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
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 its facility in Ghent, Belgium as well as outsourced manufacturing in its facility in Beijing, China and Ghent. The Company distributes its products using both its own internal sales force and through the use of third party distributors.
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’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 the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.
These financial statements of the Company are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the Company’s ability to achieve profitable operations, continued financial support from its shareholders, and the ability of management to raise additional debt financing and/or equity capital through private and public offerings of its common stock.
As of March 31, 2013 the Company had working capital deficit of $
1,337,846
and an accumulated deficit of $
21,604,571
. In the second half of the financial year ending March 31, 2013 the management of the Company has taken measures to reduce general expenses and to increase sales prices which should have a positive impact on the results, the cash flow and the liquidity of the Company. The management is also convinced that, in case of necessity, important cash flows can be generated by the sale of investments of the Company. However, additional funding may be required in order to support the Company’s operations and the execution of its business plan.
There can be no assurance that the Company will be successful in raising the required debt financing and/or equity capital or that it will ultimately attain a successful level of operations. These risks, among others, are also discussed in ITEM 1A Risk Factors. 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 March 31, 2013.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, an Italian private company located in Rome.
Remedent N.V.’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.
F - 7
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.
Pervasiveness of Estimates
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 the reported amounts of assets and liabilities and 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. On an on-going basis, the Company evaluates estimates and judgments, including those related to revenue, bad debts, inventories, fixed assets, intangible assets, stock based compensation, income taxes, and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes reasonable in the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue from product sales when persuasive evidence of a sale exists: that is, a product is shipped under an agreement with a customer; risk of loss and title has passed to the customer; the fee is fixed or determinable; and collection of the resulting receivable is reasonably assured. Sales allowances are estimated based upon historical experience of sales returns.
Revenues from product sales are recognized when the product is shipped and title and risk of loss has passed to the customer, typically upon delivery and when the quantity and price is fixed and determinable, and when collectability is reasonable assured.
Upfront fees are recognized upon the date of the agreement (i.e. point of sale) because they relate solely to the sale of territories (that are sold in perpetuity), are non-refundable, and are not contingent upon additional deliverables.
We have evaluated all deliverables in our contracts (per ASC 605-25-5) ((a) territory & (b) manufacturing/marketing training & development fees) and determined that they are separate, as follows:
|
•
|
Both (a) & (b) have value to our customers on a standalone basis and can be sold by our customers separately.
|
|
•
|
Delivery or performance of the undelivered item or items is considered probable and substantially in our control.
|
Our development fees/milestone payments are recognized in accordance with the Milestone Method pursuant to FASB ASC 605. Revenues from milestones related to an arrangement under which we have continuing performance obligations i.e. specifically scheduled training and development activities, if deemed substantive, are recognized as revenue upon achievement of the milestone. Milestones are considered substantive if all of the following conditions are met: (a) the milestone is non-refundable; (b) achievement of the milestone was not reasonably assured at the inception of the arrangement; (c) substantive effort is involved to achieve the milestone; and (d) the amount of the milestone appears reasonable in relation to the effort expended. If any of these conditions is not met, the milestone payment is deferred and recognized as revenue as we complete our performance obligations.
We receive royalty revenues under license agreements with third parties that sell products based on technology developed by us or to which we have rights. The license agreements provide for the payment of royalties to us based on sales of the licensed product. We record these revenues as earned monthly, based on reports from our licensees.
Shipping and Handling
Shipping and handling costs are included as a component of cost of sales. Shipping and handling costs billed to customers are included in sales.
F - 8
Impairment of Long-Lived Assets
Long-lived assets consist primarily of patents and property and equipment. The recoverability of long-lived assets is evaluated by an analysis of operating results and consideration of other significant events or changes in the business environment. If impairment exists, the carrying amount of the long-lived assets is reduced to its estimated fair value, less any costs associated with the final settlement. To date, management has not identified any impairment of property and equipment. There can be no assurance, however, that market conditions or demands for the Company’s services will not change which could result in future long-lived asset impairment.
Business Combinations
On April 1, 2010, the Company adopted the new accounting guidance for business combinations according to FASB Codification ASC 805,
Business Combinations
. This guidance establishes principles and requirements for the reporting entity in a business combination, including recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed, goodwill, and any noncontrolling interest in the acquiree, as well as disclosure requirements to enable financial statement users to evaluate the nature and financial effects of the business combination. Additionally, it provides guidance for identifying a business combination, measuring the acquisition date, and defining the measurement period for adjusting provisional amounts recorded. The implementation of this standard did not have an impact on the Company’s consolidated financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash or cash equivalents.
Non-Controlling Interest
The Company adopted ASC Topic 810
Noncontrolling Interests in Consolidated Financial Statements
an Amendment of Accounting Research Bulletin No. 51
as of April 1, 2009. SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. ASC Topic 810 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interest of the parent and the interests of the noncontrolling owner. The adoption of ASC Topic 810 impacted the presentation of our consolidated financial position, results of operations and cash flows.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, line of credit, short term and long-term debt. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values because of the short maturities of those instruments. The Company’s investment in MFI is classified as an available for sale investment with all subsequent gains and losses recorded in other comprehensive income until realized. The Company’s long-term debt consists of its revolving credit facility and long-term capital lease obligations. The carrying value of the revolving credit facility approximates fair value because of its variable short-term interest rates. The fair value of the Company’s long-term capital lease obligations is based on current rates for similar financing.
F - 9
Accounts Receivable and Allowance for Doubtful Accounts
The Company sells professional dental equipment to various companies, primarily to distributors located in Western Europe, Middle East, the United States of America, Asia and China.
The terms of sales vary by customer, however, generally are 2% 10 days, net 30 days.
Accounts receivable is reported at net realizable value and net of allowance for doubtful accounts. The Company uses the allowance method to account for uncollectible accounts receivable. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable.
Inventories
The Company purchases certain of its products in components that require assembly prior to shipment to customers. All other products are purchased as finished goods ready to ship to customers.
The Company writes down inventories for estimated obsolescence to estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected, then additional inventory write-downs may be required. Inventory reserves for obsolescence totaled $
88,724
at March 31, 2013 and $
156,239
at March 31, 2012.
Prepaid Expense
The Company’s prepaid expense consists of prepayments to suppliers for inventory purchases and to the Belgium customs department, to obtain an exemption of direct VAT payments for imported goods out of the European Union (“EU”). This prepayment serves as a guarantee to obtain the facility to pay VAT at the moment of sale and not at the moment of importing goods at the border. Prepaid expenses also include VAT payments made for goods and services in excess of VAT payments received from the sale of products as well as amounts for other prepaid operating expenses.
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.
The Company depreciates its property and equipment for financial reporting purposes using the straight-line method based upon the following useful lives of the assets:
Tooling
|
3
Years
|
Furniture and fixtures
|
4
Years
|
Machinery and Equipment
|
4
Years
|
Patents
Patents consist of the costs incurred to purchase patent rights and are reported net of accumulated amortization. Patents are amortized using the straight-line method over a period based on their contractual lives.
Research and Development Costs
The Company expenses research and development costs as incurred.
F - 10
Advertising
Costs incurred for producing and communicating advertising are expensed when incurred and included in sales and marketing and general and administrative expenses. For the years ended March 31, 2013 and March 31, 2012, advertising expense was $
283,690
and $
590,285
, respectively.
Income taxes
Income taxes are accounted
for under the asset and liability method as stipulated by Accounting Standards Codification (“ASC”) 740 formerly Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced to estimated amounts to be realized by the use of a valuation allowance. A valuation allowance is applied when in management’s view it is more likely than not (50%) that such deferred tax will not be utilized.
Effective February 1, 2008, the Company adopted certain provisions under ASC Topic 740, Income Taxes, (“ASC 740”), which provide interpretative guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Effective with the Company’s adoption of these provisions, interest related to the unrecognized tax benefits is recognized in the financial statements as a component of income taxes. The adoption of ASC 740 did not have an impact on the Company’s financial position and results of operations.
In the unlikely event that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. Reserves for uncertain tax position would then be recorded if the Company determined it is probable that a position would not be sustained upon examination or if a payment would have to be made to a taxing authority and the amount is reasonably estimable. As of March 31, 2013, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities.
Warranties
The Company typically warrants its products against defects in material and workmanship for a period of 24 months from shipment.
A tabular reconciliation of the Company’s aggregate product warranty liability for the reporting period is as follows:
|
|
Year ended
March 31, 2013
|
|
Year ended
March 31, 2012
|
|
Product warranty liability:
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
20,019
|
|
$
|
21,260
|
|
Accruals for product warranties issued in the period
|
|
|
(973)
|
|
|
(2,002)
|
|
Adjustments to liabilities for pre-existing warranties
|
|
|
255
|
|
|
761
|
|
Ending liability
|
|
$
|
19,301
|
|
$
|
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 $
19,301
and $
20,019
as of March 31, 2013 and March 31, 2012, respectively.
Segment Reporting
“Disclosure About Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company’s management considers its business to comprise one segment for reporting purposes.
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 March 31, 2013 and 2012, the Company had
19,995,969
, shares of common stock issued and outstanding. At March 31, 2013 and 2012, the Company had
3,378,379
and
7,794,627
warrants outstanding, respectively and
1,795,000
and
1,895,000
options outstanding, respectively. All outstanding warrants and options were excluded from the computation of earnings per share for the year ended March 31, 2013 because their effect would have been anti-dilutive.
Further, pursuant to ASC 260-10-50-1(c), if a fully diluted share calculation was computed for the years ended March 31, 2013 and 2012 respectively, it would have excluded all warrants and all but
200,000
options respectively since the Company’s average share trading price during the last two year period was less than the exercise price of all other warrants and options.
Conversion of Foreign Currencies
The reporting currency for the consolidated financial statements of the Company is the U.S. dollar. The functional currency for the Company’s European subsidiaries, Remedent N.V., GlamSmile Rome and GlamSmile Deutschland GmbH, is the Euro, for Glamsmile Asia Ltd., and its subsidiaries, the Hong Kong dollar and the Chinese Renmimbi (“RMB”) for Mainland China. Finally, the functional currency for Remedent Professional, Inc. is the U.S. dollar. The assets and liabilities of companies whose functional currency is other that the U.S. dollar are included in the consolidation by translating the assets and liabilities at the exchange rates applicable at the end of the reporting period. The statements of income of such companies are translated at the average exchange rates during the applicable period. Translation gains or losses are accumulated as a separate component of stockholders’ equity.
Comprehensive Income (Loss)
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 ‘Available For Sales (AFS)’ securities.
The Company’s other comprehensive income for the year ended March 31, 2013 consisted of a gain on foreign currency translation of $
91,006
and a fair value adjustment on AFS security in the amount of $
472,561
. For the year ended March 31, 2012 the Company’s only component of other comprehensive income is the accumulated foreign currency translation (losses) of $(
846,880
). These amounts have been recorded as a separate component of stockholders’ equity (deficit).
Stock Based Compensation
The Company has a stock-based compensation plan which is described more fully in Note 17. The Company measures the compensation cost of stock options and other stock-based awards to employees and directors at fair value at the grant date and recognizes compensation expense over the requisite service period for awards expected to vest.
Except for transactions with employees and directors, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Additionally, the Company has determined that the dates used to value the transaction are either:
(1) The date at which a commitment for performance by the counter party to earn the equity instruments is established; or
(2) The date at which the counter party’s performance is complete.
New Accounting Pronouncements
Recently Adopted
In December 2011, the FASB issued ASU 2011-11, “
Balance Sheet (Topic 210) Disclosures about offsetting assets and liabilities
”. ASU 2011-11 requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. This standard is applicable for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Retrospective disclosures will be required for all periods presented. The adoption of ASU 2011-11 is not expected to have an impact upon the Company’s consolidated financial statements.
In October 2009, the FASB issued ASU 2009-13,
“Multiple-Deliverable Revenue Arrangements, (amendments to ASC Topic 605, Revenue Recognition)”
(“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. The standard also expands the disclosure requirements for multiple deliverable revenue arrangements. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, which corresponds to the Company’s fiscal year beginning April 1, 2011. The adoption of ASU 2009-13 has had no impact upon the Company’s consolidated financial statements.
In October 2009, the FASB issued ASU 2009-14,
Certain Revenue Arrangements that Include Software Elements a consensus of the FASB Emerging Issues Task Force
, which changes the accounting model for revenue arrangements that include both tangible products and software elements. This new guidance removes from the scope of the software revenue recognition guidance in ASC 985-605, Software Revenue Recognition, those tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality. In addition, this guidance requires that hardware components of a tangible product containing software components always be excluded from the software revenue recognition guidance as well as provides further guidance on determining which software, if any, relating to the tangible product also would be excluded from the scope of software revenue recognition guidance. The guidance further identifies specific factors in determining whether the tangible product contains software that works together with the non-software components of the tangible product to deliver the tangible product’s essential functions. Guidance is also provided on how a vendor should allocate arrangement consideration to deliverables in an arrangement containing both tangible products and software. The disclosures mandated in ASU 2009-13 are also required by this new guidance. ASU 2009-14 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, which corresponds to the Company’s fiscal year beginning April 1, 2011. The adoption of ASU 2010-14 has had no impact upon the Company’s consolidated financial statements.
In April 2010, the FASB issued ASU 2010-17
,” Revenue Recognition Milestone Method”.
The amendments in this Update provide guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. ASU 2010-17 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, which corresponds to the Company’s fiscal year beginning April 1, 2011. The adoption of ASU 2010-17 has had no impact upon the Company’s consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04 and updated the accounting guidance related to fair value measurements. The updated guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (IFRS). The updated guidance is effective for the Company beginning in the fourth quarter of fiscal year 2012. The adoption of ASU 2011-04 has not had a material effect on the Company’s results of operations, financial condition, and cash flows.
Recent Accounting Pronouncements Not Yet Adopted
In June 2011, the FASB issued new accounting guidance on comprehensive income that was amended in December 2011. The objective of this accounting guidance is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The guidance eliminates the option to present components of other comprehensive income as part of the statement of stockholders’ equity and requires them to be presented in the statement of comprehensive income instead. This accounting guidance, as amended, will be effective for the Company on April 1, 2012. The Company does not expect the impact of this new accounting guidance to have a material impact on its financial condition or results of operations.
In September 2011, the FASB issued new accounting guidance on testing goodwill for impairment. The primary objective of this accounting guidance is to reduce complexity and costs by allowing an entity to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. If, after assessing qualitative factors, an entity determines that it is not more likely than not (a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount, then the two-step goodwill impairment test is unnecessary. This accounting guidance is effective for the Company in fiscal 2013 but early adoption is permitted. The Company does not expect the impact of this new accounting guidance to have a material impact on its financial condition or results of operations.
In December 2011, the FASB issued new accounting guidance on disclosures about offsetting assets and liabilities. The requirements for offsetting are different under U.S. GAAP and IFRS. Therefore, the objective of this accounting guidance is to facilitate comparison between financials statements prepared under U.S. GAAP and IFRS by enhancing disclosures of the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain assets and liabilities. This accounting guidance will be effective for the Company on April 1, 2013. The Company does not expect the impact of this new accounting guidance to have a material impact on its financial condition or results of operations.
In July 2012, the FASB issued guidance that simplifies how entities test indefinite-lived intangible assets for impairment, which improves consistency in impairment testing requirements among long-lived asset categories. ASU 2012-02 permits an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, ASU 2012-02 eliminates the requirement to perform quantitative impairment testing as outlined in the previously issued standards. The guidance will be effective for the Company's first quarter of fiscal 2014. The adoption of this guidance will not have an impact on the Company’s financial position, results of operations or financial statement disclosures.
In February 2013, the FASB issued guidance that requires reporting of the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about these amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in the financial statements. The guidance will be effective for the Company's first quarter of fiscal 2014. The adoption of this guidance will affect the presentation of comprehensive income but will not impact the Company's financial position, results of operations or cash flows.
3. LONG-TERM INVESTMENTS
REMEDENT OTC BV
In connection with the restructuring of the Company’s OTC business in December 2008, the Company controlled Remedent OTC BV 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 BV. As such, the financials of Remedent OTC BV 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 BV.
For the year ended March 31, 2013, 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, and as amended February 7, 2013 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 €
950,000
( $
667,300
(€
500,000
), (received during July 2012) and $
600,570
(€
450,000
) was received in February 2013.
GLAMSMILE ASIA LTD.
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, 2014.
|
|
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.
|
(a)
|
Details of the acquisition date fair value transferred, and allocation thereof are as follows:
|
Common shares (250,000 at $0.39/share) (rate at December 31, 2009)
|
$
|
97,500
|
325,000 Euro (at 1.436077)
|
|
466,725
|
200,000 stock options (*)
|
|
62,108
|
Total consideration
|
$
|
626,333
|
|
|
|
Cash
|
$
|
167,288
|
Accounts receivable
|
$
|
27,836
|
Inventory
|
$
|
23,347
|
Equipment, net
|
$
|
76,647
|
Accounts payable
|
$
|
(145,996)
|
Accruals
|
$
|
(25,446)
|
Other payables
|
$
|
(196,978)
|
|
|
|
Net liability (sub-consolidated financial statements of GlamSmile Asia Ltd including the Mainland China Subsidiaries)
|
|
(73,302)
|
Goodwill
|
$
|
699,635
|
* The value of the stock options was determined by using the Black-Scholes valuation model with a stock price of $
0.39
/share, an option price of $
0.39
/share, an expected life of
5
years, a volatility of
112
%, a risk free rate of
1.30
%, and a dividend rate of zero.
(b) The acquisition date fair value of the total consideration transferred was allocated amongst assets, liabilities and non-controlling interest based upon their fair value at the time of acquisition. We evaluated all current assets for collectability and because they were current and there was no history of collection problems, determined that their carrying value was equal to their fair value. We also evaluated all current liabilities and because there was no evidence of over or under accruals, we also determined that the carrying value of the Company’s current liabilities was equal to fair value. Lastly, we evaluated the fair value of Glamsmile’s equipment and because it was all recently acquired, i.e. within the past year, because there was no evidence of impairment, or non-functionality, and because the recorded value of the equipment was approximately equal to its replacement cost, we also determined that the carrying value of the equipment was equal to its fair value.
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 14)
|
|
|
(1,000,000)
|
|
|
|
$
|
1,470,776
|
|
The following tables represent the summary financial information of GlamSmile Asia as derived from its financial statements and prepared under US GAAP:
|
|
Year ended
|
|
Year ended
|
|
Operating data:
|
|
March 31, 2013
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,479,281
|
|
$
|
3,693,113
|
|
Gross profit
|
|
|
7,221,627
|
|
|
3,517,406
|
|
Income (loss) from operations
|
|
|
1,999,783
|
|
|
1,474,736
|
|
Net income
|
|
$
|
1,378,182
|
|
$
|
1,273,324
|
|
For the year ended March 31, 2013, the Company recorded equity income of $
349,054
(2012 - $
36,634
) in “Equity income from investments ” for its portion of the net income recorded by GlamSmile Dental Technology Ltd.
MEDICAL FRANCHISES & INVESTMENTS
Effective March 31, 2013, the Company acquired
6.12
% of the issued and outstanding shares of Medical Franchises & Investments N.V., a Belgium corporation ("MFI NV") in exchange for a cash prepayment of $
314,778
that was made during the fiscal year ended March 31, 2012. The Company’s investment in
70,334
shares of MFI NV has been recorded at the fair value of $
787,339
which is the quoted market price of aapproximately USD $
11.19
(€
8.70
) per share. Because the investment is being recognized as an available-for-sale investment, an unrecognized gain of $
472,561
has been recorded in accumulated other comprehensive income. Future unrealized gains and losses on the investment in MFI will also be recognized in other comprehensive income until realized.
Per ASC-320-10-25-1, investments in debt and equity securities that have readily determinable fair values and are not classified as trading or held-to-maturity securities, are classified as available-for-sale securities.
MFI NV has been founded to market an advance in dental technology which has the potential to replace the process of making mechanical impressions of teeth and bite structures with a digital/optical scan.
4. SHORT TERM LOAN
Effective December 3, 2012, the Company entered into a Loan Agreement (the “Loan Agreement”) with BNP Paribas Fortis Bank, a Belgian Bank, pursuant to which the Company borrowed $
132,820
(€
100.000
). The loan bears interest of
3.68
% per annum and is
repayable in 24 equal monthly installments
of €
4,331
($
5,573
at the closing rate of March 31, 2013). No additional guaranties (see note 13- secured debt agreements (2)) were required.
As of March 31, 2013, the Company has recorded $
63,728
as a current liability and the balance of $
49,378
as long term.
5. 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 will 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;
|
F - 17
(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 March 31, 2011, 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.
F - 18
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.
F - 19
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)) and December 31, 2011 (see Note 4).
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 ($
110,000
received and $
90,000
subsequently 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.
|
6. CONCENTRATION OF RISK
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 March 31, 2013 five customers accounted for a total of
72.9
% of the Company’s trade accounts receivable and one of those customers accounted for
42.17
% of total accounts receivable. At March 31, 2012 five customers accounted for a total of
65
% of the Company’s trade accounts receivable and one of those customers accounted for
26.7
% of total accounts receivable. 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 year ended March 31, 2013, the Company had five suppliers who accounted for
28.5
% of gross purchases. For the year ended March 31, 2012, the Company had five suppliers who accounted for
34.5
% of gross purchases.
F - 20
Revenues For the year ended March 31, 2013 the Company had five customers that accounted for
71.31
% of total revenues .For the year ended March 31, 2012 the Company had five customers that accounted for
26.44
% of total revenues.
7. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company’s accounts receivable at year end were as follows:
|
|
March 31, 2013
|
|
March 31, 2012
|
|
Accounts receivable, gross
|
|
$
|
952,804
|
|
$
|
850,601
|
|
Less: allowance for doubtful accounts
|
|
|
(4,833)
|
|
|
(12,361)
|
|
Accounts receivable, net
|
|
$
|
947,971
|
|
$
|
838,240
|
|
8. INVENTORIES
Inventories at year end are stated at the lower of cost (first-in, first-out) or net realizable value and consisted of the following:
|
|
March 31, 2013
|
|
March 31, 2012
|
|
Raw materials
|
|
$
|
38,452
|
|
$
|
58,189
|
|
Components
|
|
|
214,723
|
|
|
283,572
|
|
Finished goods
|
|
|
827,356
|
|
|
892,244
|
|
|
|
|
1,080,531
|
|
|
1,234,005
|
|
Less: reserve for obsolescence
|
|
|
(88,724)
|
|
|
(156,239)
|
|
Net inventory
|
|
$
|
991,807
|
|
$
|
1,077,766
|
|
9. PREPAID EXPENSES
Prepaid expenses are summarized as follows:
|
|
March 31, 2013
|
|
March 31, 2012
|
|
Prepaid materials and components
|
|
$
|
196,876
|
|
$
|
882,998
|
|
Prepaid consulting
|
|
|
73,854
|
|
|
|
|
VAT payments in excess of VAT receipts
|
|
|
41,241
|
|
|
60,252
|
|
Royalties
|
|
|
|
|
|
18,109
|
|
Prepaid trade show expenses
|
|
|
4,632
|
|
|
|
|
Prepaid rent
|
|
|
129,957
|
|
|
145,138
|
|
Other
|
|
|
119,940
|
|
|
42,767
|
|
|
|
$
|
566,500
|
|
$
|
1,149,264
|
|
10. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
|
|
March 31, 2013
|
|
March 31, 2012
|
|
Furniture and Fixtures
|
|
$
|
596,471
|
|
$
|
540,104
|
|
Machinery and Equipment
|
|
|
1,619,770
|
|
|
1,499,271
|
|
|
|
|
2,216,241
|
|
|
2,039,375
|
|
Accumulated depreciation
|
|
|
(1,521,157)
|
|
|
(1,398,155)
|
|
Property & equipment, net
|
|
$
|
695,084
|
|
$
|
641,220
|
|
F - 21
11. LINE OF CREDIT
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 (repaid) 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 March 31, 2013 and March 31, 2012, Remedent N.V. had in aggregate, $
836,355
and $
1,079,263
in advances outstanding, respectively, under the mixed-use line of credit facilities.
12. LONG TERM DEBT
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 $
324,124
).
The lease requires a monthly payment 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 March 31, 2013 and March 31, 2012 of the equipment subject to the foregoing lease was $
160,056
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, 2013:
Year ending March 31:
|
|
|
|
|
|
|
|
|
|
2014
|
|
$
|
82,812
|
|
2015
|
|
|
83,509
|
|
2016
|
|
|
|
|
Later years
|
|
|
|
|
Total minimum lease payments
|
|
|
166,321
|
|
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
|
|
|
166,321
|
|
Less: Amount representing interest (*)
|
|
|
6,265
|
|
Present value of minimum lease payments (**)
|
|
$
|
160,056
|
|
* 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 $
78,070
and $
81,986
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
3.68
% to be repaid in monthly installments of €
4,331
($
5,573
).
13. 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 years ended March 31, 2013 and 2012 respectively, the Company incurred $
545,475
and $
664,586
as compensation for all directors and officers.
Sales Transactions:
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.
14. ACCRUED LIABILITIES
Accrued liabilities are summarized as follows:
|
|
March 31, 2013
|
|
March 31, 2012
|
|
Accrued employee benefit taxes and payroll
|
|
$
|
397,666
|
|
$
|
358,148
|
|
Accrued travel
|
|
|
9,650
|
|
|
10,010
|
|
Commissions
|
|
|
|
|
|
687
|
|
Accrued audit and tax preparation fees
|
|
|
14,264
|
|
|
11,318
|
|
Reserve for warranty costs
|
|
|
19,301
|
|
|
20,019
|
|
Reserve for income taxes
|
|
|
|
|
|
2,936
|
|
Advances received on account
|
|
|
11,823
|
|
|
|
|
Accrued advertising
|
|
|
9,864
|
|
|
|
|
Accrued interest
|
|
|
12,578
|
|
|
1,322
|
|
Accrued consulting fees
|
|
|
2,500
|
|
|
16,129
|
|
Other accrued expenses
|
|
|
259,418
|
|
|
115,762
|
|
|
|
$
|
737,064
|
|
$
|
536,331
|
|
15. INCOME TAXES
The domestic and foreign (“Belgium”, “German”, “Italian”, Hong Kong and China) components of income (loss) before income taxes and minority interest were comprised of the following:
|
|
March 31, 2013
|
|
March 31, 2012
|
|
Domestic
|
|
$
|
(169,271)
|
|
$
|
(776,668)
|
|
Foreign
|
|
|
(812,512)
|
|
|
2,176,183
|
|
|
|
$
|
(981,783)
|
|
$
|
1,399,515
|
|
The Company’s domestic and foreign components of deferred income taxes are as follows:
|
|
March 31, 2013
|
|
March 31, 2012
|
|
Domestic Net operating loss carryforward
|
|
$
|
7,864,378
|
|
$
|
7,805,133
|
|
Foreign Net operating loss carryforward
|
|
|
529,153
|
|
|
244,774
|
|
Total
|
|
|
8,393,531
|
|
|
8,049,907
|
|
Valuation allowance
|
|
|
(8,393,531)
|
|
|
(8,049,907)
|
|
Net deferred tax assets
|
|
$
|
|
|
$
|
|
|
Because of the uncertainty surrounding the timing of realizing the benefits of favorable tax attributes in future income tax returns, the Company has placed a valuation allowance against its deferred income tax assets.
The principal reasons for the difference between the income tax (benefit) and the amounts computed by applying the statutory income tax rates to the income (loss) for the year ended March 31, 2013 and March 31, 2012 are as follows:
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
Domestic
|
|
|
|
|
|
|
|
|
Pre tax income (loss)
|
|
$
|
(169,271)
|
|
|
$
|
(776,668)
|
|
Statutory tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
Tax benefit based upon statutory rate
|
|
|
(59,245)
|
|
|
|
(271,833)
|
|
Valuation allowance
|
|
|
59,245
|
|
|
|
271,833
|
|
Net domestic income tax (benefit)
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
Pre tax income (loss)
|
|
|
(812,512)
|
|
|
|
2,176,183
|
|
Statutory tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
Tax expense (benefit) based upon statutory rate
|
|
|
(284,379)
|
|
|
|
761,664
|
|
Permanent differences
|
|
|
284,379
|
|
|
|
446,595
|
|
|
|
|
|
|
|
|
|
|
Net foreign income tax expense (benefit)
|
|
|
153
|
|
|
|
315,069
|
|
Total Income tax (benefit )
|
|
$
|
153
|
|
|
$
|
315,069
|
|
16. EQUITY COMPENSATION PLANS
As of March 31, 2013, 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 March 31, 2013 and March 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, 2011
|
|
|
250,000
|
|
|
1.20
|
|
|
557,500
|
|
|
0.89
|
|
|
1,000,000
|
|
|
1.15
|
|
|
350,000
|
|
|
0.97
|
|
Cancelled or expired
|
|
|
(237,500)
|
|
|
|
|
|
(25,000)
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, March 31, 2012
|
|
|
12,500
|
|
|
1.20
|
|
|
532,500
|
|
|
0.96
|
|
|
1,000,000
|
|
|
1.15
|
|
|
350,000
|
|
|
0.97
|
|
Options expired
|
|
|
|
|
|
|
|
|
(100,000)
|
|
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, March 31, 2013
|
|
|
12,500
|
|
|
1.20
|
|
|
432,500
|
|
|
0.84
|
|
|
1,000,000
|
|
|
1.15
|
|
|
350,000
|
|
|
0.97
|
|
Options exercisable March 31, 2013
|
|
|
12,500
|
|
|
1.20
|
|
|
432,500
|
|
|
0.96
|
|
|
1,000,000
|
|
|
1.15
|
|
|
350,000
|
|
|
0.97
|
|
Exercise price range
|
|
$
|
2.00
|
|
|
|
|
$
|
0.50 - $2.46
|
|
|
|
|
$
|
0.50 - $1.75
|
|
|
|
|
$
|
.39 - 1.75
|
|
|
|
|
Weighted average remaining life
|
|
|
1 years
|
|
|
|
|
|
5.0 years
|
|
|
|
|
|
5.12 years
|
|
|
|
|
|
3.6 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
|
|
$
|
0.97
|
|
|
NA
|
|
Total
|
|
|
2,265,000
|
|
$
|
1.10
|
|
|
605,000
|
|
For the year ended March 31, 2013, the Company recognized $Nil (2012 $
50,387
) in stock based compensation expense in the consolidated statement of operations.
17. COMMON STOCK WARRANTS AND OTHER OPTIONS
As of March 31, 2013 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:
F - 26
|
|
Outstanding
Warrants
|
|
Weighted
Average
Exercise
Price
|
|
Warrants and options outstanding, March 31, 2011
|
|
|
7,794,627
|
|
$
|
1.50
|
|
Expired
|
|
|
(4,056,248)
|
|
|
|
|
Warrants outstanding March 31, 2012 and March 31, 2013
|
|
|
3,738,379
|
|
|
1.50
|
|
Warrants exercisable March 31, 2012 and March 31, 2013
|
|
|
3,738,379
|
|
$
|
1.50
|
|
Exercise price range
|
|
$
|
1.00 to $1.65
|
|
|
|
|
Weighted average remaining life
|
|
|
.40 Years
|
|
|
|
|
18. SEGMENT INFORMATION
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 year ended
March 31, 2013
|
|
Revenues
For the year ended
March 31, 2012
|
|
|
|
Revenues (a)
|
|
Revenues (a)
|
|
United States
|
|
$
|
|
|
$
|
1,120,437
|
|
Europe
|
|
|
2,937,276
|
|
|
5,010,610
|
|
China
|
|
|
|
|
|
3,556,245
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,937,276
|
|
$
|
9,687,292
|
|
|
|
Long-lived Assets
As at
|
|
Long-lived Assets
As at
|
|
|
|
March 31, 2013
|
|
March 31, 2012
|
|
United States
|
|
$
|
|
|
$
|
3,055,023
|
|
Europe
|
|
$
|
3,956,054
|
|
|
641,220
|
|
China
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,956,054
|
|
$
|
3,696,243
|
|
(a) Revenues are attributed to country based on location of customer.
19. COMMITMENTS
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 commencing September 1, 2008. at a base rent of €
5,712
per month for the total location ($
7,350
per month at March 31, 2013).
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 a
six
year lease commencing July 1, 2011, at a base rent of €
6,500
per month for the total location ($
8,364
per month at March 31, 2013).
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 March 31, 2013:
March 31, 2014
|
|
|
395,214
|
|
March 31, 2015
|
|
|
340,335
|
|
March 31, 2016
|
|
|
245,336
|
|
March 31, 2016
|
|
|
207,493
|
|
After five years
|
|
|
91,247
|
|
Total:
|
|
$
|
1,279,625
|
|
20. 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:
|
|
|
|
|
March 31, 2013
|
|
March 31, 2012
|
|
|
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
|
Level
|
|
value
|
|
Value
|
|
value
|
|
value
|
|
Cash
|
|
|
1
|
|
$
|
64,504
|
|
$
|
64,504
|
|
$
|
203,584
|
|
$
|
203,584
|
|
Accounts receivable
|
|
|
2
|
|
$
|
947,971
|
|
$
|
947,971
|
|
$
|
838,240
|
|
$
|
838,240
|
|
Long term investments and advances OTC
Division
|
|
|
2
|
|
$
|
|
|
$
|
|
|
$
|
962,505
|
|
$
|
962,505
|
|
Long Term investment and advance -
GlamSmile Dental Technology Asia
|
|
|
2
|
|
$
|
2,441,572
|
|
$
|
2,441,572
|
|
$
|
2,092,518
|
|
$
|
2,092,518
|
|
Long term investments and advances MFI
|
|
|
1
|
|
$
|
787,339
|
|
$
|
787,339
|
|
$
|
|
|
$
|
|
|
Line of credit
|
|
|
2
|
|
$
|
836,355
|
|
$
|
836,355
|
|
$
|
1,079,263
|
|
$
|
1,079,263
|
|
Short term debt
|
|
|
2
|
|
$
|
1,214,266
|
|
$
|
1,214,266
|
|
$
|
863,501
|
|
$
|
863,501
|
|
Deferred revenue
|
|
|
2
|
|
$
|
149,129
|
|
$
|
149,129
|
|
$
|
57,254
|
|
$
|
57,254
|
|
Accounts payable
|
|
|
2
|
|
$
|
971,813
|
|
$
|
971,813
|
|
$
|
1,009,176
|
|
$
|
1,009,176
|
|
Accrued liabilities
|
|
|
2
|
|
$
|
737,064
|
|
$
|
737,064
|
|
$
|
536,331
|
|
$
|
536,331
|
|
Long term debt
|
|
|
2
|
|
$
|
1,131,364
|
|
$
|
1,131,364
|
|
$
|
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 fiscal years ended March 31, 2013 or March 31, 2012. 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):
|
|
Year ended March 31,
2013
|
|
Year ended March 31,
2012
|
|
Long term investments and advances:
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,092,518
|
|
$
|
|
|
Gains (losses) included in net loss
|
|
|
|
|
|
|
|
Transfers in (out of level 3)
|
|
|
349,054
|
|
|
2,092,518
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,441,572
|
|
$
|
2,092,518
|
|