ ============ Weighted average common shares (diluted) 11,915,351 10,135,867 10,059,384 ============ ============ ============ The accompanying notes are an integral part of these consolidated financial statements. F 3 Schick Technologies, Inc. and Subsidiary Consolidated Statements of Changes in Stockholders' Equity (Deficiency) (In thousands, except share amounts) (Accumulated Common Stock Additional Deficit) Total ------------ Paid-in Retained Stockholders' Shares Amount Capital Earnings Equity ------ ------ ------- -------- ------ Balance at March 31, 1999 10,059,384 $101 $41,236 $(28,801) $ 12,536 Issuance of warrants upon in connection with financing activity -- -- 1,111 -- 1,111 Issuance of common stock in connection with employment agreement 75,000 -- -- -- Net loss -- -- -- (12,331) (12,331) ---------- ---- ------- -------- -------- Balance at March 31, 2000 10,134,384 101 42,347 (41,132) 1,316 Issuance of warrants 130 130 Issuance of common stock 2,809 -- 3 3 Net loss -- -- -- (1,638) (1,638) ---------- ---- ------- -------- -------- Balance at March 31, 2001 10,137,193 101 42,480 (42,770) (189) Issuance of common stock 1,167 -- 1 1 Net profit -- -- -- 3,088 3,088 ---------- ---- ------- -------- -------- Balance at March 31, 2002 10,138,360 $101 $42,481 $(39,682) $ 2,900 ========== ==== ======= ======== ======== The accompanying notes are an integral part of these consolidated financial statements. F 4 Schick Technologies, Inc. and Subsidiary Consolidated Statements of Cash Flows (In thousands) Year ended March 31 -------- 2002 2001 2000 ---- ---- ---- Cash flows from operating activities Net income (loss) $ 3,088 $(1,638) $(12,331) Adjustments to reconcile net loss to Net cash provide by operating activities Depreciation and amortization 1,527 1,935 2,332 Bad debt (recovery) expense (93) (454) 9 Provision for excess and obsolete inventory 292 570 898 Amortization of deferred financing charges 169 189 181 Abandonment of leasehold -- 275 -- Gain from sale of investment in Photobit Corporation -- -- (565) Interest accretion 365 48 -- Other (51) -- -- Changes in assets and liabilities: Accounts receivable (1,742) 1,012 2,661 Inventories 723 1,222 4,176 Income taxes receivable 8 106 2,443 Prepayments and other current assets (99) (10) 155 Other assets (15) (19) 137 Account payable and accrued expenses (626) (3,124) (3,355) Deposits from customers (453) (183) 153 Warranty obligations (69) (137) (124) Deferred revenue 447 1,451 1,117 ------- ------- -------- Net cash provided by (used in) operating activities 3,471 1,243 (2,113) ------- ------- -------- Cash flows from investing activities Investment in held to maturity investment (417) -- -- Proceeds of held to maturity investment 5 -- 352 Proceeds of sale of investment 662 -- 1,000 Capital expenditures (825) (347) (225) ------- ------- -------- Net cash (used in) provided by investing activities (575) (347) 1,127 ------- ------- -------- Cash flows from financing activities Net proceeds from issuance of common stock 1 3 -- Proceeds from refinancing -- -- 1,000 Payment of long term debt (3,442) (161) -- ------- ------- -------- Net cash used in financing activities (3,441) (158) 1,000 ------- ------- -------- Net (decrease) increase in cash and cash equivalents (545) 738 14 Cash and cash equivalents at beginning of period 2,167 1,429 1,415 ------- ------- -------- Cash and cash equivalents at end of period $ 1,622 $ 2,167 $ 1,429 ======= ======= ======== The accompanying notes are an integral part of these consolidated financial statements. F 5 Schick Technologies, Inc. and Subsidiary Notes to Consolidated Financial Statements (Amounts In thousands, except share and per share amounts) 1. Organization and Business Schick Technologies, Inc. (the "Company") designs, develops, manufactures and markets innovative digital radiographic imaging systems and devices for the dental and medical markets that utilize low dosage radiation to produce instant computer generated, high-resolution, electronic x-ray images. The Company's products are sold worldwide. The Company operates in one reportable segment - digital radiographic imaging systems. The Company's principal products include the CDR (R) computed digital radiography imaging system and the accuDEXA (R) bone densitometer. The following is a summary of the Company's revenues from its principal products: % Of Total Revenue 2002 2001 2000 ---- ---- ---- CDR 97% 97% 88% AccuDEXA 3% 3% 12% --- --- --- 100% 100% 100% === === === The consolidated financial statements of the Company at March 31, 2002 include the accounts of the Company and its wholly owned subsidiary, Schick New York. 2. Summary of Significant Accounting Policies Basis of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All material intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to the allowance for doubtful accounts, allowances for estimated sales returns, estimated costs of initial warranties, and valuation allowance on deferred tax assets. Management has exercised reasonable judgement in deriving these estimates, however, actual results could differ from these estimates. Consequently, an adverse change in conditions could affect the Company's estimates. Cash equivalents Cash equivalents consist of short-term, highly liquid investments, with original maturities of less than three months when purchased and are stated at cost. Short-Term Investments Investments with original maturities greater than three months and less than one year when purchased are classified as short-term investments. Investments are categorized as held-to-maturity and are carried at amortized cost, without recognition of gains or losses that are deemed to be temporary, as the Company has both the intent and the ability to hold these investments until they mature. Inventories Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market value. Cost is determined principally on the standard cost method for manufactured F 6 goods and on the average cost method for other inventories, each of which approximates actual cost on the first-in, first-out 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 may be required. Equipment Equipment is stated at cost. Depreciation and amortization are provided on the straight-line method over the lesser of the estimated useful lives of the related assets ranging from five to ten years or, where appropriate, the lease term. Revenue Recognition Revenues from sales of the Company's hardware and software products are recognized at the time of shipment to customers, and when no significant obligations exist and collectibility is probable. The Company provides its customers with a 30-day return policy but allows for an additional 15 days, and, accordingly, recognizes allowances for estimated returns by customers pursuant to such policy at the time of shipment. The Company defers revenue shipped to its exclusive domestic distributor, Patterson Dental Company, ("Patterson") until Patterson delivers such inventory to its customer. Amounts received from customers' advance of product shipment are classified as deposits from customers. Revenues from the sale of extended warranties on the Company's products are recognized on a straight-line basis over the life of the extended warranty, which is generally for a one-year period. Deferred revenues relate to extended warranty fees, which have been paid by customers prior to the performance of extended warranty services, and to certain shipments to Patterson described above. Advertising Costs Advertising costs included in selling and marketing expenses are expensed as incurred and were $492, $851 and $580, for the years ended March 31, 2002, 2001, and 2000, respectively. Warranties The Company provides its customers with a limited product warranty for a period of one year subsequent to the sale of its products. The Company recognizes estimated costs associated with the limited warranty at the time of sale of its products. Research and Development Research and development costs consist of expenditures covering basic scientific research and the application of scientific advances to the development of new and improved products and their uses. Research and development costs are expensed as incurred. Software development costs for external use software incurred after the establishment of technological feasibility are capitalized and amortized to cost of revenues on a straight-line basis over the expected useful life of the software. Software development costs incurred prior to the attainment of technological feasibility are considered research and development and are expensed as incurred. Costs of software developed for internal use incurred during the development of the application are capitalized and amortized to operating expense on a straight-line basis over the expected useful life of the software. The Company did not capitalize any software development costs during 2002, 2001 and 2000. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or the entire deferred tax asset will not be realized. F 7 Fair Value of Financial Instruments The carrying value of cash and cash equivalents, accounts receivable, accounts payable and debt approximates fair value due to the relatively short maturity associated with its cash, accounts receivable and accounts payable and the interest rates associated with its debt. Long-lived Assets Long-lived assets and intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. 3. Recently Issued 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 continued to amortize under its current method until March 31, 2002. Thereafter, annual goodwill amortization of $107 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 but does not believe it will have a material effect. 4. Income (Loss) Per Share Basic earnings per share ("Basic EPS") are computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share ("Diluted EPS") gives effect to all dilutive potential common shares outstanding during the period. The computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an antidilutive effect on earnings. The computations of basic and diluted loss per share are equal for the years ended March 31, 2001 and 2000, as all potential shares are antidilutive. At March 31, 2002, 2001 and 2000, outstanding options to purchase 1,840,435, 1,046,807 and 992,605 shares of common stock, respectively, at exercise prices ranging from $0.50 to $27.72 per share in fiscal 2002 and 2001, and from $1.00 to $27.72 in fiscal 2000, have been excluded from the computation of diluted loss per share as they are antidilutive. Outstanding warrants to purchase 5,650,000 shares of common stock with exercise prices of $0.75 per share were also antidilutive and excluded from the computation of diluted loss per share at March 31, 2001 and 2000. 5. Inventories Inventories at March 31, 2002 and 2001, net of provisions for excess and obsolete inventories, are comprised of the following: 2002 2001 ---- ---- Raw materials $2,141 $3,046 Work-in-process 16 119 Finished goods 648 655 ------ ------ Total inventories $2,805 $3,820 ====== ====== F 8 6. Equipment Equipment at March 31, 2002 and 2001 is comprised of the following: 2002 2001 ---- ---- Production equipment $ 5,257 $5,105 Computer and communications equipment 2,283 2,183 Demonstration equipment 944 928 Leasehold improvements 1,857 1,301 Other equipment 123 122 ------- ------ Total equipment 10,464 9,639 Less - accumulated depreciation and amortization 7,525 6,150 ------- ------ Equipment, net $ 2,939 $3,489 ======= ====== At March 31, 2002 and 2001, computer equipment included approximately $199 of equipment acquired under capital leases. Accumulated depreciation related to these assets approximated $199 and $171 at March 31, 2002 and 2001, respectively. 7. Short-term investments Held-to-maturity securities at March 31, 2002 and 2001 include short-term U.S. Treasury and government agency debt securities of $417 and $8, respectively on an amortized cost basis, with maturity dates of less than one year. The gross unrealized gains and losses at March 31, 2002 and 2001 on held-to-maturity securities were insignificant. 8. Accounts payable and accrued expenses Accounts payable and accrued expenses is summarized as follows at March 31, 2002 and 2001: 2002 2001 ---- ---- Legal and other professional fees $ -- $ 420 Accounts payable and accrued expenses 957 1,381 ------ ------ $ 957 $1,801 ====== ====== 9. Debt Long-term debt is summarized as follows at March 31, 2002 and 2001: 2002 2001 ---- ---- Term notes $3,854 $6,296 Secured credit facility -- 635 ------ ------ 3,854 6,931 Less current maturities 1,815 2,851 ------ ------ $2,039 $4,080 ====== ====== Secured Term Notes In June 2000, the Company amended its secured term note with DVI Financial Services, Inc. ("DVI") 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. F 9 Term Loan A The principal balance of term loan A is payable in 49 monthly payments which commenced April 15, 2001, with interest payable monthly at the prime rate plus 2.5%. Term Loan B The principal balance of term loan B is payable in 27 monthly payments which commenced January 15, 2001 with interest payable monthly at the prime rate plus 2.5%. The Company is also required to make additional principal payments equal to fifty percent of the "positive actual cash flow", as defined. In May 2002 and April 2001 the Company made prepayments of $236 and $750, respectively, in satisfaction of this provision. Such payment is classified in current loan maturities. 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 being 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). In connection with the amended note, the warrants' exercise price was reduced to $.75 and the expiration date was extended to December 2006. Additional deferred financing costs of $130 were incurred and are being amortized over the five-year life of the amended note. Interest expense of approximately $95 and $176 relating to this warrants issuance was recognized for the year ended March 31, 2002 and 2001, respectively. Effective August 28, 2000, the lender sold all its rights, title and interest in, to and under the warrants, notes payable and security agreement as described above, to the Company's other secured creditor (Greystone). By letter dated October 11, 2000, the lender directed the Company to make all remaining payments due for the notes payable directly to Greystone. 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, one 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, or 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 of these 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 considered 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 were to vest and become 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 did not vest prior to expiration or surrender of the line of credit, were to be forfeited and canceled. In connection with the Greystone secured credit facility, effective as of February 15, 2000, DVI consented to the Company's F10 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. The $1 million proceeds of the initial draw was 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 was being accreted to the face value of the $1 million using the interest method over the seven-year term of the loan. The fair value of 3 million warrants issued in connection with the agreement, amounting to $90, was accounted for as deferred financing cost. The secured term notes and secured credit facility were subject to various financial and restrictive covenants including, among others, interest coverage, current ratio, and EBITDA. 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. 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 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 March 31, --------------------- 2003 $1,815 2004 1,270 2005 691 2006 78 ------ $3,854 ====== 10. Income Taxes The reconciliation between the U.S. federal statutory rate and the Company's effective tax rate is as follows: March 31, --------- 2002 2001 2000 ---- ---- ---- Tax benefit at Federal statutory rate 34.0% -34.0% -34.0% State income tax expense (benefit), net of Federal tax -8.1% -8.1% -8.1% Non-deductible expenses 0.9% 0.7% 0.5% Research and development tax credit 2.2% 5.0% 1.5% Net operating loss and credits (used) in the current year or generated in the year in which there is no benefit -29.0% 36.4% 40.1% ----- ----- ----- Effective tax rate 0% .0% 0.0% ===== ===== ===== Significant components of the Company's deferred tax assets (liabilities) at March 31, 2002, 2001 and 2000 are as follows: March 31, ---------- 2002 2001 2000 ---- ---- ---- Net operating loss carryforwards $ 14,636 $ 15,638 $ 11,218 Reserves and allowances for inventory 1,257 1,400 2,947 Accounts receivable and warranties 1,862 2,182 2,360 Tax credit and carryforwards 1,421 1,305 962 Depreciation and other 575 663 (192) Other 65 114 328 -------- -------- -------- 19,816 21,302 17,623 Valuation allowance (19,816) (21,302) (17,623) -------- -------- -------- Net deferred tax asset $ -- $ -- $ -- ======== ======== ======== F11 Management has established a full valuation allowance for the amount of the deferred tax asset based on uncertainties with respect to the Company's ability to generate future taxable income. Management will continue to assess the realizability of the deferred tax asset at the interim and annual balance date based upon actual and forecasted operating results. At March 31, 2002, the Company has a U.S. federal income tax net operating loss carryforward of $34,849 available to offset future taxable income. The carryforward has various expiration dates beginning in 2018. Under current tax law, the utilization of the Company's tax attributes will be restricted if an ownership change, as defined, were to occur. Section 382 of the Internal Revenue Code provides, in general, that if an "ownership change" occurs with respect to a corporation with net operating and other loss carryforwards, such carryforwards will be available to offset taxable income in each taxable year after the ownership change only up to the "Section 382 Limitation" for each year (generally, the product of the fair market value of the corporation's stock at the time of the ownership change, with certain adjustments, and a specified long-term tax-exempt bond rate at such time). The Company's ability to use its loss carryforwards would probably be limited in the event of an ownership change. 11. Concentration of Risks and Customer Information Substantially all of the Company's sales are to domestic and foreign dentists, doctors, and distributors of dental and medical supplies and equipment. Financial instruments that potentially subject the Company to concentrations of credit risks are primarily accounts receivable and cash equivalents. The Company generally does not require collateral and the majority of its trade receivables are unsecured. The Company is directly affected by the financial well being of the dental and medical industries. The Company places its cash equivalents in short-term money market instruments. The Company currently purchases each of its primary raw materials, the active-pixel sensor ("APS") and the charged coupled device ("CCD") semiconductor wafers from single suppliers. During the fourth quarter of fiscal 1998, the Company experienced a delay in the supply flow from its CCD vendor, which resulted in manufacturing, and product shipment delays. Although there are a number of manufacturers capable of supplying these materials, which the Company believes could provide for its semiconductor requirements on comparable terms, such delays could occur again. Approximately $6.2 million, $8.1 million and $6.5 million of the Company's sales in 2002, 2001, and 2000, respectively, were to foreign customers. The majority of such foreign sales were to customers in Europe. During 2002 and 2000, sales of $9.9 million and $2.6 million, respectively were made to single customers. During 2001, sales of $7.5 were made to two customers. On April 6, 2000, the Company entered into an agreement with Patterson Dental Company which granted Patterson exclusive rights to distribute the Company's dental products in the United States and Canada effective May 1, 2000. 12. Commitments and Contingencies Employment Agreements The Company has employment agreements with certain executive officers. As of March 31, 2002 minimum compensation obligations under these employment agreements are as follows: March 31 2003 $ 857 2004 648 2005 322 ------ $1,827 ====== In addition, certain of the Company's agreements provide for the issuance of common stock and/or common stock options to the executives, which generally vest ratably over the F12 term of the agreements (2-3 years). Additionally, certain executives may earn bonus compensation based upon the specific terms of the respective agreements, as defined. Operating Leases The Company leases its facilities under an operating lease agreement expiring June 2007. Rent expense for the years ended March 31, 2002, 2001, and 2000 was $470, $701, and $1,095, respectively. Future minimum payments on a fiscal year basis under non-cancelable operating leases are as follows: 2003 $ 445 2004 467 2005 486 2006 506 2007 526 Thereafter 137 ------ $2,567 ====== 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 maintained or 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 interim periods of fiscal 1999. Subsequent thereto, the SEC requested the voluntary production of certain documents and the Company provided the SEC with the requested materials. On August 17, 2000, the SEC served a subpoena upon the Company, pursuant to a formal order of investigation, requiring the production of certain documents. The Company provided the SEC with the subpoenaed materials. The Company has been informed that since January 2002 the SEC has served subpoenas upon and/or contacted certain former and current officers and employees of the Company, in connection with this matter. The Company has cooperated fully with the SEC staff, and intends to continue such cooperation. The Company cannot predict the potential outcome of the inquiry. In addition, the Company has been informed that since January 2002 investigators associated with the U.S. Attorney's Office have served subpoenas on and/or contacted certain former and current employees, and a current Director, apparently in connection with the same event. On June 13, 2002, the Company was advised by coursel to David Schick, the Company's Chief Exective Officer, that the United States Attorney's Office for the Southern District of New York had recently notified such counsel that Mr. Schick was a target of the United States Attorney's investigation of this matter. The Company cannot predict the 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 and Stipulation of Settlement, all claims against the Company and 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. On February 12, 2002, the Court entered an Order and Final Judgment in this matter, pursuant to which the terms of the settlement agreement were approved and the complaint was dismissed with prejudice. F13 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. 13. Stock Option Plan, Stock Grants and Defined Contribution Plan Stock Option Plan and Stock Grants In April 1996, the Company implemented its 1996 Stock Option Plan (the "Plan") whereby incentive and non-qualified options to purchase shares of the Company's common stock may be granted to employees, directors and consultants. In September 1998, the Plan was amended to increase the number of shares of Common Stock issuable under the Plan from 470,400 to 1,000,000 and further amended in November 2000 to increase the number of shares of Common Stock issuable under the plan to 3,000,000. The Board of Directors determines exercise and vesting periods and the exercise price options granted under the Plan. The Plan stipulates that the exercise price of non-qualified options granted under the Plan must have an exercise price equal to or exceeding 85% of the fair market value of the Company's common stock as of the date of grant of the option and no option may be exercisable after ten years from the date of grant. Options granted under the plan generally vest over a period of four years. In 1998, the Company adopted the Directors Plan. In November 2000 the Plan was amended to increase the number of shares of Common Stock issuable to 300,000. At March 31, 2002, 2001 and 2000, a total of 266,875, 133,125, 25,000 options to purchase Common Stock pursuant to the Directors Plan were outstanding, respectively. The plan stipulates that the exercise price of non-qualified options granted under the Plan must have an exercise price equal to or exceeding 85% of the fair market value of the Company's common stock as of the date of grant of the option and no option may be exercisable after ten years from the date of grant. Options granted under the plan generally vest over a period of four years. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans and other stock-based compensation issued to employees and directors. During the years ended March 31, 2002, 2001 and 2000, the Company did not recognize compensation expense for options granted to employees and Directors. Had compensation cost for option grants to employees and Directors been determined based upon the fair value at the grant date for awards under the Plan consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") the Company's net profit in 2002 would have decreased by $474 ($0.05 per basic share and $0.04 per diluted share) and the loss in 2001 and 2000 would have increased approximately $590 ($0.06 per basic share) and $626 ($.05 per basic share), respectively. The fair value of options granted to employees and directors during 2002, 2001, and 2000 has been determined on the date of the respective grant using the Black-Scholes option-pricing model based on the following weighted-average assumptions: 2002 2001 2000 ---- ---- ---- Dividend yield None None None Risk-free interest rate on date of grant 2.81%-3.56% 4.70%-4.87% 5.35%-6.36% Forfeitures None None None Expected life 5 years 5 years 5 years Volatility 84% 84% 91% Weighted average fair value per share $0.55 $0.62 $0.07 F14 The following table summarizes information regarding stock options for 2002, 2001 and 2000: 2002 2001 2000 ---- ---- ---- Shares Weighted Shares Weighted Shares Weighted Under Average Under Average Under Average Option Exercise Option Exercise Option Exercise Price Price Price Price Price Price ----- ----- ----- ----- ----- ----- Options outstanding, Beginning of year 1,046,807 $ 3.53 992,605 $ 4.57 591,958 $10.87 Options granted 859,739 1.31 297,442 1.06 681,866 1.21 Options exercised (1,167) 1.00 (2,809) 1.00 -- -- Options forfeited (64,944) 4.14 (240,431) 4.84 (281,219) 12.30 --------- --------- ------- Options outstanding, End of year 1,840,435 $ 2.47 1,046,807 $ 3.53 992,605 $ 4.57 ========= ========= ======= Options outstanding Weighted average remaining Range of exercise price At March 31, 2002 Contractual life (years) ----------------------- ----------------- ------------------------ $ 0.50 to $ 2.88 1,649,421 9 $ 4.91 to $ 7.86 89,712 6 $14.81 to $22.97 75,753 6 $25.75 to $27.72 25,549 6 At March 31, 2002, there are 1,459,565 options available for grant pursuant to the Company's option plans. Of the 1,840,435 options outstanding at March 31, 2002, 754,343 are exercisable at such date at a weighted-average exercise price of $3.88. Defined Contribution Plan The Company has a defined contribution savings plan, which qualifies under Section 401(k) of the Internal Revenue Code, for employees meeting certain service requirements. Participants may contribute up to 15% of their gross wages not to exceed, in any given year, a limitation set by the Internal Revenue Service regulations. The plan provides for mandatory matching contributions to be made by the Company to a maximum amount of 2.5% of a plan participant's compensation. Company contributions to the plan approximated $135, $131, and $164 in 2002, 2001 and 2000, respectively. 14. Supplemental Cash Flow Information Cash payments for interest were $955, $854, and $424 in 2002, 2001 and 2000 respectively. There were no payments for income taxes in 2002, 2001 and 2000. 15. Stockholders' Equity (Deficiency) 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. During 1999, warrants to purchase 204,680 shares of common stock were exercised using cashless exercises pursuant to which 63,479 shares of the Company's common stock were issued. During the year ended March 31, 2000, the balance of unexercised warrants, issued by the Company in connection with its May 1996 private placement, expired. In February 2000, an executive was awarded 75,000 shares of the Company's Common Stock, subject to a risk of forfeiture, which vests 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 30 days 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. 16. Acquisition and Investment Keystone Acquisition On September 24, 1997, the Company acquired certain assets of Keystone Dental X-Ray Inc. ("Keystone"), a manufacturer of x-ray equipment for the medical and dental radiology F15 field, for $1,450. The acquisition had been accounted for using the purchase method, and the Company had recorded goodwill in the amount of $750, which is included in other assets and is being amortized on a straight-line basis over 7 years. The Company recognized $107 for amortization of goodwill in 2002, 2001 and 2000. Investment in Photobit Corporation In September 1997, the Company purchased a minority interest of 5%, for $1,000 in Photobit Corporation ("Photobit"), a developer of complementary metal-oxide semiconductor ("CMOS"), APS imaging technology. In July 1998, the Company invested an additional $250 in Photobit Corporation, bringing its total investment in Photobit to $1,250. The Company is the exclusive licensee of the APS technology for medical applications and utilizes the technology in its bone-mineral density assessment device and certain components of its computed dental x-ray imaging system. In September 1999, the Company sold 250,000 shares of Photobit stock for $1,000 and recorded an investment gain of approximately $565. In November 2001 Photobit Corporation was acquired by Micron Technologies, Inc. and subsequently adopted a plan of dissolution, to wind up and liquidate Photobit. The Company received $662, the initial proceeds of the liquidation of its investment. A second distribution of $29 was paid in April 2002 and a final distribution is scheduled 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. 17. Unaudited selected quarterly financial data The following is a summary of the Company's unaudited quarterly operating results for the years ended March 31, 2002, 2001 and 2000: Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, 2002 2001 2001 2001 2001 2000 ---- ---- ---- ---- ---- ---- Statement of Operations Data: Revenue, net $ 6,736 $ 7,003 $ 4,819 $ 5,841 $ 6,228 $ 5,391 Total cost of sales 2,494 2,288 1,752 2,298 2,476 2,333 ------------ ----------- ------------ ------------ ------------ ----------- Gross profit 4,242 4,715 3,067 3,543 3,752 3,058 ------------ ----------- ------------ ------------ ------------ ----------- Gross profit margin 63.0% 67.3% 63.6% 60.7% 60.2% 56.7% Operating expense: Selling and marketing 1,287 1,390 1,312 1,302 1,162 1,303 General and administrative 1,231 1,012 925 980 858 863 Research and development 566 548 532 530 572 544 Bad debt recovery (50) -- -- (43) (100) (354) Abandonment of leasehold -- 117 -- -- 275 -- ------------ ----------- ------------ ------------ ------------ ----------- Operating expense 3,034 3,067 2,769 2,769 2,767 2,356 ------------ ----------- ------------ ------------ ------------ ----------- Income (loss) from operations 1,208 1,648 298 774 985 702 ------------ ----------- ------------ ------------ ------------ ----------- Net income (loss) $ 1,167 $ 1,544 $ (250) $ 627 $ 766 $ 439 ============ =========== ============ ============ ============ =========== Earnings (loss) per share: Basic income (loss) $ 0.12 $ 0.15 $ (0.02) $ 0.06 $ 0.08 %0.04 ============ =========== ============ ============ ============ =========== Diluted income (loss) $ 0.08 $ 0.14 $ (0.02) $ 0.05 $ 0.07 $ 0.04 ============ =========== ============ ============ ============ =========== Weighted average common stock outstanding (basic) 10,137,257 10,137,193 10,137,193 10,137,193 10,137,193 10,137,193 ============ =========== ============ ============ ============ =========== Weighted average common stock outstanding (diluted) 14,115,104 10,894,495 10,137,193 11,470,010 11,012.363 11,117,412 ============ =========== ============ ============ ============ =========== Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, 2000 2000 2000 1999 1999 1999 ---- ---- ---- ---- ---- ---- Statement of Operations Data: Revenue, net $ 3,390 $ 6,243 $ 5,415 $ 4,771 $ 4,565 $ 7,238 Total cost of sales 2,401 3,096 3,130 2,971 4,428 5,762 ------------ ------------ ------------ ------------ ------------ ------------ Gross profit 989 3,147 2,285 1,800 137 1,476 ------------ ------------ ------------ ------------ ------------ ------------ Gross profit margin 29.2% 50.4% 42.2% 37.7% 3.0% 20.4% Operating expense: Selling and marketing 1,235 1,614 1,635 1,590 1,633 2,778 General and administrative 1,279 1,161 2,214 1,601 1,814 1,710 Research and development 550 554 666 595 685 884 Bad debt recovery Abandonment of leasehold -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ Operating expense 3,064 3,329 4,515 3,786 4,132 5,372 ------------ ------------ ------------ ------------ ------------ ------------ Income (loss) from operations (2,075) (182) (2,230) (1,986) (3,995) (3,896) ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) $ (2,316) $ (527) $ (2,713) $ (2,044) $ (3,597) $ (3,977) ============ ============ ============ ============ ============ ============ Earnings (loss) per share: Basic income (loss) $ (0.23) $ (0.05) $ (0.27) $ (0.20) $ (0.36) $ (0.40) ============ ============ ============ ============ ============ ============ Diluted income (loss) $ (0.23) $ (0.05) $ (0.27) $ (0.20) $ (0.36) $ (0.40) ============ ============ ============ ============ ============ ============ Weighted average common stock outstanding (basic) 10,134,696 10,134,384 10,059,384 10,059,384 10,059,384 10,059,384 ============ ============ ============ ============ ============ ============ Weighted average common stock outstanding (diluted) 10,134,696 10,134,384 10,059,384 10,059,384 10,059,384 10,059,384 ============ ============ ============ ============ ============ ============ F16 Schedule II Schick Technologies, Inc. and Subsidiary Valuation and Qualifying Accounts Additions --------- Balance at Charged to Charged to Balance at Beginning Cost and Other End Of Period Expenses Accounts Deductions of Period --------- -------- -------- ---------- --------- ALLOWANCE FOR DOUBTFUL ACCOUNTS For the year ended March 31, 2002 $ 1,818 $1,008(a) $ 717 93(b) For the year ended March 31, 2001 2,449 -- -- 177(a) 1,818 454(b) For the year ended March 31, 2000 4,512 9 -- 2,072(a) 2,449 RESERVE FOR OBSOLETE/SLOW MOVING INVENTORY For the year ended March 31, 2002 $ 3,195 $ 292 $ 588(c) $ 2,899 For the year ended March 31, 2001 6,332 754 3,891(c) 3,195 For the year ended March 31, 2000 5,466 898 -- 32(c) 6,332 VALUATION ALLOWANCE - DEFERRED TAX ASSET For the year ended March 31, 2002 $21,302 $1,486 $19,816 For the year ended March 31, 2001 17,623 3,679 21,302 For the year ended March 31, 2000 11,855 -- 5,768 -- 17,623 PROVISION FOR WARRANTY OBLIGATIONS For the year ended March 31, 2002 $ 141 $ 69 $ 72 For the year ended March 31, 2001 278 137 141 For the year ended March 31, 2000 402 -- -- 124 278 (a) accounts receivable written off (b) accounts receivable recovered (c) inventory disposed of F17 (a) Documents filed as a part of this Report (1) Consolidated Financial Statements filed as part of this Report: Index to the Financial Statements F-1 Report of Independent Certified Public Accountants F-1 Consolidated Balance Sheet at March 31, 2002 and 2001 F-2 Consolidated Statement of Operations for the years ended F-3 March 31, 2002, 2001 and 2000 F-5 Consolidated Statement of Changes in Stockholders' Equity for the years ended March 31, 2002, 2001 and 2000 F-4 Consolidated Statement of Cash Flows for the year ended March 31, 2002, 2001 and 2000 F-5 Notes to Consolidated Financial Statements F-6 (2) Financial statement schedules filed as part of this Report Schedule II Valuation and Qualifying Accounts F-18 Schedules other than that mentioned above are omitted because the conditions requiring their filing do not exist, or because the information is provided in the financial statements filed herewith, including the notes thereto. (b) Reports on Form 8-K None. (c) The following Exhibits are included in this report: Number Description *3.1 Amended and Restated Certificate of Incorporation of the Company. ******3.2 Bylaws of the Company, as amended. *4.1 Form of Common Stock certificate of the Company. *4.2 Form of private-placement Warrant of the Company. *4.3 Agreement and Plan of Merger dated as of May 15, 1997 among Schick Technologies, Inc., a New York corporation, Schick Technologies Inc., a Delaware corporation and STI Acquisition Corp, a Delaware corporation. ******10.1 Schick Technologies, Inc. 1996 Employee Stock Option Plan, as amended. ******10.2 Schick Technologies, Inc. 1997 Stock Option Plan for Non Employee Directors, as amended. *10.3 Form of Non-Disclosure, Solicitation, Solicitation, Non-Competition and Inventions Agreements between Schick Technologies, Inc. and Named Executives of Schick Technologies, Inc. *10.5 Service and License Agreement between Photobit, LLC and Schick Technologies, Inc. dated as of June 24, 1996. ***10.10 Secured Promissory Note between Schick Technologies, Inc. and DVI Financial Services, Inc., dated as of January 25, 1999. 30 ***10.11 Allonge to Secured Promissory Note by and between Schick Technologies, Inc. and DVI Financial Services, Inc., dated as of March 4, 1999. ***10.13 Security Agreement between Schick Technologies, Inc. and DVI Affiliated Capital, dated January 25, 1999. ***10.15 Employment Agreement between Schick Technologies Inc. and David Schick, dated February 29, 2000. ***10.16 Employment Letter Agreement between Schick Technologies Inc. and Zvi Raskin, dated February 6, 2000. ***10.17 Employment Letter Agreement between Schick Technologies Inc. and Michael Stone, dated January 12, 2000. ***10.18 Employment Letter Agreement between Schick Technologies Inc. and William F. Rogers, dated December 31, 1999. ***10.19 Separation, Severance and General Release Agreement between Schick Technologies Inc. and Fred Levine, dated August 27, 1999. ***10.20 Separation, Severance and General Release Agreement between Schick Technologies Inc. and Avi Itzhakov, dated August 20, 1999. ******10.21 Loan Agreement, dated December 27, 1999, by and between Schick Technologies, Inc., a Delaware corporation, Schick Technologies, Inc., a New York corporation, and Greystone Funding Corporation ("Greystone"), a Virginia corporation. (Incorporated by reference to Exhibit 1 to the Company's Report on Form 8-K dated December 27, 1999.) ******10.22 Stockholders' Agreement, dated December 27, 1999, by and between Schick Technologies, Inc., a Delaware corporation, David B. Schick, Allen Schick and Greystone. (Filed as Exhibit 2 to the Company's Report on Form 8-K dated December 27, 1999.) ******10.23 Stock Purchase Agreement, dated December 27, 1999, by and between Schick Technologies, Inc., a Delaware Corporation, and Greystone. (Filed as Exhibit 3 to the Company's Report on Form 8-K dated December 27, 1999.) ******10.24 Form of Warrant Certificate Issued to Greystone to Purchase Shares of Common Stock of Schick Technologies, Inc., a Delaware Corporation. (Filed as Exhibit 4 to the Company's Report on Form 8-K dated December 27, 1999.) ****10.25 Amended and Restated Loan Agreement, dated March 17, 2000 and made effective as of December 27, 1999, by and between Schick Technologies, Inc., a Delaware corporation, Schick Technologies, Inc., a New York corporation, and Greystone Funding Corporation, a Virginia corporation. *****10.26 Agreement to Rescind Stock Purchase, dated March 17, 2000 and made effective as of December 27, 1999, by and between Greystone Finding Corp., a Virginia corporation, and Schick Technologies, Inc., a Delaware corporation. *****10.27 Registration Rights Agreement between Schick Technologies, Inc. and Greystone, dated as of December 27, 1999. *****10.28 Second Amended and Restated Secured Promissory Note between Schick Technologies, Inc. and DVI Financial Services, Inc., in the principal amount of $5,000,000,dated as of March 15, 2000. *****10.29 Second Amended and Restated Secured Promissory Note between Schick Technologies, Inc. and DVI Financial Services, Inc., in the principal amount of $1,596,189, dated as of March 15, 2000. *****10.30 Security Agreement between Schick Technologies, Inc. and DVI Financial Services, Inc., dated as of March 15, 2000. 31 *****10.31 Amended and Restated Security Agreement between Schick Technologies, Inc. and DVI Financial Services, Inc., dated as of March 15, 2000. *****10.32 Form of Warrant Certificate Issued to DVI Financial Services, Inc. to Purchase Shares of Schick Technologies, Inc. *****10.33 Registration Rights Agreement between Schick Technologies, Inc. and DVI Financial Services, Inc., dated as of March 15, 2000. *****10.34 Distributorship Agreement, dated April 6, 2000, by and between Schick Technologies, Inc. and Patterson Dental Company. ******10.35 Termination Agreement between Greystone Funding Corporation and Schick Technologies, Inc. entered into as of March 30, 2001. 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 10.38 Employment Agreement between Schick Technologies, Inc. and Michael Stone, dated as of January 14, 2002 10.39 Letter Agreement between Schick Technologies, Inc. and David Schick, dated March 4, 2002, amending, in part, the Employment Agreement between Schick Technologies, Inc. and David Schick, dated December 20, 2001 21 List of Subsidiaries of Schick Technologies, Inc. 23.1 Consent of Grant Thornton LLP. 24 Powers of Attorney (included on signature page of this Report). 99 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 * Filed as the same exhibit number as part of the registrant's Registration Statement on Form S-1 (File No. 333-33731) declared effective by the Securities and Exchange Commission on June 30, 1997 and incorporated by reference herein. ** Filed as the same exhibit number as part of the registrant's Annual Report on Form 10-K for the year ended March 31, 1998, filed with the Securities and Exchange Commission on June 29, 1998. *** Filed as the same exhibit number as part of the registrant's Annual Report on Form 10-K for the year ended March 31, 1999, filed with the Securities and Exchange Commission on March 21, 2000. **** Filed as the same exhibit number as part of the registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, filed with the Securities and Exchange Commission on March 24, 2000. ***** Filed as the same exhibit number as part of the registrant's Annual Report on Form 10-K for the year ended March 31, 2000, filed with the Securities and Exchange Commission on June 29,2000. ****** Filed as the same exhibit number as part of the registrant's Annual Report on Form 10-K for the year ended March 31, 2001, filed with the Securities and Exchange Commission on July 13, 2001. 32 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) 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, in the City of Long Island City, State of New York, on June 11, 2002. SCHICK TECHNOLOGIES, INC By: /s/ David Schick ---------------------------------------- David Schick Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on June 11, 2002. KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David B. Schick, Jeffrey Slovin and Zvi N. Raskin (with full power to act alone), as his true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for him in his name, place and stead to sign an Annual Report on Form 10-K of Schick Technologies, Inc, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, lawfully do or cause to be done by virtue hereof. Signature Title /s/ David Schick - ------------------------------ Chairman of the Board David Schick and Chief Executive Officer /s/ Jeffrey Slovin - ------------------------------ Director, President and Chief Operating Jeffrey Slovin Officer /s/ Ronald Rosner - ------------------------------ Director of Finance and Administration Ronald Rosner /s/ Allen Schick - ------------------------------ Director Allen Schick /s/ Euval Barrekette - ------------------------------ Director Euval Barrekette /s/ Jonathan Blank - ------------------------------ Director Jonathan Blank /s/ William Hood - ------------------------------ Director William Hood /s/ Curtis M. Rocca III - ------------------------------ Director Curtis M. Rocca III 33