The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
|
DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION
|
The Company is a manufacturer
and distributor of cosmetic dentistry products, including a full line of professional dental tooth whitening products which are
distributed in Europe, Asia and the United States. The Company manufactures many of its products in Ghent, Belgium as well as outsourced
manufacturing in its facility in Beijing, China and in France. The Company distributes its products using both its own
internal sales force and through the use of third party distributors.
The Company’s financial
statements have been prepared on an accrual basis of accounting, in conformity with accounting principles generally accepted in
the United States of America.
In July 2012 we received €500,000
as partial payment for the sale of our 100% interest in the share capital of Remedent OTC B.V. (See Note 3). However, despite the
net profit of the past fiscal year, the accumulated losses of the past affect the financial situation of the Company. Moreover
there has been increased pressure on the operating cash flows of the Company and by consequence additional funding will be required
to support the Company’s operations and the execution of the business plan. These risks, among others, are also discussed
in ITEM 1A –RISK FACTORS in the Company’s annual report on Form 10-K filed on July 16, 2012 with the SEC. Despite these
matters of emphasis, the financial statements have been prepared on a going concern basis.
In these notes, the terms “Remedent”,
“Company”, “we”, “us” or “our” mean Remedent, Inc. and all of its subsidiaries,
whose operations are included in these consolidated financial statements.
The Company has conducted a
subsequent events review through the date the financial statements were issued, and has concluded that there were no subsequent
events requiring adjustments or additional disclosures to the Company's financial statements at December 31, 2012.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The accounting policies of the
Company, as applied in the interim consolidated financial statements presented herein are substantially the same as presented in
the Company’s Form 10-K for the year ended March 31, 2012, except as may be indicated below:
Organization and Principles
of Consolidation
The accompanying consolidated
financial statements include the accounts of: Remedent N.V. (incorporated in Belgium) located in Ghent , Belgium, Remedent Professional,
Inc. and Remedent Professional Holdings, Inc. (both incorporated in California and inactive), Glamtech-USA, Inc. (a Delaware corporation
acquired effective August 24, 2008), Remedent N.V.’s 51% owned subsidiary, GlamSmile Deutschland GmbH, a German
private company located in Munich and Remedent N.V.’s 80 % owned subsidiary, GlamSmile Rome, a Italian private company located
in Rome.
Remedent Inc.’s 29,4 %
investment in Glamsmile Dental Technology Ltd., a Cayman Islands company (“Glamsmile Dental”) and its subsidiaries,
Glamsmile (Asia) Limited, a company organized and existing under the laws of Hong Kong and a substantially 100 % owned subsidiary
of Glamsmile Dental, Beijing Glamsmile Technology Development Ltd., a 100 % owned subsidiary or GlamSmile Asia, its 80% owned subsidiary
Beijing Glamsmile Trading Co., Ltd. and its 98% owned subsidiary Beijing Glamsmile Dental Clinic Co., Ltd., including its 100%
Shanghai Glamsmile Dental Clinic Co., Ltd., and its 50 % owned Whenzhou GlamSmile Dental Clinic Ltd., which are accounted for using
the equity method after January 31, 2012 (see Note 3 – Long-term Investment)
Remedent, Inc. is a holding
company with headquarters in Ghent, Belgium. Remedent Professional, Inc. and Remedent Professional Holdings, Inc. have been dormant
since inception.
For all periods presented, all
significant inter-company accounts and transactions have been eliminated in the consolidated financial statements and corporate
administrative costs are not allocated to subsidiaries.
Interim Financial
Information
The interim consolidated financial
statements of Remedent, Inc. and Subsidiaries (the “Company”) are condensed and do not include some of the information
necessary to obtain a complete understanding of the financial data. Management believes that all adjustments necessary for a fair
presentation of results have been included in the unaudited consolidated financial statements for the interim periods presented.
Operating results for the nine months ended December 31, 2012, are not necessarily indicative of the results that may be expected
for the year ended March 31, 2013. Accordingly, your attention is directed to footnote disclosures found in the Annual Report
on Form 10-K for the year ending March 31, 2012, and particularly to Note 2, which includes a summary of significant accounting
policies.
Warranties
The Company typically warrants
its products against defects in material and workmanship for a period of 18 months from shipment.
A tabular reconciliation of
the Company’s aggregate product warranty liability for the reporting periods is as follows:
|
|
Nine months
ended
December 31, 2012
|
|
|
Year ended
March 31, 2012
|
|
Product warranty liability:
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
20,019
|
|
|
$
|
21,260
|
|
Accruals for product warranties issued in the period
|
|
|
(96
|
)
|
|
|
(2,002
|
)
|
Adjustments to liabilities for pre-existing warranties
|
|
|
—
|
|
|
|
761
|
|
Ending liability
|
|
$
|
19,923
|
|
|
$
|
20,019
|
|
Based upon historical trends
and warranties provided by the Company’s suppliers and sub-contractors, the Company has made a provision for warranty costs
of $19,923 and $20,019 as of December 31, 2012 and March 31, 2012, respectively.
Computation of Earnings (Loss)
per Share
Basic net income (loss) per
common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares
of common stock outstanding during the period. Net income (loss) per common share attributable to common stockholders assuming
dilution is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the number
of additional common shares that would have been outstanding if all dilutive potential common shares had been issued.
On April 1, 2009, the Company
adopted changes issued by the FASB to the calculation of earnings per share. These changes state that unvested share-based payment
awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities
and shall be included in the computation of earnings per share pursuant to the two-class method for all periods presented. The
adoption of this change had no impact on the Company’s basic or diluted net loss per share because the Company has never
issued any share-based awards that contain non-forfeitable rights.
At each of December 31, 2012
and March 31, 2012, the Company had 19,995,969, shares of common stock issued and outstanding. At December 31, 2012
and March 31, 2012, the Company had 3,738,379 and 7,794,627 warrants outstanding respectively and 1,795,000 and 1,895,000
options outstanding respectively. As of December 31, 2012, all outstanding warrants and options were excluded from the
computation of earnings per share because their effect would have been anti-dilutive.
Comprehensive income (loss)
includes all changes in equity except those resulting from investments by owners and distributions to owners, including accumulated
foreign currency translation, and unrealized gains or losses on marketable securities.
The Company’s only component
of other comprehensive income is the accumulated foreign currency translation consisting of (loss) and gains of $79,005 and $(881,940)
for the nine months ended December 31, 2012 and 2011, respectively. These amounts have been recorded as a separate component of
stockholders’ equity (deficit).
New
Accounting Pronouncements
In
June 2011, the Financial Accounting Standards Board (“FASB”) amended its rules regarding the presentation of comprehensive
income. The objective of this amendment is to improve the comparability, consistency and transparency of financial reporting and
to increase the prominence of items reported in other comprehensive income. Specifically, this amendment requires that all non-owner
changes in shareholders' equity be presented either in a single continuous statement of comprehensive income or in two separate
but consecutive statements. The new rules will become effective during interim and annual periods beginning after December 15,
2011, with the exception of the requirement to present reclassification adjustments from other comprehensive income to net income
on the face of the financial statements, which has been deferred pending further deliberation by the FASB. Because the standard
only impacts the presentation of comprehensive income and does not impact what is included in comprehensive income, the standard
will not have a significant impact on the Company's consolidated financial statements. The Company adopted this accounting standard
during the quarter ended June 30, 2012 and it did not impact the Company’s financial position or results of operations.
In
September 2011, the FASB issued Accounting Standards Update No. 2011-08, “
Intangibles – Goodwill and Other (Topic
350): Testing Goodwill for Impairment
”("ASU"). This newly issued accounting standard is intended to reduce
the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a "qualitative"
assessment to determine whether further impairment testing is necessary. Under the revised standard, an entity has the option
to first assess qualitative factors to determine whether it is necessary to perform the current two-step impairment test. If an
entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting
unit is less than its carrying amount, the quantitative impairment test is required; otherwise, no further testing is required.
Prior to the issuance of the revised standard, an entity was required to perform step one of the impairment test at least annually
by calculating and comparing the fair value of a reporting unit to its carrying amount. Under the revised standard, if an entity
determines that step one is necessary and the fair value of the reporting unit is less than its carrying amount, then step two
of the test will continue to be required to measure the amount of the impairment loss, if any. These amendments do not change
the current guidance for testing other indefinite-lived intangible assets for impairment. This ASU is effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted this standard
for the quarter ended June 30, 2012 and it did not impact the Company’s financial position or results from operations.
|
3
.
|
LONG-TERM INVESTMENTS
|
REMEDENT
OTC B.V.
In
connection with the restructuring of the Company’s OTC business in December 2008, the Company controlled Remedent OTC B.V.
until September 30, 2011 through its board representations. As agreed upon in the Voting Agreement, after September 30, 2011,
the Company had one board representation and consequently no longer controlled its investment in Remedent OTC B.V. As such, the
financials of Remedent OTC B.V. are no longer included in the consolidated financial statements but accounted for through the
equity method. No gain or loss was recorded on the deconsolidation. After September 30, 2011, the Company still owned 50% of Remedent
OTC B.V.
For
the nine months ended December 31, 2012, the Company recorded an equity loss of $(149,064) in “Other (expenses) income”
for its portion of the net loss recorded by Remedent OTC B.V.
Effective
July 13, 2012 the Company sold 100% of its interest in the share capital of Remedent OTC B.V., to an arm’s length party
for the total sales price of €1,000,000 ($667,300 (€ 500,000) received in July 2012).
Terms
of the sale provide that the purchase price shall be increased by (a) an amount of €250,000 under the condition that Sylphar
N.V., has a minimum turnover for the current fiscal year, ending March 31, 2013 of €3,250,000; and (b) a further amount of
€250,000 upon Sylphar’s achievement of a certain milestone of a License and Service Agreement with an independent third
party. Management anticipates that a first payment of €250,000 will be received by the end of the quarter ending March 31,
2013 and the second by the end of the quarter ending June 30, 2013. Accordingly $ 667,300 (€500,000) of other receivables
has been recorded as a current asset at December 31, 2012.
Acquisition
Effective January 1, 2010 the
Company acquired 50.98% of the issued and outstanding shares of Glamsmile Asia Ltd. (“Glamsmile Asia” or “Glamsmile”),
a private Hong Kong company, with subsidiaries in Hong Kong and Mainland China, in exchange for the following consideration:
|
1.
|
325,000 Euro (US$466,725). As of March 31, 2011 the full amount was paid.
|
|
2.
|
250,000 shares of common stock to be issued during the fiscal year ended March 31, 2011 ($97,500 was recorded as an obligation to issue shares as at March 31, 2010). The parties have agreed that the shares will be issued during fiscal year ended March 31, 2013.
|
|
3.
|
100,000 options on closing (issued);
|
|
4.
|
100,000 options per opened store at closing (issued);
|
|
5.
|
100,000 options for each additional store opened before the end of 2011 at the price of the opening date of the store;
|
|
6.
|
Assumption of Glamsmile’s January 1, 2010 deficit of $73,302.; and
|
|
7.
|
Repayment of the founding shareholder’s original advances in the amount of $196,599. The balance of $196,599, recorded as due to related parties at March 31, 2010, is unsecured, non-interest bearing and has no specific terms of repayment other than it will be paid out of revenues from Glamsmile, as working capital allows. During the year ended March 31, 2011 a total of $101,245 was paid to the founding shareholder, leaving a balance due of $95,354 on June 27, 2011. As at March 31, 2012 the full amount was paid.
|
All options
reside under the Company’s option plan and are five year options.
Also pursuant to the agreement, the Company
granted irrevocable right to Glamsmile Asia to use the Glamsmile trademark in Greater China.
The Company acquired a 50.98% interest
in GlamSmile Asia Ltd. (“GlamSmile Asia”) in order to obtain a platform in the Chinese Market to expand and introduce
our GlamSmile Asia concept into the Chinese Market. In order to sell into the Chinese Market, an approval by Chinese Authorities
is required, in the form of licenses. As GlamSmile Asia was already the owner of such licenses prior to the acquisition, this was
an important advantage. We obtained control of GlamSmile Asia through the acquisition of the 50.98% interest and the appointment
of our CEO as a Board member of GlamSmile Asia.
Deconsolidation
On January 28, 2012, the Company entered
into a Preference A Shares and Preference A-1 Shares Purchase Agreement (“Share Purchase Agreement”) with Glamsmile
Dental Technology Ltd., a Cayman Islands company and a subsidiary of the Company (“Glamsmile Dental”), Glamsmile (Asia)
Limited, a company organized and existing under the laws of Hong Kong and a substantially owned subsidiary of Glamsmile Dental,
Beijing Glamsmile Technology Development Ltd., Beijing Glamsmile Trading Co., Ltd., Beijing Glamsmile Dental Clinic Co., Ltd.,
and Shanghai Glamsmile Dental Clinic Co., Ltd., Gallant Network Limited, a shareholder of Glamsmile Dental (“Gallant”),
and IDG-Accel China Growth Fund III L.P. (“IDG Growth”), IDG-Accel China III Investors L.P.(“IDG Investors”)
and Crown Link Group Limited (“Crown”)(“IDG Growth, IDG Investors and Crown collectively referred to as the “Investors”),
pursuant to which the Investors agreed to (i) purchase from the Company an aggregate of 2,857,143 shares of Preference A-1 Shares
of Glamsmile Dental, which represents all of the issued and outstanding Preference A-1 Shares of Glamsmile Dental, for an aggregate
purchase price of $2,000,000, and (ii) purchase from Glamsmile Dental an aggregate of 5,000,000 shares of Preference A Shares for
an aggregate purchase price of $5,000,000.
Under the terms of the Share Purchase Agreement,
the Company agreed (a) to indemnify the Investors and their respective affiliates for losses arising out of a breach, or inaccuracy
or misrepresentation in any representation or warranty made by the Company or a breach or violation of a covenant or agreement
made by the Company for up to $1,500,000, and (b) to transfer 500,000 shares of Glamsmile Dental owned by the Company to the Investors
in the event of breach of certain covenants by the Company. In connection with the Share Purchase Agreement, the Company also agreed
to enter into an Investor’s Rights Agreement, Right of First Refusal and Co-Sale Agreement, and Voting Agreement with the
parties.
In addition, in connection with the contemplated
transactions in the Share Purchase Agreement on January 20, 2012, the Company entered into a Distribution, License and Manufacturing
Agreement with Glamsmile Dental pursuant to which the Company appointed Glamsmile Dental as the exclusive distributor and licensee
of Glamsmile Veneer Products bearing the “Glamsmile” name and mark in the B2C Market in the People’s Republic
of China (including Hong Kong and Macau) and Republic of China (Taiwan) and granted related manufacturing rights and licenses in
exchange for the original issuance of 2,857,143 shares of Preference A-1 Shares of Glamsmile Dental and $250,000 (the receipt of
which was acknowledged as an offset to payment of certain invoices of Glamsmile (Asia) Limited).
On February 10, 2012, the sale of the Preference
A-1 Shares and the Preference A Shares was completed. As a result of the closing, the equity ownership of Glamsmile Dental, on
an as converted basis, is as follows: 31.4% by the Investors, 39.2 % by Gallant, and 29.4% by the Company. Mr. De Vreese, our chairman,
will remain as a director of Glamsmile Dental along with Mr. David Lok, who is the Chief Executive Officer and director of Glamsmile
Dental and principal of Gallant. The Investors have a right to appoint one director of Glamsmile Dental, and accordingly the Board
of Directors of Glamsmile Dental will consist of Mr. De Vreese, Mr. Lok and a director appointed by the Investors.
In conjunction with the transaction and
resulting deconsolidation of Glamsmile Dental, the Company recorded a gain of $1,470,776, calculated as follows:
Consideration received
|
|
$
|
2,000,000
|
|
Fair value of 29.4% interest
|
|
|
2,055,884
|
|
Carrying value of non-controlling interest
|
|
|
1,117,938
|
|
Less: carrying value of former subsidiary’s net assets
|
|
|
(2,002,329
|
)
|
Goodwill
|
|
|
(699,635
|
)
|
Investment China & Hong Kong
|
|
|
(1,082
|
)
|
Rescission agreement Excelsior (Note 11)
|
|
|
(1,000,000
|
)
|
|
|
$
|
1,470,776
|
|
For the nine month period ended December
31, 2012 the Company recorded equity income of $268,440 “Other (expenses) income” for its portion of the net income
recorded by GlamSmile Dental Technology Ltd.
4. DISTRIBUTION AGREEMENTS
Den-Mat Distribution Agreement
On August 24, 2008, the Company entered
into a distribution agreement (the “Distribution Agreement”) with Den-Mat Holdings, LLC, a Delaware limited liability
company (“Den-Mat”). Pursuant to the Distribution Agreement, the Company appointed Den-Mat to be the
sole and exclusive distributor to market, license and sell certain products relating to the Company’s GlamSmile tray technology,
including, but not limited to, its GlamSmile veneer products and other related veneer products (the “Products”), throughout
the world, with the exception of Australia, Austria, Belgium, Brazil, France (including all French overseas territories “Dom-Tom”),
Germany, Italy, New Zealand, Oman, Poland, Qatar, Saudi Arabia, Singapore, Switzerland, Thailand, and United Arab Emirates (collectively
the “Excluded Markets”) and the China Market (the “Territory”).
As consideration for such distribution,
licensing and manufacturing rights, Den-Mat agreed to pay the Company:
|
(i)
|
an initial payment of $2,425,000 (received);
|
|
(ii)
|
a payment of $250,000 for each of the first three contract periods in the initial Guaranty Period, subject to certain terms and conditions;
|
|
(iii)
|
certain periodic payments as additional paid-up royalties in the aggregate amount of $500,000 (received);
|
|
(iv)
|
a payment of $1,000,000 promptly after Den-Mat manufactures a limited quantity of products at a facility owned or leased by Den-Mat;
|
|
(v)
|
A payment of $1,000,000 promptly upon completion of certain training of Den-Mat’s personnel;
|
|
(vi)
|
a payment of $1,000,000 upon the first to occur of (a) February 1, 2009 or (b) the date thirty (30) days after den-Mat sells GlamSmile Products incorporating twenty thousand (20,000) Units/Teeth to customers regardless of whether Den-Mat has manufactured such Units/Teeth in a Den-Mat facility or has purchased such Units/Teeth from the Company;
|
|
(vii)
|
certain milestone payments; and
|
|
(viii)
|
certain royalty payments.
|
The Company
has received $698,597 in royalty payments and $4,000,000 in milestone payments, subsequent to the initial payment of $2,425,000.
Further, as consideration for Den-Mat’s
obligations under the Distribution Agreement, the Company agreed to, among other things:
|
(i)
|
issue to Den-Mat or an entity to be designated by Den-Mat, warrants to purchase up to 3,378,379 shares of the Corporation’s common stock, par value $0.001 per share (the “Warrant Shares”) at an exercise price of $1.48 per share, exercisable for a period of five years (the “Den-Mat Warrant”) (The warrants were issued in the period ended September 30, 2008 and were valued at $4,323,207 based upon the Black-Scholes option pricing model utilizing a market price on the date of grant of $1.48 per share, an annualized volatility of 131%, a risk free interest rate of 3.07% and an expected life of five years. The expense was originally classified as a non-operating expense however, we have subsequently reclassified the expense to operations since our agreement with Den-Mat is in the normal course of our operations. The reclassification increased our operations expenses by $4,323,207, while reducing our other expenses by the same amount, resulting in no net impact upon our consolidated net loss for the year ended March 31, 2009.
|
|
(ii)
|
execute and deliver to Den-Mat a registration rights agreement covering the registration of the Warrant Shares (the “Registration Rights Agreement”) which as of March 31, 2011 has not yet been filed (*); and
|
|
(iii)
|
cause its Chairman of the Board, Guy De Vreese, to execute and deliver to Den-Mat a non-competition agreement.
|
(*) In 2009, the Company and Den-Mat agreed
that the shares underlying the warrants would be registered pursuant to a registration statement upon the earlier occurrence of
(a) Den-Mat’s demand for the shares to be registered, or (b) an initiation and filing of a registration statement by other
investors or the Company. As of December 31, 2012, neither event has occurred to trigger a registration statement. As
a result, the Company is not under default under the distribution agreement and there is no impact on the distribution agreement
or the accounting for the distribution agreement
.
On June 3, 2009, the Distribution Agreement
was amended and restated (the “Amended Agreement”). The Amended Agreement modifies and clarifies certain terms and
provisions which among other things includes:
(1) the expansion of the list of Excluded
Markets to include Spain, Japan, Portugal, South Korea and South Africa for a period of time;
(2) clarification that Den-Mat’s
distribution and license rights are non-exclusive to market, sell and distribute the Products directly to consumers through retail
locations (“B2C Market”) in the Territory and an undertaking to form a separate subsidiary to and to issue warrants
to Den-Mat in the subsidiary in the event that the Company decides to commercially exploit the B2C Market in North America after
January 1, 2010;
(3) subject to certain exceptions, a commitment
from the Company to use Den-Mat as its supplier to purchase all of its, and its licensee’s, GlamSmile products in the B2C
Market from Den-Mat, with reciprocal commitment from Den-Mat to sell such products;
(4) modification of certain defined terms
such as “Guaranty Period,” “Exclusivity Period” and addition of the term “Contract Period”;
and
(5) the “Guaranty Period” (as
defined therein) is no longer a three year period but has been changed to the first three “Contract Periods”. The
first Contract Period commences on the first day of the Guaranty Period (which the Parties agreed has commenced as of April 1,
2009), and continues for fifteen (15) months or such longer period that would be necessary in order for Den-Mat to purchase a certain
minimum number of Units/Teeth as agreed upon in the Amended Agreement (“Minimum Purchase Requirement”) in the event
that the Company’s manufacturing capacity falls below a certain threshold. The second and each subsequent GlamSmile
Contract Period begins on the next day following the end of the preceding “Contract Period” and continues for twelve
(12) months or such longer period that would be necessary in order for Den-Mat to meet its Minimum Purchase Requirement in the
event that the Company’s manufacturing capacity falls below a certain threshold.
In August 2009, the Distribution Agreement
was further amended (the “August Amendment”). The August Amendment expands the Company’s products covered under
the Distribution Agreement to include the Company’s new Prego System Technology (“Prego System”), also commonly
known as “Glamstrip”. Under the Amendment, the $250,000 payment which was originally due upon the expiration of the
first Contract Period (as defined in the Distribution Agreement) is now due on the earlier occurrence of (i) sixty days from August
11, 2009 or (ii) the performance of the Company’s live patient clinical demonstration of the Prego System to be performed
at Den-Mat’s reasonable satisfaction (received).
The August Amendment also provides for
(a) the royalty rate for products manufactured and sold by Den-Mat using the Prego System after the Guaranty Period (as defined
in the Distribution Agreement), (b) Den-Mat’s right to elect to manufacture or purchase from a third party manufacturer any
or all portion of the minimum purchase requirements under the Distribution Agreement provided however, that if Den-Mat fails to
purchase the minimum number of Units/Teeth as required during any month, Den-Mat may cure such default by paying the Company a
certain royalty on the difference between the minimum purchase requirement and the amount actual purchased by Den-Mat during such
month, with such royalties accruing and being due and payable upon the earlier occurrence of either (1) one hundred twenty days
from August 11, 2009 or (2) the successful performance of the Company’s live patient demonstration of the First Fit
Technology licensed to Den-Mat pursuant to the First Fit-Crown Distribution and License Agreement, to be performed at
Den-Mat’s reasonable satisfaction; and all shortfall payments thereafter being due and payable within 15 days after the end
of the month in which shortfall occurred, and (c) Den-Mat’s option to purchase a certain number of Prego Systems in lieu
of Trays during each of the first three Contract Periods pursuant to the terms, including price and conditions, set forth in the
Amendment so long as such option is exercised during the period commencing on August 11, 2009 and ending on the later of either
91 days or 31 days after the Company demonstrates to Den-Mat that it has the capacity to produce a certain number of Prego System
per Contract Period. Furthermore under the Amendment, if Den-Mat fails to purchase the required minimum Trays during any Contract
Period, such failure may be cured by payment equal to the difference between the aggregate purchase price that would have been
paid had Den-Mat purchased the required minimum and the aggregate purchase price actually paid for such Contract Year within 30
days after the end of such Contract Period. With the exception of the provisions amended by the Amendment, the Distribution Agreement
remains in full force and effect.
First Fit Distribution Agreement
On June 3, 2009, the Company entered into
the First Fit-Crown Distribution and License Agreement (the “First Fit Distribution Agreement”) with Den-Mat. Under
the terms of the First Fit Distribution Agreement, the Company appointed Den-Mat to be its sole and exclusive distributor to market,
license and sell certain products relating to the Company’s proprietary First Fit technology (the “First Fit Products”),
in the United States, Canada and Mexico (the “First Fit Territory”). In connection therewith, the Company
also granted Den-Mat certain non-exclusive rights to manufacture and produce the First Fit Products in the First-Fit Territory;
and a sole and exclusive transferable and sub-licensable right and license to use the Company’s intellectual property rights
relating to the First Fit Products to perform its obligations as a distributor (provided the Company retains the right to use and
license related intellectual property in connection with the manufacture of the First Fit Products for sale outside of the First
Fit Territory).
Consummation of the First Fit Distribution
Agreement is subject to: completion of Den-Mat’s due diligence; execution and delivery of Non-Competition Agreements; and
the delivery of the Development Payment and first installment of the License Payment (the “Development Payment” and
License Payment” are defined below).
Under the First Fit Distribution Agreement,
the Company granted such distribution rights, licensing rights and manufacturing rights, in consideration for the following: (i)
a non-refundable development fee of Four Hundred Thousand Dollars ($400,000) (the “Development Payment”) payable in
two installments of $50,000 each, one within seven days after the effective date of the First Fit Distribution Agreement, and another
$350,000 payment within twenty one days after the Effective Date ($400,000 received as at June 30, 2009); (ii) a non-refundable
license fee of $600,000 payable in three equal installments of $200,000 each, with the first installment payable on the Closing
Date, and with the second and third installments payable on the 30th and 60th day, respectively, after the Closing Date (received);
(iii) certain royalty payments based on the sales of the First Fit Products by Den-Mat or its sub-licensees; and (iv) certain minimum
royalty payments to maintain exclusivity.
Den-Mat’s rights as an exclusive
distributor and licensee will continue at least through the first Contract Period (defined below) and until the termination of
the First Fit Distribution Agreement. Den-Mat’s exclusivity ends at the end of any Contract Period in which Den-Mat
fails to make certain minimum royalty payments. In the event that such exclusivity is terminated, Den-Mat has the option
to either terminate the First Fit Distribution Agreement upon ninety (90) days written notice, or become a non-exclusive distributor
and licensee, in which event Den-Mat’s obligation to pay certain agreed upon royalties would continue. “Contract
Period” means the following periods: (A) the first eighteen months beginning on the first day of the month following
the month in which the Closing occurs, provided that if Den-Mat is not fully operational within sixty days after the Closing Date,
the first Contract Period will be extended by one day for each day after the sixtieth day until Den-Mat becomes fully operational;
(B) the subsequent twelve months; and (C) each subsequent twelve month period thereafter, in each case during which the First Fit
Distribution Agreement is in effect.
On March 29, 2010, a certain Amendment
No. 1 was made to the First Fit Distribution Agreement dated June 3, 2009. The terms of Amendment No. 1 are as follows:
The total purchase price for the First
Fit IP consists of installment payments and royalty payments. The cash component of the purchase price of the First Fit IP is $2,850,000
to be paid in the form of cash in the following installments: (a) $50,000 upon delivery by Remedent to Den-Mat of a working prototype
of the First Fit crown (received); (b) $525,000 on or before March 15, 2010 (received); (c) $700,000 on June 30, 2010 (received);
and (d) $500,000 on December 31, 2010 (received), June 30, 2011 (during the three months ended June 30, 2011 the Company agreed
to postpone receipt of the $500,000 due from Den-Mat on June 30, 2011 to be received as follows: $250,000 at the end of September,
2011 (received) and $250,000 at the end of October, 2011(received).
Effective March 27, 2012 the Company and Den-Mat entered into
a termination and license agreement, as follows:
|
(a)
|
the parties have agreed
to terminate the distribution, manufacturing and license agreement and any ancillary agreements (the “Agreements”);
|
|
(b)
|
Den-Mat will pay the Company
$200,000 cash in complete satisfaction of any and all payments due (received); and
|
|
(c)
|
the Company grants to Den-Mat
a non-exclusive, irrevocable, perpetual, royalty free license to use within the territory of intellectual property that was the
subject of the Agreements and license with Den-Mat.
|
Financial
Instruments — Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally
of trade accounts receivable.
Concentrations of credit risk
with respect to trade receivables are normally limited due to the number of customers comprising the Company’s customer base
and their dispersion across different geographic areas. At December 31, 2012, five customers accounted for 53.01% of
the Company’s trade accounts receivables, and two customers accounted for 32.45%. The Company performs ongoing
credit evaluations of its customers and normally does not require collateral to support accounts receivable.
Purchases — The Company
has diversified its sources for product components and finished goods and, as a result, the loss of a supplier would not have a
material impact on the Company’s operations. For the nine months ended December 31, 2012 the Company had five
suppliers who accounted for 20.66% of gross purchases. For the nine months ended December 31, 2011 the Company had five suppliers
who accounted for 25.2% of gross purchases.
Revenues — For
the nine months ended December 31, 2012 the Company had five customers that accounted for 68.44% of total revenues. For the nine
months ended December 31, 2011 the Company had five customers that accounted for 25.9% of total revenues.
Foreign customers accounted
for 100% of the Company`s sales for the nine month period ended December 31, 2012 (2011 – 89.49%).
|
6.
|
ACCOUNTS RECEIVABLE
AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
The Company’s
accounts receivable at period end were as follows:
|
|
December 31, 2012
|
|
|
March 31, 2012
|
|
Accounts receivable, gross
|
|
$
|
623,127
|
|
|
$
|
850,601
|
|
Less: allowance for doubtful accounts
|
|
|
(4,989
|
)
|
|
|
(12,361
|
)
|
Accounts receivable, net
|
|
$
|
618,138
|
|
|
$
|
838,240
|
|
Inventories at period end are
stated at the lower of cost (first-in, first-out) or net realizable value and consisted of the following:
|
|
December 31, 2012
|
|
|
March 31, 2012
|
|
Raw materials
|
|
$
|
24,917
|
|
|
$
|
58,189
|
|
Components
|
|
|
368,359
|
|
|
|
283,572
|
|
Finished goods
|
|
|
823,051
|
|
|
|
892,244
|
|
|
|
|
1,216,327
|
|
|
|
1,234,005
|
|
Less: reserve for obsolescence
|
|
|
(155,488
|
)
|
|
|
(156,239
|
)
|
Net inventory
|
|
$
|
1,060,839
|
|
|
$
|
1,077,766
|
|
Prepaid expenses are
summarized as follows:
|
|
December 31, 2012
|
|
|
March 31, 2012
|
|
Prepaid materials and components
|
|
$
|
475,539
|
|
|
$
|
882,998
|
|
Prepaid Consulting
|
|
|
31,500
|
|
|
|
—
|
|
VAT payments in excess of VAT receipts
|
|
|
18,563
|
|
|
|
60,252
|
|
Prepaid interest
|
|
|
—
|
|
|
|
18,109
|
|
Prepaid rent
|
|
|
134,480
|
|
|
|
145,138
|
|
Other
|
|
|
73,580
|
|
|
|
42,767
|
|
|
|
$
|
733,662
|
|
|
$
|
1,149,264
|
|
|
9.
|
PROPERTY AND EQUIPMENT
|
Property
and equipment are summarized as follows:
|
|
December 31, 2012
|
|
|
March 31, 2012
|
|
Furniture and Fixtures
|
|
$
|
560,643
|
|
|
$
|
540,104
|
|
Machinery and Equipment
|
|
|
1,601,162
|
|
|
|
1,499,271
|
|
|
|
|
2,161,805
|
|
|
|
2,039,375
|
|
Accumulated depreciation
|
|
|
(1,461,856
|
)
|
|
|
(1,398,155
|
)
|
Property & equipment, net
|
|
$
|
699,949
|
|
|
$
|
641,220
|
|
The Company has a mixed-use
line of credit facility with BNP Paribas Fortis Bank, a Belgian bank (the “Facility”). The Facility is secured
by a first lien on the assets of Remedent N.V. and by personal guarantee of the Company’s CEO.
The latest amendment to the
Facility, dated December 3, 2012, reduced the line of credit of Remedent N.V. from a mixed credit line of € 1,250,000 (to
be used as = € 750,000 straight loans and € 500,000 for advances on accounts receivable) to a Credit line of € 400,000
to be used as straight loans. The repayment of the reduced Credit line is agreed as following: € 500,000 by the end of the
quarter ending March 2013 and € 250,000 by the end of the quarter ending June 2013.The line of credit carries its own interest
rates and fees as provided in the Facility and vary from the current prevailing bank rate of approximately 3.27%, for draws on
the credit line, to 9.9% for advances on accounts receivable. As of December 31, 2012 and March 31, 2012, Remedent N.V. had
in aggregate, $1,457,854 and $1,079,263 in advances outstanding, respectively, under the mixed-use line of credit facilities.
Capital
Lease Agreements:
On January 15, 2010, the Company
entered into a capital lease agreement over a 5 year period for veneer manufacturing equipment totaling €251,903 (US
$334,578).
The lease require a monthly
payments of principal and interest at 9.72% and provide for a buyout at the conclusion of the lease terms of 4% of the original
value of the contract.
The net book value as of December
31, 2012 and March 31, 2012 of the equipment subject to the foregoing lease was $179,088 and $273,557 respectively.
The following is a schedule
by years of future minimum lease payments under capital lease together with the present value of the net minimum lease payments
as of March 31, 2012:
Year ending March 31:
|
|
|
|
2013
|
|
$
|
20,701
|
|
2014
|
|
|
82,812
|
|
2015
|
|
|
83,509
|
|
2016
|
|
|
—
|
|
Later years
|
|
|
—
|
|
Total minimum lease payments
|
|
|
187,022
|
|
Less: Amount representing estimated executory costs (such as taxes, maintenance, and insurance), including profit thereon, included in total minimum lease payments
|
|
|
—
|
|
Net minimum lease payments
|
|
|
187,022
|
|
Less: Amount representing interest (*)
|
|
|
7,934
|
|
Present value of minimum lease payments (**)
|
|
$
|
179,088
|
|
* Amount necessary to reduce net minimum
lease payments to present value calculated at the Company’s incremental borrowing rate at the inception of the leases.
** Reflected in the balance sheet as current and
non-current obligations under capital leases of $19,032 and $160,056 respectively.
Secured Debt Agreements (1)
On June 3, 2011, the Company
obtained a loan in the principal amount of $1,000,000 (the “Loan”) from an unrelated private company, Excelsior Medical
(HK) (“EM”). In connection with the Loan, the Company issued a promissory note, with a simple interest rate of 5% per
annum, secured by certain assets of the Company (the “Note”). The maturity date of the Loan is June 3, 2014. Interest
of $50,000 per annum is payable in cash on an annual basis.
Effective as of January 11,
2012, the Company entered into a Rescission Agreement with EM and Asia Best Healthcare Co., Ltd. Under the Rescission Agreement,
the Company agreed to repay a total of $1,000,000 received under the Distribution Agreement, plus a simple interest rate of 5%,
beginning on June 30, 2012, according to the following payment schedule: (i) $250,000 to be paid no later than June 30, 2012, (ii)
$250,000 plus interest on June 30, 2012, (iii) $250,000 plus interest on December 31, 2012, and (iv) $250,000 plus interest
on June 30, 2013. The Company also agreed to secure such obligations owed to EM with certain collateral of the Company. During
the period ended December 31, 2012 a partial payment of $20,000 in interest has been made. The Company is currently in the process
of re-negotiating the terms of repayment.
Secured Debt Agreements (2)
On December 3, 2012, the Company
obtained a loan in the principal amount of € $100,000 (the “Loan”) from BNP Paribas Fortis bank, to be repaid
over the next 24 months. The loan is secured by a lien on the assets of Remedent N.V. as already granted for the use of our existing
Credit Line Facility. The maturity date of the Loan is January 2, 2015 at an Interest of 3,93 % to be repaid in monthly installments
of € 4.330 ($5,752).
|
12.
|
DUE TO RELATED PARTIES
AND RELATED PARTY TRANSACTIONS
|
Transactions with
related parties not disclosed elsewhere in these financial statements consisted of the following:
Compensation:
During the nine month periods
ended December 31, 2012 and 2011 respectively, the Company incurred $407,708 and $497,561 respectively, as compensation for all
directors and officers.
All related party transactions
involving provision of services or tangible assets were recorded at the exchange amount, which is the value established and agreed
to by the related parties reflecting arm`s length consideration payable for similar services or transfers.
Accrued liabilities
are summarized as follows:
|
|
December 31, 2012
|
|
|
March 31, 2012
|
|
Accrued employee benefit taxes and payroll
|
|
$
|
198,180
|
|
|
$
|
358,148
|
|
Accrued travel
|
|
|
9,962
|
|
|
|
10,010
|
|
Commissions
|
|
|
—
|
|
|
|
687
|
|
Accrued audit and tax preparation fees
|
|
|
5,000
|
|
|
|
11,318
|
|
Reserve for warranty costs
|
|
|
19,923
|
|
|
|
20,019
|
|
Reserve for income taxes
|
|
|
1,935
|
|
|
|
2,936
|
|
Accrued interest
|
|
|
15,565
|
|
|
|
1,322
|
|
Accrued consulting fees
|
|
|
190,719
|
|
|
|
16,129
|
|
Other accrued expenses
|
|
|
25,780
|
|
|
|
115,762
|
|
|
|
$
|
467,064
|
|
|
$
|
536,331
|
|
|
14.
|
EQUITY COMPENSATION
PLANS
|
As
of March 31, 2012, the Company had three equity compensation plans approved by its stockholders (1) the 2001 Incentive and Non-statutory
Stock Option Plan (the “2001 Plan”), (2) the 2004 Incentive and Non-statutory Stock Option Plan (the “2004 Plan”);
and (3) the 2007 Equity Incentive Plan (the “2007 Plan”). The Company’s stockholders approved the 2001 Plan
reserving 250,000 shares of common stock of the Company pursuant to an Information Statement on Schedule 14C filed with the Commission
on August 15, 2001. In addition, the Company’s stockholders approved the 2004 Plan reserving 800,000 shares of common stock
of the Company pursuant to an Information Statement on Schedule 14C filed with the Commission on May 9, 2005. Finally,
the Company’s stockholders approved the 2007 Plan reserving 1,000,000 shares of common stock of the Company pursuant to
a Definitive Proxy Statement on Schedule 14A filed with the Commission on October 2, 2007.
In addition to the equity
compensation plans approved by the Company’s stockholders, the Company has issued options and warrants to individuals pursuant
to individual compensation plans not approved by our stockholders. These options and warrants have been issued in exchange
for services or goods received by the Company.
The following table provides
aggregate information as of December 31, 2012 with respect to all compensation plans (including individual compensation arrangements)
under which equity securities are authorized for issuance.
|
|
2001 Plan
|
|
|
2004 Plan
|
|
|
2007 Plan
|
|
|
Other
|
|
|
|
Outstanding
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding,
March 31, 2012
|
|
|
12,500
|
|
|
|
1.19
|
|
|
|
532,500
|
|
|
|
0.89
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
350,000
|
|
|
|
.97
|
|
Options expired
|
|
|
—
|
|
|
|
|
|
|
|
(100,000)
|
|
|
|
1.50
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
Options outstanding,
December 31, 2012
|
|
|
12,500
|
|
|
|
1.20
|
|
|
|
432,500
|
|
|
|
0.84
|
|
|
|
1,000,000
|
|
|
|
1.15
|
|
|
|
350,000
|
|
|
|
.97
|
|
Options exercisable
December 31, 2012
|
|
|
12,500
|
|
|
|
1.20
|
|
|
|
432,500
|
|
|
|
0.84
|
|
|
|
1,000,000
|
|
|
|
1.15
|
|
|
|
350,000
|
|
|
|
.97
|
|
Exercise price range
|
|
|
$1.00 to $2.00
|
|
|
|
|
|
|
|
$0.50 - $1.75
|
|
|
|
|
|
|
|
$0.50 - $1.75
|
|
|
|
|
|
|
|
$.39 - 1.75
|
|
|
|
|
|
Weighted average
remaining life
|
|
1.27 years
|
|
|
|
|
|
|
5.0 years
|
|
|
|
|
|
|
5.37 years
|
|
|
|
|
|
|
3.81 years
|
|
|
|
|
|
A summary of the Company’s equity compensation plans approved
and not approved by shareholders is as follows:
Plan Category
|
|
Number of
securities to
be
issued upon
exercise of
of
outstanding
options,
warrants
and rights
|
|
|
Weighted-average
exercise price of
outstanding
options
warrants and
rights
|
|
|
Number of
securities
remaining
available for
future
issuance
under
equity
compensation
plans
(excluding
securities
reflected
in column (a))
|
|
Equity Compensation Plans approved by security holders
|
|
|
1,445,000
|
|
|
$
|
1.17
|
|
|
|
605,000
|
|
Equity Compensation Plans not approved by security holders
|
|
|
820,000
|
|
|
$
|
.97
|
|
|
|
NA
|
|
Total
|
|
|
2,265,000
|
|
|
$
|
1.10
|
|
|
|
605,000
|
|
For
the nine month period ended December 31, 2012 the Company recognized $Nil (2011 — $39,075) in compensation expense in the
consolidated statement of operations. No stock options were granted or cancelled/expired in the nine month period ended
December 31, 2012.
|
15.
|
COMMON STOCK WARRANTS
AND OTHER OPTIONS
|
As
of December 31, 2012 and March 31, 2012, the Company had warrants to purchase the Company’s common stock outstanding that
were not granted under shareholder approved equity compensation plans as follows:
|
|
Outstanding
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Warrants outstanding March 31, 2012
|
|
|
7,794,627
|
|
|
|
1.50
|
|
Warrants expired
|
|
|
(4,056,248
|
)
|
|
|
1.55
|
|
Warrants outstanding and exercisable December 31, 2012
|
|
|
3,738,379
|
|
|
$
|
1.48
|
|
Exercise price range
|
|
$
|
1.48
|
|
|
|
|
|
Weighted average remaining life
|
|
|
0.65 Years
|
|
|
|
|
|
The Company’s only operating segment
consists of dental products and oral hygiene products sold by Remedent Inc., Remedent N.V., GlamSmile Deutschland GmbH and GlamSmile
Rome SRL
|
|
Revenues
For the nine month
period ended
December 31, 2012
|
|
|
Revenues for the nine
month period ended
December 31, 2011
|
|
|
|
Revenues (a)
|
|
|
Revenues (a)
|
|
United States
|
|
$
|
—
|
|
|
$
|
884,114
|
|
Europe
|
|
|
1,572,511
|
|
|
|
4,099,465
|
|
China
|
|
|
—
|
|
|
|
3,430,031
|
|
Total
|
|
$
|
1,572,511
|
|
|
$
|
8,413,610
|
|
|
|
|
|
|
|
|
|
|
Long-lived Assets
As at
December 31, 2012
|
|
|
Long-lived Assets
As at
March 31, 2012
|
|
United States
|
|
$
|
2,360,958
|
|
|
$
|
699,635
|
|
Europe
|
|
|
729,096
|
|
|
|
1,665,578
|
|
China
|
|
|
—
|
|
|
|
343,919
|
|
Total
|
|
$
|
3,090,054
|
|
|
$
|
2,709,132
|
|
(a)
Revenues are attributed to country based on location of customer.
Real
Estate Lease:
The Company leases an office
facility of 5,187 square feet in Gent, Belgium from an unrelated party pursuant to a nine year lease commening September 1, 2008
at a base rent of € 5,712 per month for the total location ($7,587 per month at December 31, 2012).
Secondly, the Company leases
an office facility of 1,991 square feet in Rome, Italy to support the sales and marketing division of our veneer business, from
an unrelated party pursuant to a six year lease commencing July 1, 2011, at a base rent of €6,500 per month for the total
location ($8,633 per month at December 31, 2012).
Real Estate Lease and All Other
Leased Equipment:
Minimum monthly lease payments
for real estate, and all other leased equipment are as follows based upon the conversion rate for the (Euro) at December 31, 2012:
March 31, 2013
|
|
$
|
101,432
|
|
March 31, 2014
|
|
|
405,443
|
|
March 31, 2015
|
|
|
348,668
|
|
March 31, 2016
|
|
|
253,248
|
|
March 31, 2017
|
|
|
214,185
|
|
After five years
|
|
|
94,191
|
|
Total:
|
|
$
|
1,417,167
|
|
18.
|
FINANCIAL INSTRUMENTS
|
The FASB ASC topic 820 on fair value measurement
and disclosures establishes three levels of inputs that may be used to measure fair value: quoted prices in active markets for
identical assets or liabilities (referred to as Level 1), observable inputs other than Level 1 that are observable for the asset
or liability either directly or indirectly (referred to as Level 2), and unobservable inputs to the valuation methodology that
are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).
The carrying values and fair values of our financial instruments
are as follows:
|
|
|
|
|
December 31, 2012
|
|
|
March 31, 2012
|
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Level
|
|
|
value
|
|
|
Value
|
|
|
value
|
|
|
value
|
|
Cash
|
|
|
1
|
|
|
$
|
12,990
|
|
|
$
|
12,990
|
|
|
$
|
203,584
|
|
|
$
|
203,584
|
|
Accounts receivable
|
|
|
2
|
|
|
$
|
618,138
|
|
|
$
|
618,138
|
|
|
$
|
838,240
|
|
|
$
|
838,240
|
|
Other Receivable
|
|
|
2
|
|
|
$
|
667,300
|
|
|
$
|
667,300
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Long term investments and advances OTC Division
|
|
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
962,505
|
|
|
$
|
962,505
|
|
Long term investments and advances Soca
|
|
|
3
|
|
|
$
|
750,000
|
|
|
$
|
—
|
|
|
$
|
750,000
|
|
|
$
|
—
|
|
Long Term investment and advance - GlamSmile Dental Technology Asia
|
|
|
3
|
|
|
$
|
2,360,958
|
|
|
$
|
2,360,958
|
|
|
$
|
2,092,518
|
|
|
$
|
2,092,518
|
|
Line of credit
|
|
|
2
|
|
|
$
|
1,457,854
|
|
|
$
|
1,457,854
|
|
|
$
|
1,079,263
|
|
|
$
|
1,079,263
|
|
Short term debt
|
|
|
2
|
|
|
$
|
1,144,342
|
|
|
$
|
1,144,342
|
|
|
$
|
863,501
|
|
|
$
|
863,501
|
|
Deferred revenue
|
|
|
2
|
|
|
$
|
193,784
|
|
|
$
|
193,784
|
|
|
$
|
57,254
|
|
|
$
|
57,254
|
|
Accounts payable
|
|
|
2
|
|
|
$
|
1,071,212
|
|
|
$
|
1,071,212
|
|
|
$
|
1,009,176
|
|
|
$
|
1,009,176
|
|
Accrued liabilities
|
|
|
2
|
|
|
$
|
467,064
|
|
|
$
|
467,064
|
|
|
$
|
536,331
|
|
|
$
|
536,331
|
|
Long term debt
|
|
|
2
|
|
|
$
|
1,227,703
|
|
|
$
|
1,227,703
|
|
|
$
|
1,452,523
|
|
|
$
|
1,452,523
|
|
The following method was used to estimate the fair values of
our financial instruments:
The carrying amount of level 1 and level 2 financial instruments
approximates fair value because of the short maturity of the instruments.
Financial assets are considered Level 3
when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least
one significant model assumption or input is unobservable. Level 3 financial assets also include certain investment securities
for which there is limited market activity such that the determination of fair value requires significant judgment or estimation.
The Company reviews the fair value hierarchy
classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels
for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels
within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused
the transfer occurs. There were no significant transfers between Level 1, Level 2, or Level 3 during the nine month periods ended
December 31, 2012 or December 31, 2011. When a determination is made to classify an asset or liability within Level 3, the determination
is based upon the significance of the unobservable inputs to the overall fair value measurement. The following table provides a
reconciliation of the beginning and ending balances of the item measured at fair value on a recurring basis in the table above
that used significant unobservable inputs (Level 3):
|
|
Nine month period ended
December 31,
2012
|
|
Long term investments and advances:
|
|
|
|
|
Beginning balance
|
|
$
|
2,092,518
|
|
Gains (losses) included in net loss
|
|
|
268,440
|
|
Transfers in (out of level 3)
|
|
|
—
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,360,958
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The discussion contained herein is for the
nine months ended December 31, 2012 and December 31, 2011. The following discussion should be read in conjunction with the Company’s
consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Quarterly Report
on Form 10-Q for the quarterly period ended December 31, 2012. In addition to historical information, this section contains
“forward-looking” statements, including statements regarding the growth of product lines, optimism regarding the business,
expanding sales and other statements. Words such as expects, anticipates, intends, plans, believes, sees, estimates and variations
of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks and uncertainties that are difficult to predict. Actual results could vary materially
from the description contained herein due to many factors including continued market acceptance of our products. In addition, actual
results could vary materially based on changes or slower growth in the oral care and cosmetic dentistry products market; the potential
inability to realize expected benefits and synergies; domestic and international business and economic conditions; changes in the
dental industry; unexpected difficulties in penetrating the oral care and cosmetic dentistry products market; changes in customer
demand or ordering patterns; changes in the competitive environment including pricing pressures or technological changes; technological
advances; shortages of manufacturing capacity; future production variables impacting excess inventory and other risk factors. Factors
that could cause or contribute to any differences are discussed in “Risk Factors” and elsewhere in the Company’s
annual report on Form 10-K filed on July 16, 2012 with the Securities and Exchange Commission. Except as required
by applicable law or regulation, the Company undertakes no obligation to revise or update any forward-looking statements contained
in this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2012. The information contained in this Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 2012 is not a complete description of the Company’s
business or the risks associated with an investment in the Company’s common stock. Each reader should carefully review and
consider the various disclosures made by the Company in this Quarterly Report on Form 10-Q and in the Company’s other filings
with the Securities and Exchange Commission.
Overview
We specialize in the research, development,
and manufacturing of oral care and cosmetic dentistry products. We are one of the leading manufacturers of cosmetic
dentistry products in Europe. Leveraging our knowledge of regulatory requirements regarding dental products and management’s
experience in the needs of the professional dental community, we design, develop, manufacture and distribute our cosmetic dentistry
products, including a full line of professional dental products that are distributed in Europe, Asia and the United States. We
distribute our products using both our own internal sales force and through the use of third party distributors.
Result of Operations
Comparative detail of results as a percentage of sales, is as
follows:
|
|
For the three months ended
December 31,
|
|
|
For the nine months ended
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
COST OF SALES
|
|
|
49.22
|
%
|
|
|
15.65
|
%
|
|
|
55.38
|
%
|
|
|
23.09
|
%
|
GROSS PROFIT
|
|
|
50.78
|
%
|
|
|
84.35
|
%
|
|
|
44.62
|
%
|
|
|
76.91
|
%
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2.00
|
%
|
|
|
2.26
|
%
|
|
|
2.79
|
%
|
|
|
3.34
|
%
|
Sales and marketing
|
|
|
30.88
|
%
|
|
|
33.85
|
%
|
|
|
36.24
|
%
|
|
|
25.26
|
%
|
General and administrative
|
|
|
78.94
|
%
|
|
|
53.30
|
%
|
|
|
110.86
|
%
|
|
|
44.14
|
%
|
Depreciation and amortization
|
|
|
10.13
|
%
|
|
|
5.44
|
%
|
|
|
15.67
|
%
|
|
|
5.74
|
%
|
TOTAL OPERATING EXPENSES
|
|
|
121.95
|
%
|
|
|
94.85
|
%
|
|
|
165.57
|
%
|
|
|
78.48
|
%
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
(71.18
|
)%
|
|
|
(10.50
|
)%
|
|
|
(120.95
|
)%
|
|
|
(1.57
|
)%
|
Other income (expense)
|
|
|
11.04
|
%
|
|
|
15.21
|
%
|
|
|
31.64
|
%
|
|
|
2.26
|
%
|
NET INCOME (LOSS)
|
|
|
(60.14
|
)%
|
|
|
4.71
|
%
|
|
|
(89.31
|
)%
|
|
|
0.69
|
%
|
INCOME TAXES
|
|
|
(0.02
|
)%
|
|
|
(5.03
|
)%
|
|
|
(0.01
|
)%
|
|
|
(3.74
|
)%
|
Net income (loss) attributable toNon-controlling interest
|
|
|
0.00
|
%
|
|
|
12.26
|
%
|
|
|
0.00
|
%
|
|
|
9.12
|
%
|
LOSS ATTRIBUTABLE TO REMEDENT SHAREHOLDERS
|
|
|
(60.16
|
)%
|
|
|
(12.58
|
)%
|
|
|
(89.32
|
)%
|
|
|
(12.17
|
)%
|
*Note that above figures are not comparable due to the equity
method used because:
A. Remedent OTC BV and its subsidiaries are accounted for using
the equity method for the period September 2011 through June 30, 2012 while previously the financials of Remedent OTC BV and its
subsidiaries were fully included in the financial statements of Remedent Inc., Further, at the beginning of July 2012, the Company
sold its 100 % interest in the share capital of Remedent OTC B.V. and consequently the Company’s financial results for the
six month period ended December 31, 2012 do not include an equity portion of the results of operations for Remedent OTC B.V.; and
B. GlamSmile Asia and its subsidiaries are accounted for using
the equity method since February 2012, while previously the financials of GlamSmile Asia and its subsidiaries were fully included
in the financial statements of Remedent Inc.
Net Sales
We experienced a sales decrease for the
three months ended December 31, 2012 of $1,378.386 or 65.6% to $732,952 as compared to $2,102,338 for the three months ended December
31, 2011.
Net sales decreased by approximately 81.3%
to $1,572,511 for the nine months ended December 31, 2012 as compared to $8,413,610 for the nine months ended December 31, 2011. The
decrease in sales is primarily due to the deconsolidation of our OTC division at the quarter ending September 2011 as described
above and secondly, the deconsolidation of our Asian Division at the end of January 2012, resulting in decreased revenue. For our
Asian Division, the equity method is currently being used in calculating the monthly results, whereas, in the nine months ended
December 31, 2011, we reported a full quarter of revenue. Additionally, we received a non-recurring fee in connection with the
First Fit Distribution agreement which was included in the quarter ending December 31, 2011.
Cost
of Sales
Our cost of sales increased for the three
months ended December 31, 2012 by $27,341 or 8.3% to $356,356 as compared to $329,015 for the three months ended December 31, 2011.
Cost of sales, as a percentage of net sales, has increased to 49.22% in the quarter ended December 31, 2012 as compared to 15.65%
in the quarter ended December 31, 2011.
Cost of sales decreased by $1,071,727,approximately
55.2%, to $870,801 for the nine months ended December 31, 2012 as compared to $1,942,528 for the nine months ended December 31,
2011. The decrease in cost of sales is primarily due to the deconsolidation of our OTC division at the quarter ending
September 2011 as described above and secondly, the deconsolidation of our Asian Division at the end of January 2012, resulting
in decreased cost of sales. Cost of sales as a percentage of sales has increased because of the deconsolidation of our Asian division
at the end of January 2012, known for its higher margins due to direct selling, the deconsolidation of our OTC Division and the
non-recurring Royalty fees in reference to the DenMat distribution agreement and the non-recurring fees in reference to the First
Fit Agreement, both included in the nine months ending December 31, 2011.
Gross Profit
Our gross profit decreased by $1,405,727
or 79.3%, to $367,596 for the three month period ended December 31, 2012 as compared to $1,773,323 for the three month period ended
December 31, 2011. Our gross profit as a percentage of sales decreased to 50.78% in the three months ended December 31, 2012 as
compared to 84.35% for the three months ended December 31, 2011.
Our gross profit decreased by $5,769,372
or 89.2%, to $701,710 for the nine months ended December 31, 2012 as compared to $6,471,082 for the nine months ended December
31, 2011 as a result of the deconsolidation of our OTC division at the quarter ending September 2011 as described above and secondly,
the deconsolidation of our Asian Division at the end of January 2012, resulting in decreased gross profit. For our Asian Division,
the equity method is currently being used in calculating the monthly results, whereas, in the quarter ended December 31, 2011 we
reported a full quarter of gross profit for our Asian Division. Our gross profit as a percentage of sales decreased to 44.62% in
the nine months ended December 31, 2012 as compared to 76.91% for the nine months ended December 31, 2011. The decrease in gross
profit is the result of the sales of the OTC Division and our Asian Division, combined with the non-recurring royalty fees in reference
to the DenMat Distribution agreement and the non-recurring fee in connection with the first Fit Distribution agreement which were
included in the nine months ending December 31, 2011.
Operating Expenses
Research and Development
. Our
research and development costs decreased by $33,044 or 69.5% to $14,509 for the three months ended December 31, 2012 as compared
to $47,513 for the three months ended December 31, 2011. Our research and development expenses decreased $236,947 to $43,948
for the nine months ended December 31, 2012 as compared to $280,895 for the nine months ended December 31, 2011, a decrease
of 84.4%. Research and development expenses have decreased primarily due to the deconsolidation of our OTC division
at the quarter ending September 2011 as described above and secondly, the deconsolidation of our Asian Division at the end of January
2012. For our Asian Division, the equity method is currently being used in calculating the monthly results, whereas, in the nine
months ended December 31, 2011, we reported a full quarter of Research and Development Expenses for our Asian Division.
Sales and marketing costs
. Our sales
and marketing costs decreased by $488,000 or 68.6% to $223,570 for the three months ended December 31, 2012 as compared to $711,570
for the three months ended December 31, 2011.
Our sales and marketing costs decreased
by $1,555,319 or 73.2% to $569,869 for the nine months ended December 31, 2012 as compared to $2,125,188 for the nine months ended
December 31, 2011.
The decrease in sales and marketing costs
as compared to the nine months ended December 31, 2011 is a result of the deconsolidation of our OTC division at the quarter ending
September 2011 as described above and secondly, the deconsolidation of our Asian Division at the end of January 2012, resulting
in a decreased sales and marketing cost. For our Asian Division, the equity method is currently applicable, whereas, for the nine
months ending December 31, 2011, we reported sales and marketing costs for a full quarter for our Asian Division.
General and administrative costs
.
Our general and administrative costs for the three months ended December 31, 2012 and 2011 were $571,464 and $1,120,535 respectively,
representing a decrease of $549,071, or 49%. Our general and administrative costs for the nine months ended December 31, 2012 and
2011 were $1,743,363 and $3,713,496 respectively, representing a decrease of $1,970,133 or 53.1%. The decrease in general
and administrative costs as compared to the nine months ended December 31, 2011 is a result of the deconsolidation of our OTC division
at the quarter ending September 2011 as described above and the deconsolidation of our Asian Division at the end of January 2012,
resulting in a decreased general and administrative cost. For our Asian Division, the equity method is currently applicable, whereas,
for the nine months ending December 31, 2011, we reported general and administrative costs for a full quarter for our Asian Division.
Depreciation and amortization
. Our
depreciation and amortization expense decreased by $40,946 or 35.8% to $73,334 for the three months ended December 31, 2012 as
compared to $114,280 for the three months ended December 31, 2011. Our depreciation and amortization decreased $236,654 or 49%,
to $246,451 for the nine months ended December 31, 2012 as compared to $483,105 for the nine months ended December 31, 2011.
The decrease is largely due to the deconsolidation of both entities, as described above.
Other income (expense).
Our other income
(expense) was $79,920 for the three months ended December 31, 2012 as compared to $319,823 for the three months ended December
31, 2011, a decrease of $239,903 or 75% primarily because of a decrease in income from our equity investments.
Our other income (expense) was $497,513
for the nine months ended December 31, 2012 as compared to $190,513 for the nine months ended December 31, 2011, an increase in
other income of $307,000. The increase in other income is largely because of the $521,159 gain we recognized on
the sale of our OTC Division, and the $268,440 in equity income we earned from our investment in GlamSmile Dental Technology Ltd.,
offset by an equity loss of $ (149,064) for our portion of the loss recorded by Remedent OTC B.V. for the six months ending June
30, 2012 and interest expenses of $(153,811) for the nine months ending December 31, 2012.
Internal and External Sources of Liquidity
As of December 31, 2012, we had current
assets of $3,092,929 compared to $3,268,854 at March 31, 2012. This deccrease of $175,925 was primarily due to a decrease in cash
of $190,594 and an increase in other receivables, offset by a decrease in accounts receivable of $220,102 and a decrease in prepaid
expenses of $415,602 Other receivables of $667,300 consist of the balance of funds receivable as a result of the sale of our OTC
division.
As of December 31, 2012, we had cash and
cash equivalents of $12,990. In July 2012 we received €500,000 as partial payment for the sale of our 100% interest in the
share capital of Remedent OTC B.B.V. In December 2012 we obtained a two year loan in the amount of € 100,000. We anticipate
that we will need to raise additional funds to satisfy our work capital requirements and implement our business strategy to expand
our direct to consumer business model. We intend to continue to look for opportunities to expand the number of GlamSmile Studios
in China and Europe. We will continue to review our expected cash requirements, make all efforts to collect any
aged receivables, and take appropriate cost reduction measures to ensure that we have sufficient working capital to fund our
operations. In the event additional needs for cash arise, we may seek to raise additional funds from a combination of sources
including issuance of debt or equity securities. Additional financing may not be available on terms favorable to us, or at all.
Any additional financing activity could be dilutive to our current stockholders. If adequate funds are not available or are
not available on acceptable terms, our ability to take advantage of unanticipated opportunities or respond to competitive
pressures could be limited.
Cash and Cash equivalents
Our balance sheet at December 31, 2012 reflects
cash and cash equivalents of $12,990 as compared to $203,584 as of March 31, 2012, a decrease of $190,594.
Operations
Net cash (used by) operations was $(1,036,909)
for the nine months ended December 31, 2012 as compared to net cash provided by operations of $1,399,403 for the nine months ended
December 31, 2011. The increase in net cash used by operations for the nine months ended December 31, 2012 as compared to the nine
months ended December 31, 2011 is primarily as a result of the deconsolidation of Remedent OTC BV at the quarter ending September
2011 and the deconsolidation of our Asian division at the end of January 2012.
Investing activities
Net cash provided by investing activities
totaled $523,611 for the nine months ended December 31, 2012 as compared to cash used in investing activities, net of cash divestiture
of $2,372,445 on the deconsolidation of Remedent OTC BV, of $208,681 for the nine months ended December 31, 2011. We received $667,200
in cash from the sale of our Remedent OTC B.V. division. Cash used in the nine months ended December 31, 2012 was mainly for additional
equipment. Cash used in the nine months ended December 31, 2011 was mainly for equipment for our new planned GlamSmile Studios.
Financing activities
Net cash provided by financing activities
totaled $434,612 for the nine months ended December 31, 2012, as compared to $965,875 for the nine months ended December 31, 2011. The
decrease in the net cash provided by financing activities in the nine month period ended December 31, 2012 of $531,263 was primarily
because we received approximately $634,000 more cash from loans our line of credit in the period ended December 31, 2011 than we
did in the current period ended December 31, 2012.
During the nine months ended December 31,
2012 and December 31, 2011, we recognized a (decrease) in cash and cash equivalents of $(111,908) and $(106,398), respectively,
from the effect of exchange rates between the Euro and the US Dollar.
Off-Balance Sheet Arrangements
At December 31, 2012, we did not have any
transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Item 3. Quantitative and
Qualitative Disclosures About Market Risk
Not Applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We
maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported
within the required time periods and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can only provide reasonable assurance of achieving the desired control objective, and management
is required to exercise its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Management
conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012. Based
on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and
procedures were effective as of December 31, 2012.
Changes in Internal Control Over Financial Reporting
There have been no material changes in our internal
controls over financial reporting identified in connection with the evaluation of disclosure controls and procedures discussed
above that occurred during the quarter ended December 31, 2012 or subsequent to that date that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best knowledge of management, there are no
material legal proceedings pending against the Company.
Item 1A. Risk Factors
Not Applicable.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior
Securities
None.
Item 4. [Removed and Reserved]
Item 5. Other Information
None.
Item 6. Exhibits