UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES   EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2012

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-15975

 

REMEDENT, INC.

(Name of small business issuer as specified in its charter)

 

Nevada		86-0837251
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
Zuiderlaan 1-3, bus 8, 9000 Gent, Belgium		N/A
(Address of principal executive offices)		(Zip code)

 

011-329-241-58-80

(Issuer’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, no par value per share

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   ¨   No   þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes   ¨   No   þ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   þ   No   ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  þ  No  ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.          ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

	Large accelerated filer	¨		Accelerated filer	¨
	Non-accelerated filer	¨		Smaller reporting company	þ
	(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

 

The aggregate market value of voting stock held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter, September 30, 2011, was approximately $2,938,238.24.   For purposes of this computation, it has been assumed that the shares beneficially held by directors and officers of registrant were “held by affiliates” and this assumption is not to be deemed to be an admission by such persons that they are affiliates of registrant.

 

The number of shares of registrant’s common stock outstanding as of  June 25, 2012  was 19,995,969.

 

Documents incorporated by reference: None.

Transitional Small Business Disclosure Format (Check one): Yes ¨       No þ

 

 

FORM 10-K INDEX

 

PART I
ITEM 1.	BUSINESS		1
ITEM 1A.	RISK FACTORS		14
ITEM 1B.	UNRESOLVED STAFF COMMENTS		24
ITEM 2.	PROPERTIES		25
ITEM 3.	LEGAL PROCEEDINGS		25
ITEM 4.	[RESERVED AND REMOVED]		25
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		25
ITEM 6.	SELECTED FINANCIAL DATA		27
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		27
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		40
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		40
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		40
ITEM 9A	CONTROLS AND PROCEDURES.		40
ITEM 9B.	OTHER INFORMATION		41
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		41
ITEM 11.	EXECUTIVE COMPENSATION		45
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		46
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE		48
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		50
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		51
SIGNATURES			52

 

 

Forward-Looking Statement

 

In addition to historical information, this Annual Report on Form 10-K (“Annual Report”) for Remedent, Inc. (“Remedent” the “Company,” “we,” “our” or “us”) contains “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 listed in the section of this Annual Report entitled “Risk Factors” and from time to time in our Securities and Exchange Commission filings under “risk factors” and elsewhere.

 

Each forward-looking statement should be read in context with, and with an understanding of, the various disclosures concerning our business made elsewhere in this Annual Report, as well as other public reports filed by us with the United States Securities and Exchange Commission. Readers should not place undue reliance on any forward-looking statement as a prediction of actual results of developments. Except as required by applicable law or regulation, we undertake no obligation to update or revise any forward-looking statement contained in this Annual Report.

 

 

PART I

 

ITEM 1 — BUSINESS

 

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.

 

In 2006 we developed a revolutionary system for manufacturing and installing dental veneers which we branded as GlamSmile ® veneers revolutionize the traditional one-at-a-time method of applying porcelain dental veneers.  GlamSmile veneers are attached to the front of the patient’s teeth using a patent pending single motion placement tray which replaces the traditional one at a time trial and error method of applying porcelain veneers, making the application less traumatic for the patient, much easier for the dentist and perhaps most important, far less costly than traditional dental veneers. Currently, the GlamSmile veneers are our primary products in the professional oral care and cosmetic dentistry product.  Our veneers are supported by a line of professional veneer whitening and teeth sensitivity solutions.  Our products are sold to professionals by distributors and sold directly to consumers by our GlamSmile Studios.

 

Corporate History

 

We were originally incorporated under the laws of Arizona in September 1996 under the name Remedent USA, Inc.  In October 1998, we were acquired by Resort World Enterprises, Inc., a Nevada corporation in a share exchange, and we immediately changed our name to Remedent USA, Inc. and later to Remedent, Inc.

 

In the latter part of 2008, our Board of Directors approved a strategic plan to separate our OTC business from our professional business, allowing us to focus on the development, marketing and distribution of our products for the professional dental market.  In December 2008, we completed a restructuring in the form of a management-led buyout of 50% of our OTC retail business (“2008 Restructuring”).  The buyout was led by Mr. Robin List, our former director and Chief Executive Officer, with financing provided by a non-affiliated foreign investment fund.  In connection with the strategic plan, we effected our OTC restructuring through a series of transactions involving subsidiary formations, contributions of subsidiary(ies) interests and sales of stock interests through subsidiary transactions.  As a result of the series of transactions related to the sale, Remedent Inc.  currently owns 50% of  Remedent OTC BV, a Dutch company (“Remedent OTC”) with Mr. List owning the other 50%. Remedent OTC owns and holds a 75% ownership interest in Sylphar Holding BV,  a Dutch holding company which owns and holds the OTC operating subsidiaries  (“Sylphar Holding”), together with Concordia Fund B.V. who owns 25% of Sylphar Holding.  As a result of Remedent, Inc.’s  ownership interest in Remedent OTC, Remedent, Inc. holds an ownership interest equal to 37.5% interest in Sylphar Holding.   As a result of the sale, all of the OTC business previously directly operated by us is now operated and held by Sylphar Holding.  In addition, following the restructuring we have focused our business primarily on the marketing and distribution of our GlamSmile Veneers.

 

In January, 2010 we formed a joint venture with Gallant Network Limited (“Gallant”) to formalize our GlamSmile operations in China.   In order to sell our products into the Chinese market, an approval by Chinese authorities is required, in the form of licenses. Since GlamSmile Asia Ltd., a private Hong Kong company (“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 a 50.98% interest in exchange for (i) 325,000 Euro (US $466,725), of which 50,000 Euro was payable as of March 31, 2010, (ii) 250,000 shares of common stock was originally agreed to be issued during the fiscal year ended March 31, 2011 and then subsequently amended to be issued during fiscal year ended March 31, 2013,  and (iii) option grants of up to 300,000 shares of our common stock, of which 200,000 shares were granted as of March 31, 2011.

 

 

On January 28, 2012, we 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 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.

 

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. In addition, at the closing, the Investors have a right to appoint one director of Glamsmile Dental, and as such it is contemplated that after the closing the Board of Directors of Glamsmile Dental will consists of Mr. De Vreese, Mr. Lok and a director appointed by the Investors.

 

Under the terms of the Share Purchase Agreement, we agreed 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, we also entered 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, we entered into a Distribution, License and Manufacturing Agreement with Glamsmile Dental pursuant to which we 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 off set to payment of certain invoices of Glamsmile (Asia) Limited).

 

We have the following wholly owned subsidiaries:  (1) Remedent N.V., a Belgium corporation; (2) Remedent Professional Holdings, Inc., a California corporation; (3) Remedent Professional, Inc., a California corporation (a subsidiary of Remedent Professional Holdings, Inc.), and (4) Glamtech-USA, Inc., a Delaware corporation.  In addition, Remedent N.V., our wholly-owned subsidiary,  has (A) a 51% ownership interest in GlamSmile Deutschland GmbH, a German private company, (B) a 100% ownership interest in GlamSmile Rome SRL (an Italian private Company). Remedent Inc. also has a 50 % ownership in Remedent OTC BV  (a Dutch company which holds a 75% ownership interest in Sylphar Holding) and (D) a 37.5% ownership interest in Sylphar Holding (a Dutch holding company which wholly owns: Sylphar Holding: (i) Sylphar N.V., a Belgium corporation; (ii) Sylphar USA, Inc., a Nevada corporation; and (iii)  Sylphar Asia Pte Ltd. (formerly Remedent Asia Pte Ltd.), a Singapore company. In addition, Remedent, Inc. owns a 29.4% ownership interest 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.

 

 

Past Product Development

 

We have been a manufacturer and distributor of cosmetic dentistry products, including a full line of professional dental and retail OTC tooth whitening products which are distributed in Europe, Asia and the United States.  We have distributed our products using both our own internal sales force and through the use of third party distributors.  Prior to our 2008 Restructuring, our products were generally classified into the following categories: professional dental products and OTC tooth whitening products. Our OTC division included products targeted for retail such as iWhite, Cleverwhite and Remesense.  However as a result of the 2008 Restructuring and sale, all of our prior OTC operations, including the marketing and distribution of the OTC products are being conducted by Sylphar Holding and its wholly owned subsidiaries.  We developed the following products for our professional dental segment:

 

	·	Remewhite in Office Whitening System . One of our first dental products that we developed for the professional dental community was the RemeCure™ plasma curing light (described below).  Leveraging on our early success with the RemeCure light, we introduced the RemeWhite™ In Office Whitening System.  Based upon the initial RemeCure light, a new light, called the RemeCure CL-15, was developed featuring new enhancements to the hardware and software enabling this light to be fully automated thereby eliminating the need for the dentist to hold the light during whitening treatments.  In addition, a proprietary gel was formulated to be used with the system as well as a time saving method to apply the gel.
	·	Remewhite Home Maintenance Kit .  In 2004, the RemeWhite Home Maintenance Kit was introduced and sold by dentists to their patients, featuring 16 pre-filled trays with a level of whitening agent safe for home use yet stronger than most OTC products.
	·	Metatray .  In August 2005, we introduced MetaTray®, our next generation of products targeted for the professional dentist market.  The MetaTray kit consists of a proprietary, reusable mouthpiece that has embedded in the mouthpiece both a heating element and an electroluminescent mesh that are powered by a rechargeable 9 volt power source providing heat and light similar to that which is delivered to the teeth by conventional dental lights. The system also introduced a proprietary foam strip that is unique in the manner in which it releases peroxide to the tooth surface without dripping or running.
	·	RemeCure. The RemeCure plasma curing light uses plasma arc technology instead of LED  and laser technology which provides high-energy power over the complete spectrum.
	·	FirstFit.   We developed the FirstFit™ System, a proprietary, patent-pending system for the creation and placement of dental bridges and crowns.   Effective as of  March 29, 2010 the intellectual property used and related to FirstFit product was sold to Den-Mat Holdings LLC (“Den-Mat”).

 

Current Business Strategy

 

Our current business  strategy is to focus our resources on vertically integrating our development, manufacturing and marketing resources on selling our GlamSmile veneers directly to consumers by using all forms of direct response media including the internet, print, radio, television and social network media, to expand our presence in Asia,  with a primary focus on China, and Europe, as well as to establish a direct to consumer presence in United States.

 

Current Products

 

We currently have two primary products: GlamSmile Veneers, and Whitening Products. In addition, we are currently developing a ‘prefab’ veneer which would be a ‘ready-to-use’ veneer, called ‘River 8’ which we anticipate we will offer at a lower price than traditional veneers. It is anticipated that the launch will be during the first six months of the next fiscal year.

 

 

Whitening Products

 

We sell our whitening products directly throughout the world.  We continue to focus our sales efforts on our whitening products.

 

We initially started in the whitening business, by developing and marketing whitening products in combination with the worldwide appreciated high speed curing lamp RemeCure. The RemeCure plasma curing light uses plasma arc technology instead of LED and laser technology which provides high-energy power over the complete spectrum.  This allows RemeCure plasma curing light to be used in various applications such as: (1) curing dental composite materials in only seconds; and (2) for single appointment, in-office whitening in less than forty minutes.

 

	·	Remewhite Formulation+ by GlamSmile.    Formulation+ was the first available in-office power whitening gel featuring Remedent’s proprietary CRM-Technology. The Continuous Release Matrix assures a prolonged and continuous release of Hydrogen Peroxide throughout the entire session, thus improving the exposure time of the whitening agent to the enamel. Still today Formulation+ for in-office use by dentists is one of the top products giving consumers whitening results up to 10 shades whiter without sensitivity.
	·	WHITE Boost & WHITE Finishing . Other than Formulation+, Remedent created and sells the White Boost & White Finishing through dentists for home use. It is an oxygen-induced whitening system using a revolutionary and comfortable tray and 2 thin, flexible foam strips impregnated with super tooth whitening gel. The foam strips’ unique formula guarantees a steady release of oxygen that first triggers and then speeds up the whitening process. Our ergonomic delivery tray means ease-of-use and superb whitening results in just 10 minutes.

 

GlamSmile Veneers

 

In connection with the 2008 Restructuring, we shifted our focus to professional products targeted for the professional sector. Our key product in the professional oral care and cosmetic dentistry product is the GlamSmile veneer.

 

In 2006 we developed a revolutionary system for manufacturing and installing dental veneers which we branded as GlamSmile. GlamSmile veneers revolutionize the traditional one-at-a-time method of applying porcelain dental veneers.  GlamSmile veneers are attached to the front of the patient’s teeth using a patent pending single motion placement tray which replaces the traditional one at a time trial and error method of applying porcelain veneers, making the application less traumatic for the patient, much easier for the dentist and perhaps most important, far less costly than traditional dental veneers. The entire process is painless and takes only about an hour of the patient’s and the dentist’s time. GlamSmile veneers are so thin that the dentist does not need to remove healthy tooth structure which results in a process that is reversible. In the fall of 2006, we opened our initial GlamSmile Lab in Ghent.

 

Our GlamSmile involves a proprietary veneer fabrication technique and a patented single-motion veneer placement tray which are both guided by a proprietary computer imaging, design and digital preview system. The unique tray delivery system lets dentists expertly seat 10 ultra-thin, custom veneers in less than an hour while preserving tooth structure. All the features of GlamSmile, together with the CAD/CAM technology, digital preview for dentists to evaluate the design and a unique full arch tray delivery system used in conjunction with minimally or no preparation ultra thin veneers, have revolutionized the art of veneering.

 

 

Our GlamSmile veneers are ultra thin claddings made from a mixture of a hybrid composite and porcelain materials which are attached to the front of the patient’s teeth.  GlamSmile veneers are ultra-thin and can best be compared to contact lenses in terms of thickness. Because GlamSmile veneers are so thin, the dentist does not need to remove healthy tooth structure,  Leaving the patient’s healthy tooth structure intact results in several important benefits:

 

•

no local anesthesia is required to prepare the teeth;

 

•

reduced (if any) tooth sensitivity post-procedure; and

 

•

the process is reversible.

 

Our veneers are custom-made for each individual’s personal features, taking into account numerous factors including the shape of a person’s face, the shape of their lips and more. At the initial doctor visit, an impression is made of the patient’s teeth.  During the second visit, the hybrid composite veneers, which are computer generated as a single unit, are then ready to be installed.  The single-unit feature enables dentists with minimal training to apply up to ten teeth in one 30 – 45 minute visit.  This minimizes the risk of failure and allows more dentists to offer GlamSmile veneers as part of their dental practice. With traditional bonding, a dentist adheres a composite material directly on the tooth which lasts about 3 to 6 years and tends to discolor.  Porcelain veneers, though a more lasting solution (ten years or more), require a significantly more invasive procedure to install, which is irreversible, requires a very high level of training and skill from the dentist and can cost from $700 to $2,000 per tooth.

 

Marketing and Distribution

 

We market our products to the dental professional using our business to business strategies (“B2B”), and we also market our products directly to the consumers in Asia, Europe and the Middle East  using our direct to consumer model (“B2C”).  Our products are sold to dental professionals in 28 countries through distributors. We previously sold our GlamSmile product in the United States and throughout the world with the exception of certain excluded territories and certain B2C markets pursuant to a distribution agreement. However, on March 27, 2012, the distribution agreements with Den-Mat were terminated pursuant to a certain Termination and Distribution Agreement with Den-Mat (“Den-Mat Distribution Agreement”). Pursuant to the Den-Mat Distribution Agreement, we granted Den-Mat a non-exclusive, irrevocable, perpetual, royalty free, license to use within certain territory, which among other territories excludes China, Macau, Hong Kong, and Taiwan, the intellectual property that was the subject of the license to Den-Mat under the Amended and Restated Distribution, License and Manufacturing Agreement dated June 3, 2009, as amended from time to time (“Prior Agreements”), as such intellectual property relates the products which was the subject of the Prior Agreements. In connection with the termination of the Prior Agreements, under the Den-Mat Distribution Agreement, Den-Mat agreed to pay us $200,000. We currently sell our products in Asia, Europe and the Middle East  directly to consumers using our direct to consumer model, which includes our GlamSmile Smile Design-Virtual Studio, and GlamSmile Studios.

 

B2C Market and Distribution

 

In 2008 we opened, through a third party, our first GlamSmile center in Beijing China, marketing GlamSmile directly to consumers.  In 2009 we began direct to consumer tests in Belgium using internet advertising to acquire potential leads and our own dedicated “Smile Consultants” to manage the sales process from lead acquisition through final sale with successful results. Our direct to consumer model, has been developed around a one to one relationship with our Smile Consultants. This process also results in the dentists being relieved of the sales responsibilities allowing them to better focus on patient satisfaction. In both China and Belgium, with the aid of our own “Smile Consultant” working direct with the customer throughout the entire sales process, we have seen positive results in our partner retail centers.

 

 

Our Smile Consultancy Program is predominantly marketed on the internet through our website, GlamSmile Smile Design.  We focus on intensive campaign and advertisement aimed to generate large traffic to our website that promotes GlamSmile Whitening, Veneers and Free Smile Advice. Visitors can apply for a free personalized Smile Consultation by a Smile Consultant. The latter guides the consumer to the right GlamSmile Studio or with one of our GlamSmile partner dentists and to the solution that meets best his or her Smile expectations.  The Smile Consultancy Program requires us to develop close partnerships with dedicated GlamSmile dentists and the establishment of GlamSmile Studios. The GlamSmile Studio is a concept studio with a focus on aesthetic and cosmetic dentistry. Unlike a traditional dentist office, our GlamSmile Studio are designed and managed as a dental spa.

 

We have begun to market our products through our Smile Consultancy Concept and through the establishment of our GlamSmile Studios in Asia, with a primary focus on China, and Europe.   We currently have an ownership interest in the following Glamsmile Studios:

 

	·	Beijing Glamsmile Studio . Through Glamsmile Asia and its subsidiaries we opened a GlamSmile clinic in Beijing, China, during the third calendar quarter of 2009.  The Beijing GlamSmile clinic was the first dental spa to offer pain free cosmetic dentistry in Beijing.
	·	Hong Kong Dental Spa .  In April 2010, through GlamSmile Asia Ltd. we expanded our business to consumer model in the Asian market by opening a dental spa  in Hong Kong.
	·	Munich, Germany Glamsmile Studio .  In October 2010, through GlamSmile Deutschland GmbH a studio in Munich, Germany was opened.
	·	Shanghai Studio .  In February 2011, we opened the Shanghai Studio through  GlamSmile Asia.
	·	Rome, Italian Glamsmile Studio .  In June 2011, through GlamSmile Rome SRL a studio in Rome, Italy was opened.
	·	Wenzhou Studio.  In February 2012, we opened the Wenzhou Studio through  GlamSmile Asia.

 

In connection with the contemplated transactions in the Share Purchase Agreement on January 20, 2012, we entered into a Distribution, License and Manufacturing Agreement with Glamsmile Dental pursuant to which we 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 off set to payment of certain invoices of Glamsmile (Asia) Limited).

 

Cosmetic Dentistry Industry

 

The cosmetic dental industry has expanded into a multi-billion industry as a result of increased awareness of the importance of oral health, high aesthetics, improved dental treatments, and reduced patient discomfort.  An increasingly aging population and rising disposable income have also positively impacted the growth of cosmetic dentistry. Demand for dental products and services are forecasted to remain healthy due to growing incidences of cosmetic treatments and dental implants.  According to a  report published by Koncepts Analytics, the dental industry worldwide was estimated at about $18.8 billion in 2008, dominated by the US, Europe and Japan, which collectively accounted for more than 84% of the global revenue in 2007. The United States Dental Market was nearly $7.6 billion in 2007, projected to grow to almost $8 billion in 2008 and nearly $10 billion by 2013, representing a compound annual growth rate of 4.7%. The American Academy of Cosmetic Dentistry estimates that Americans spend about $2.75 billion each year on cosmetic dentistry. The growth of this market is expected to be highest in the United States and EU where the generation of aging baby boomers can afford these quality but expensive dental procedures. Also expected to be a catalyst for the growth and popularity of cosmetic treatments and implants is the younger generation. Further, emerging technologies will reduce the overall turnaround time for dental procedures while improving efficiency of the dental practitioners. For example, introduction of CAD/CAM has reduced designing time and 3D imaging techniques have improved patient diagnosis and procedure planning. Changing consumer needs and a shift towards cosmetic dentistry will drive the market for high end dental solutions.

 

 

In China and other parts of Asia there has been a rapid growth in living standards. China’s young, emerging middle class is beginning to equate accumulation of possessions and leisure opportunities with quality of life. An estimated 415,000 Chinese had more than $1 million in disposable assets in 2007, more than any other country, according to the Merrill-Lynch Asia-Pacific Wealth Report. Up to 170 million people, or 13% of the population, can afford luxury brands and the number will reach 250 million next year, according to the China Association of Branding Strategy. These regions have a huge potential for growth in cosmetic dentistry due to low market penetration. Consequently, these countries are exhibiting high demand for modern and sophisticated technology and equipment in the dental market. Overall demand for dental products in China is expected to climb to 11% annually through 2012. In a report published by Millennium Research Group with regard to Chinese markets for Dental Implants, a similar target market as that for our GlamSmile products, finds that this emerging market is growing quickly at a compound annual growth rate of more than 35%. A strong driver of this growth is the deregulation of dental services in China. Dental services in China are generally provided in government-managed facilities; however, ongoing deregulation of dental services is resulting in the emergence of an increased number of private dental practices and increasing accessibility to dental services. Another major driver in the Chinese market is the frequency of teeth stained by Tetracycline. For decades, Tetracycline was one of the most prescribed antibiotics in China causing many individuals to suffer from stained teeth. Excessive use of fluoride in drinking water causes a similar problem. When tetracycline exposure occurs while teeth are forming, it creates a permanent gray or brown stain, causing either uniform discoloration of the entire tooth or forming horizontal bands of stain of varying intensity that can range from mild to very dark. Veneers are the treatment of choice for this condition. In 2008, the Asia-Pacific market for dental prosthetics (crowns, bridges and dentures) was valued at over $6 billion. The Asia-Pacific market includes Australia, Japan and South Korea. The aging population and greater demand for aesthetic dentistry are driving forces in the prosthetics market. The global economic crisis, which began in 2008, has led to a slowdown in the overall market; however, the market is expected to grow over the forecast period, reaching $7.2 billion by 2015.

 

We believe that our GlamSmile products which are affordable in comparison to traditional veneers, pain free, easy to apply, and provide instant results make us uniquely positioned to capitalize on the market trends in Asia, Europe and the United States.

 

Growth Strategy

 

Today, our strategic plan is to focus our vertically integrated development, manufacturing and marketing resources on selling our GlamSmile veneers direct to consumers by using all forms of direct response media including the internet, print, radio, television and social network media, to expand our presence in China and Europe.  In our marketing efforts we intend to emphasize the ease, convenience, affordability and dramatic, instant results as demonstrated by before and after photos that are attained as a result of GlamSmile veneers. We will also feature our “Until You Smile” satisfaction guarantee. Using the success formula we experienced in China and Belgium using a "Smile Consultant" to help maintain control of the sales process and close the sale, our distribution will be through both owned and operated Glamsmile Studios as well as affiliations with existing dental practices and partner retail centers in Asia, Europe.

 

Our current strategic marketing and distribution plan includes a combination of owned and licensed GlamSmile centers depending upon the size and location of the market, with us managing the marketing efforts, patient communications and sales process. We  established two geographic divisions, Asia and Europe , each of which will promote GlamSmile veneer treatments in their respective territories. We plan to establish three types of GlamSmile Centers depending upon market factors and government regulation.

 

 

	·	Owned Centers. These are centers in which the Company will own, control and/or manage all aspects of the operation including the facilities, equipment, personnel, marketing, insurance risk and other operating costs and will either employ or contract with dentists to perform the necessary dental services. In China, we will continue to principally rely on our owned and operated dental GlamSmile clinics or centers.
	·	Licensed Centers.   In many markets we will seek to identify and recruit cosmetic dentists that have existing practices and who endorse the GlamSmile veneer products. In these markets, we will contract with dental practices and the Company will recognize revenue through the sale of veneer trays plus marketing and other service fees to be charged to the dentist for services performed by the Company.
	·	Distributors. In markets where we lack the expertise with respect to managing marketing and where local regulation  and/or custom may make it impractical to deploy an owned or licensed center approach we will look to appoint distributors who will be granted exclusive rights to market and distribute our GlamSmile products  directly to consumers subject to minimum performance criteria and/or initial territory fees. In this model the distributor will be expected to invest in all marketing and sales conversion costs in their market. Our   revenues will be derived principally from sales of our GlamSmile veneer products to the distributor.

 

In order to support and facilitate our growth strategy, it is our intention to restructure our subsidiary companies to better manage our GlamSmile related operations. In conjunction with this restructuring, we intend to have the intellectual property and other assets related to GlamSmile contributed to a new entity to be formed to be called GlamSmile Worldwide. New entities would also be created called GlamSmile Asia and GlamSmile Europe, each with licensed rights to use and exploit the GlamSmile technology in their respective territories.

 

B2B Market and Distribution

 

Starting in Belgium and the Netherlands, our products have been introduced utilizing our Distributor Assisted Marketing programs.  We implement our program by first identifying an established dealer in each market with a well-developed sales force familiar with sales of capital equipment to the professional dentist community.  Second, we develop aggressive lead generation programs and other marketing techniques which served as a blue print for the dealers to implement.  The combination of a well-trained dealer force and dealer-assisted marketing and lead generation programs has proven to be far more effective than utilizing a direct sales approach, which is much slower and more costly to establish.  This process has been repeated for both the professional dentist and retail, over-the-counter markets in each country.  As a result of this approach, we have been able to establish dealers in 28 countries encompassing, Europe, Asia, Latin America, the Pacific Rim and the Middle East.

 

We previously sold our GlamSmile product in the United States and throughout the world with the exception of certain excluded territories and certain B2C markets pursuant to a distribution agreement. However, on March 27, 2012, the distribution agreements with Den-Mat were terminated pursuant to a certain Termination and Distribution Agreement with Den-Mat (“Den-Mat Distribution Agreement”). Pursuant to the Den-Mat Distribution Agreement, we granted Den-Mat a non-exclusive, irrevocable, perpetual, royalty free, license to use within certain territory, which among other territories excludes China, Macau, Hong Kong, and Taiwan, the intellectual property that was the subject of the license to Den-Mat under the Amended and Restated Distribution, License and Manufacturing Agreement dated June 3, 2009, as amended from time to time (“Prior Agreements”), as such intellectual property relates the products which was the subject of the Prior Agreements. In connection with the termination of the Prior Agreements, under the Den-Mat Distribution Agreement, Den-Mat agreed to pay us $200,000. We currently sell our products in Asia, Europe and the Middle East  directly to consumers using our direct to consumer model, which includes our GlamSmile Smile Design-Virtual Studio, and GlamSmile Studios.

 

 

In September 2010, we entered into a license agreement with Excelsior Medical (“EM”) (the “EM license agreement”). Under the EM license agreement, we granted EM an exclusive license to certain Asian territories in exchange for $500,000 which was received during the year ended March 31, 2011. The Company received a further $500,000 from EM as an advance payment for veneers.  The $500,000 advance, less taxes withheld, was recorded as deferred revenue of $475,250 as of March 31, 2011.  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

 

Locations

 

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 ($7,624 per month at March 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 a six year lease commencing July 1, 2011, at a base rent of € 6,500 per month for the total location ($8,675 per month at March 31, 2012).

 

Manufacturing

 

Prior to 2003, all of the manufacturing related to our dental products were conducted through third party manufacturers under our supervision thereby minimizing demands on capital resources.  Beginning in 2003, parts of the manufacturing and the majority of the final assembly of our products were brought in-house, thereby improving control over product quality while significantly reducing product costs.  These efforts were expanded significantly during the fiscal year ended March 31, 2006, in particular with regard to the expansion of in-house manufacturing capabilities for our gel products and foam strips. The Company still manufactures many of its products in its facility in Deurle, Belgium, as well as through outsourced manufacturing in China and France.  In December 2005, our manufacturing facility became ISO 9001:2000 certified and ISO 13485:2003 certified which includes the certification for the manufacture of medical devices.

 

Research and Development

 

Our research and development expenses decreased $119,305 to $ 309,939 for the year ended March 31, 2012 as compared to $429,244 for the year ended March 31, 2011, an increase of 27.79%.  Research and development expenses have decreased primarily because of the completion of the research and development of the RemeScar and the launch of the final RemeScar product, reducing our research and development expense significantly. Secondly, the deconsolidation of our Sylphar division end of September 2011, converted to the equity method, contributed also to the decrease in Research and Development expenses.

 

Although we are currently developing a ‘prefab’ veneer which would be a ‘ready-to-use’ veneer, called ‘River 8’ which we plan to offer at a lower price than traditional veneers, we anticipate that our research and development costs will decrease over the next fiscal year since GlamSmile Asia was deconsolidated at the end of January 2012 along with the deconsolidation of the Sylphar Division at the end of September 2011, reducing as such our consolidated research and development costs.

 

Intellectual Property

 

GlamSmile.   We have filed a patent application related to the design and manufacturing process of the GlamSmile product in the European Union on March 2, 2003 and  the United States on December 20, 2007. The patent applications are pending as of March 31, 2012.  We also have international trademark registration for GlamSmile in the United States until August 16, 2017 and in the European Union until April 6, 2017. In addition, we have secured the domain name www.glamsmile.com as well as other related internet domains in our targeted markets. We also have ongoing research and development efforts to improve and expand our current technology and to develop new dental products.   We intend to continue to apply for patents when we believe it is in our interest to do so and as advised by patent counsel.  We rely and will continue to rely on trade secrets, know-how and other unpatented proprietary information in our business.  Certain of our key employees and consultants are required to enter into confidentiality and/or non-competition agreements to protect our confidential information.

 

 

Teeth Whitening Patents.   In October 2004, the Company acquired from the inventor the exclusive, perpetual license to two issued United States patents which are applicable to several teeth whitening products, which consists of a patent related to a heated dental tray which expires on February 8, 2019 and a  patent related to device for heating the teeth and uses therefor which expires on February 23, 2021. Pursuant to the terms of the license agreement, the Company was granted an exclusive, perpetual license to manufacture, market, distribute and sell the products on the US market contemplated by the patents subject to the payment of $65,000 as reimbursement to the patent holder for legal and other costs associated with obtaining the patents, which was paid in October 2004, and royalties for each unit sold subject to an annual minimum royalty of $100,000 per year. The Company is amortizing the initial cost of $65,000 for these patents over a ten year period.  The license agreement contemplated the  launch of the product in the United States and provided for payment of royalties on those sales.  The launch of the product in the United States was unsuccessful and as a result, the product was taken from the United States market.  The Company failed to make payments to the Licensor of at least $100,000 USD per year, consequently all rights to the patents reverted to the licensor effective March 31, 2006.  Accordingly, the patents have been written off as of March 31, 2011.

 

Universal Applicator Patent.   In September 2004, we entered into an agreement with Lident N.V. (“Lident”), a company controlled by Mr. De Vreese, the Company’s Chairman, to obtain an option, exercisable through December 31, 2005, to license an international patent (excluding the US) and worldwide manufacturing and distribution rights for a potential new product which Lident had been assigned certain rights by the inventors of the products, who are unrelated parties, prior to Mr. De Vreese association with the Company. The patent is an Italian patent which relates to a single use universal applicator for dental pastes, salves, creams, powders, liquids and other substances where manual application could be relevant. We have filed to have the patent approved throughout Europe. The agreement required us to advance to the inventors through Lident a fully refundable deposit of €100,000 subject to our due diligence regarding the enforceability of the patent and marketability of the product, which, if viable, would be assigned to us for additional consideration to the inventors of €100,000 and an ongoing royalty from sales of products related to the patent equal to 3% of net sales and, if not viable, the deposit would be repaid in full by Lident. The consideration we agreed to pay Lident upon the exercise of the option is the same as the consideration Lident is obligated to pay the original inventors. Consequently, Lident would not have profited from the exercise of the option. Furthermore, at a meeting of our Board of Directors on July 13, 2005, the Board accepted Lident’s offer to facilitate an assignment of Lident’s intellectual property rights to the technology to us in exchange for the reimbursement of Lident’s actual costs incurred relating to the intellectual property. Consequently, when we exercise the option, all future payments, other than the reimbursement of costs would be paid directly to the original inventors and not to Lident.

 

On December 12, 2005, the Company exercised the option and the Company and the patent holder agreed to revise the assignment agreement whereby the Company agreed to pay €50,000 additional compensation in the form of prepaid royalties instead of the €100,000 previously agreed, €25,000 of which was paid by the Company in September 2005 and the remaining €25,000 is to be paid upon the Company’s first shipment of a product covered by the patent. As of March 31, 2011 the Company has not yet received the final Product and therefore, $35,433 (€25,000) has been written off during the year ended March 31, 2011. Further, the patent has been completely amortized over five (5) years and accordingly, the Company has recorded $118,840 of accumulated amortization for this patent as of March 31, 2011.

 

Major Customers

 

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. At March 31, 2011 five customers accounted for a total of  61% of the Company’s trade accounts receivable and one of those customers accounted for 24.6% of total accounts receivable.  The Company performs ongoing credit evaluations of its customers and normally does not require collateral to support accounts receivable.

 

 

Competition

 

GlamSmile .  Our competition consists of both alternative procedures that can be performed to achieve in part the results that would be achieved through a GlamSmile procedure, as well as competition from dentists not within the GlamSmile network who provide veneer procedures. With regard to alternative procedures, options available to the consumer include various whitening procedures, dental implants, dental bonding and dental caps. With the exception of whitening procedures, which for the most part cannot address many of the dental issues solved by GlamSmile veneers, the remaining alternatives all involve more cost, more patient discomfort and more time to complete. There are many dental practitioners that perform traditional veneer procedures. In most cases, traditional veneers will also be significantly more costly then GlamSmile veneers and require the dentist to remove more of the existing tooth material as well as requiring multiple patient visits to complete. That said, there will be existing practitioners that believe they can attain more customized results with the individual veneer approach as opposed to the GlamSmile tray approach and may be reluctant to offer our less costly procedure. To the best of our knowledge, GlamSmile will be “first to market” with respect to a direct to consumer advertising and promotion campaign for veneers anywhere which should enable us to capture market share in what we believe will be a rapidly growing market. Further, we have filed for patents on our proprietary tray delivery systems and have developed years of knowhow relating to treating patients with the multiple veneer approach. However, new technologies are continue to be developed and new processes could be designed that would not violate our patents and result in similar solutions that could compete with GlamSmile products. Because we are uniquely positioned to have the ability to control the entire process from manufacturing to marketing to distribution, we believe it is feasible for us to  have complete control and flexibility to maximize margins and respond aggressively to any competitive situation.

 

Teeth Whitening .  International markets including Europe, Asia and Latin America have followed the United States’ lead in expanding offerings in the areas of teeth whitening.  Leading the way in both the professional dentist segment has been United States based companies seeking to expand their distribution.  Impeding these efforts has been the inability of many of these companies to fully understand the differences from both a distribution and a regulatory standpoint that apply in each of the European and Asian markets.  Notwithstanding the formation of the European Union and its efforts to standardize regulatory and business practices throughout Europe, these practices in reality vary widely from country to country.  Competition in the professional dentistry product lines comes primarily from the larger United States based competitors including Brite-Smile, Rembrandt (now a subsidiary of Gillette Company, Inc.), Discuss Dental, Inc. and Zoom.  All of these companies offer light and whitening solutions to the professional dentist community.  Despite our competition’s advantage with respect to size, resources and name recognition, we have continued to maintain market share in this highly competitive segment for the following reasons:

 

	•	Better combined pricing strategy than the competition when considering net cost for whitening materials and initial cost of light.
	•	Dual purpose light to maximize value of initial investment.
	•	Ease of use from automated functionality of light, speed and gel application method.
	•	Superior gel formulation which maximizes performance while minimizing sensitivity.
	•	Home maintenance kit for improved patient satisfaction.

 

 

Regulatory Issues

 

Medical Device

 

As we market dental products which are legally defined to be medical devices, we are considered to be a medical device manufacturer and as such we are subject to the regulations of, among other governmental entities, the United States Food and Drug Administration (the “FDA”) and the corresponding agencies of the states and foreign countries in which we sell our products.  These regulations govern the introduction of new medical devices, the observance of certain standards with respect to the manufacture and labeling of medical devices, the maintenance of certain records and the reporting of potential product problems and other matters.  A failure to comply with such regulations could have material adverse effects on our business.

 

The Federal Food, Drug and Cosmetic Act (“FDC Act”) regulates medical devices in the United States by classifying them into one of three classes based on the extent of regulation believed necessary to ensure safety and effectiveness.  Class I devices are those devices for which safety and effectiveness can reasonably be ensured through general controls, such as device listing, adequate labeling, pre-market notification and adherence to the Quality System Regulation (“QSR”) as well as medical device reporting, labeling and other regulatory requirements.  Some Class I medical devices are exempt from the requirement of pre-market approval or clearance.  Class II devices are those devices for which safety and effectiveness can reasonably be ensured through the use of special controls, such as performance standards, post-market surveillance and patient registries, as well as adherence to the general controls provisions applicable to Class I devices.  Class III devices are devices that generally must receive pre-market approval by the FDA pursuant to a pre-market approval application (“PMA”) to ensure their safety and effectiveness.  Generally, Class III devices are limited to life sustaining, life supporting or implantable devices; however, this classification can also apply to novel technology or new intended uses or applications for existing devices.

 

Before most medical devices can be marketed in the United States, they are required by the FDA to secure either clearance of a pre-market notification pursuant to Section 510(k) of the FDC Act (a “510(k) Clearance”) or approval of a PMA.  Obtaining approval of a PMA can take several years.  In contrast, the process of obtaining 510(k) Clearance generally requires a submission of substantially less data and generally involves a shorter review period.  Most Class I and Class II devices enter the market via the 510(k) Clearance procedure, while new Class III devices ordinarily enter the market via the more rigorous PMA procedure.  In general, approval of a 510(k) Clearance may be obtained if a manufacturer or seller of medical devices can establish that a new device is “substantially equivalent” to a predicate device other than one that has an approved PMA.  The claim for substantial equivalence may have to be supported by various types of information, including clinical data, indicating that the device is as safe and effective for its intended use as its legally marketed equivalent device.  The 510(k) Clearance is required to be filed and cleared by the FDA prior to introducing a device into commercial distribution.  Market clearance for a 510(k) Notification submission may take 3 to 12 months or longer.  If the FDA finds that the device is not substantially equivalent to a predicate device, the device is deemed a Class III device, and a manufacturer or seller is required to file a PMA.  Approval of a PMA for a new medical device usually requires, among other things, extensive clinical data on the safety and effectiveness of the device.  PMA applications may take years to be approved after they are filed.  In addition to requiring clearance or approval for new medical devices, FDA rules also require a new 510(k) filing and review period prior to marketing a changed or modified version of an existing legally marketed device if such changes or modifications could significantly affect the safety or effectiveness of that device.  The FDA prohibits the advertisement or promotion of any approved or cleared device for uses other than those that are stated in the device’s approved or cleared application. We believe that the GlamSmile products will not require a 510(k) submission because the products fall within an exemption under the 510(k) regulation.

 

 

International sales of medical devices are also subject to the regulatory requirements of each country.  In Europe, the regulations of the European Union require that a device have a CE Mark, a mark that indicates conformance with European Union laws and regulations before it can be sold in that market.  In China, the State Food and Drug Administration (“SFDA”)  is the agency primarily responsible for regulating medical devices.  The regulatory international review process varies from country to country.  We previously relied upon our distributors and sales representatives in the foreign countries in which we market our products to ensure we comply with the regulatory laws of such countries; however, during the year ended March 31, 2006 we expanded our own Research and Development personnel to enable us to provide greater assistance and play a more proactive role in obtaining local regulatory approvals, especially in Europe.  We currently have an in-office regulatory affairs representative who is responsible for coordinating local and international approvals as well as our ISO:9001 and ISO:13485 (medical device).  In China, we continue to rely on our distributors and strategic partners to ensure compliance with regulatory laws of China.

 

Fee Splitting and Arrangements with Health Professionals

 

Many states in the United States and countries worldwide have laws that prohibit business corporations like us from practicing medicine, employing dentists to practice medicine, exercising control over medical decisions by dentists, or engaging in certain arrangements, such as fee splitting, with dentists. In light of these restrictions, in certain markets where permissible we intend to operate by maintaining management contracts with dentists owned corporations or other business entities that employ or contract with dentists to provide the GlamSmile and other dental services. Under these arrangements we will perform under contract only nonmedical administrative services, will not offer medical services and will not exercise influence or control over the practice of medicine by the dentists employed by such business entities. In markets where fee splitting with a business corporation is prohibited, the fees that will be received by us will have been established on a basis that we believe complies with the applicable laws. However, regulatory authorities or other parties may assert that, despite these arrangements, we are engaged in the corporate practice of medicine or that the contractual arrangements with the affiliated professional contractors constitute unlawful fee splitting, in which case we could be subject to civil or criminal penalties, the contracts could be found legally invalid and unenforceable (in whole or in part) or we could be required to restructure our contractual arrangements.

 

Dental Practice

 

Dental practices are subject to local and national regulations worldwide.  Although the laws and regulations for operating a dental practice and engaging in dental services vary from country to country, in general our dental studios require a health license and a business license.  In addition, the dentists providing services in the dental studios are also required to be licensed to practice.

 

While the Company believes it is in substantial compliance with the laws and regulations which regulate its business, and that it possesses all the licenses required in the conduct of its business, the failure to comply with any of those laws or regulations, or the imposition of new laws or regulations could negatively impact the Company’s business .

 

Costs and Effects of Compliance with Environmental Laws and Regulations

 

We are not in a business that involves the use of materials in a manufacturing stage where such materials are likely to result in the violation of any existing environmental rules and/or regulations.  Further, we do not own any real property that could lead to liability as a landowner.  Therefore, we do not anticipate that there will be any substantial costs associated with the compliance of environmental laws and regulations.

 

Employees

 

We currently retain 16 full-time employees in Belgium.   We currently have one employee, Mr. Stephen Ross, our Chief Financial Officer, located in the United States.  Our subsidiary, Remedent, N.V., has an employment agreement with Mr. Philippe Van Acker our Chief Accounting Officer.  We have no other employment agreements with our executive officers.

 

 

Financial Information About Geographic Areas

 

Refer to Note 20, “Segment Reporting,” to our Consolidated Financial Statements included under Item 8, “Financial Statements and Supplementary Data” for financial information about our geographic areas.

 

Other Information

 

Our Internet address is www.remedent.com.   We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Other than the information expressly set forth in this annual report, the information contained, or referred to, on our website is not part of this annual report.

 

The public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the SEC.

 

ITEM 1A — RISK FACTORS

 

RISK FACTORS

 

Investment in our common stock involves risk.  You should carefully consider the risks we describe below before deciding to invest.  The market price of our common stock could decline due to any of these risks, in which case you could lose all or part of your investment.  In assessing these risks, you should also refer to the other information included in this Annual Report, including our consolidated financial statements and the accompanying notes.  You should pay particular attention to the fact that we are a holding company with substantial operations in Belgium and China and are subject to legal and regulatory environments that in many respects differ from that of the United States.  Our business, financial condition or results of operations could be affected materially and adversely by any of the risks discussed below and any others not foreseen.  This discussion contains forward-looking statements.

 

Risks Relating To Our Business

 

We have a history of losses and we could suffer losses in the future.

 

With the exception of a small profit of $16,149 on revenue of $5,234,855 for the fiscal year ended March 31, 2004 and a profit of $490,483 on revenue of $9,687,292 for the fiscal year ended March 31, 2012, we have had a history of substantial losses.  Our losses were $1,547,175 on revenues of $12,581,708 for the year ended March 31, 2011 and $2,349,915 on revenues of $8,247,960 for the year ended March 31, 2010  We expect to continue to incur increasing cost of revenues, sales and marketing and general and administrative expenses in connection with our business strategy.  However, despite our efforts, there is no assurance that we will be able to achieve or sustain profitability.

 

Our cash and cash equivalents are insufficient to support our operations and there is substantial doubt exists about our ability to continue as a going concern.

 

Our cash and cash equivalents of $203,584 as of March 31, 2012 are not sufficient to support our operations through our current fiscal year and we need additional financing. During the year ended March 31, 2012, we have been unable to generate cash flows sufficient to support our operations and have been dependent on loans and strategic partnerships. We remain dependent on outside sources of funding until our results of operations provide positive cash flows. During our current fiscal year, we expect to continue to incur operating losses. With our current level of funding, substantial doubt exists about our ability to continue as a going concern.

 

 

The financial statements contained in this report do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to continue in existence. Our ability to continue as a going concern is dependent upon our ability to generate sufficient cash flows to meet our obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitable operations. However, there is no assurance that profitable operations or sufficient cash flows will occur in the future.

 

We have supported current operations by raising additional operating cash through loans and strategic partnerships. This has provided us with the cash inflows to continue our business plan, but has not resulted in significant improvement in our financial position. We are considering alternatives to address our cash flow situation that include raising capital through additional sale of our common stock and/or debentures.

 

This could result in substantial dilution of existing stockholders. There can be no assurance that our current financial position can be improved, that we will be able to locate a strategic partner, that we can raise additional working capital, or that we can achieve positive cash flows from operations. Our long-term viability as a going concern is dependent upon our ability to (i) locate sources of debt or equity funding to meet current commitments and near-term future requirements and (ii) achieve profitability and ultimately generate sufficient cash flow from operations to sustain our continuing operations.

 

Substantially all of our assets are secured under a credit facility with BNP Paribas Fortis Bank, a bank located outside of the United States, and in the event of default under the credit facility we may lose all of our assets.

 

The Company has a mixed-use line of credit facility with BNP Paribas Fortis, a Belgian bank (the “Facility”).  The Facility is secured by a first lien on the assets of Remedent N.V.    On January 3, 2008, an amendment was made decreasing the mixed-use line of credit to €2,050,000, to be used by Remedent NV and/or Sylphar NV. Each line of credit carries its own interest rates and fees as provided in the Facility and varies from the current prevailing bank rate

 

The latest amendment to the Facility, dated June 7, 2010, amended and split the line of credit to €1,250,000, to be used by Remedent N.V. and € 1,000,000 to be used Sylphar NV. Each 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 concerning Remedent N.V. and similar for Sylphar N.V. Remedent N.V. is currently only utilizing two lines of credit, advances based on account receivables and the straight loan. As of March 31, 2012 and March 31, 2011, Remedent N.V. had in aggregate, $1,079,263 and $1,452,024 in advances outstanding, respectively, under the mixed-use line of credit facilities. Although we are current in our obligations under this Facility, in the event of a default under this Facility we may lose our assets.  In addition, our Facility currently provide the Company with cash  to accelerate our expansion plan to open new GlamSmile Studios.  Accordingly,  without the availability of funds from our Facility, or alternative source of funding, it would take us longer to open  new Studios.

 

We depend on strategic relationships with third parties for sales and marketing performance and revenues in the People’s Republic of China and certain territories in North America,  and failure to maintain these relationships, poor performance by these companies or disputes with these companies could negatively impact our business.

 

We rely on significant strategic relationships with third parties, for our sales and marketing performance in certain territories. These include collaborations with strategic partners in China for our dental studios.  Reliance on collaborative relationships poses a number of risks, including the risk that:

 

 

	•	We are unable to control the resources our corporate partners devote to our programs or products;
	•	disagreements with our corporate partners could cause delays in, or termination of, the research, development or commercialization of product candidates or result in litigation or arbitration;
	•	contracts with our corporate partners may fail to provide significant protection or may fail to be effectively enforced if one of these partners fails to perform;
	•	our corporate partners with marketing rights may choose to pursue competing technologies or to devote fewer resources to the marketing of our products; and
	•	our distributors and our corporate partners may be unable to pay us, particularly in light of current economic conditions.

 

Given these risks, there is a great deal of uncertainty regarding the success of our current and future collaborative efforts. If these efforts fail, our product development or commercialization of new products could be delayed or revenues from products will most likely decline.

 

We may not have access to capital in the future as a result of disruptions in capital and credit markets.

 

Although we currently have additional credit available under our Facility with BNP Paribas Fortis Bank, we may not be able to access our funds in the future.  Our access to the funds under our current credit facility with BNP Paribas Fortis Bank is dependent on the ability of the financial institution that is party to the facility to meet its funding commitments. BNP Paribas Fortis Bank may not be able to meet its funding commitments if it experiences shortages of capital and liquidity or if it experiences excessive volumes of borrowing requests within a short period of time. Moreover, longer term volatility and continued disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation of financial institutions, reduced alternatives or failures of significant financial institutions could affect adversely our access to the liquidity needed for our business in the longer term. Such disruptions could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. The disruptions in the capital and credit markets have also resulted in higher interest rates on publicly issued debt securities and increased costs under credit facilities. The continuation of these disruptions would increase our interest expense and capital costs and could affect adversely our results of operations and financial position including our ability to grow our business through acquisitions.

 

We have obtained loans from third parties recently and anticipate that we will need additional capital during the next twelve months.  In addition, if we are unable to secure additional financing to meet our future capital this will have adverse effects on our financial condition.

 

We obtained on June 3, 2011, a long term loan for $1,000,000 from an unrelated party in order to support and finance the expansion of new GlamSmile Studios in Mainland China. This loan is secured by certain assets we own and in the event of default, the lenders will have a right to the collateral granted to them under the loan agreements and we will lose our ownership interest in the assets.  A loss of our collateral will have material adverse effect on our Asia operations, our business and financial condition.

 

Effective 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.

 

 

In addition, we anticipate needing significant capital to introduce new products, further develop our existing products, increase awareness of our brand names and expand our operating and management infrastructure as we grow sales in Europe, Asia and South America and  launch sales and distribution activities in the United States.  We may use capital more rapidly than currently anticipated and incur higher operating expenses and generate lower revenue than currently expected, and we may be required to depend on external financing to satisfy our operating and capital needs.  We may need new or additional financing in the future to conduct our operations or expand our business. Any sustained weakness in the general economic conditions and/or financial markets in the United States or globally could affect adversely our ability to raise capital on favorable terms or at all. From time to time we have relied, and may also rely in the future, on access to financial markets as a source of liquidity to satisfy working capital requirements and for general corporate purposes. We may be unable to secure additional debt or equity financing on terms acceptable to us, or at all, at the time when we need such funding.  If we do raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing stockholders.  If we raise additional funds by issuing debt, we may be subject to debt covenants, such as the debt covenants under our secured credit facility, which could place limitations on our operations including our ability to declare and pay dividends.  Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial condition and results of operations.

 

Our results of operations may be adversely impacted by currency fluctuations.

 

We currently have operations in Belgium and have product sales in Europe, the Middle East, South America and Asia.  A significant portion of our revenue is in currencies other than United States dollars, including Euros, Hong Kong dollar and the Chinese Renminbi (“RMB”).  Because our financial statements are reported in United States dollars, fluctuations in Euros, Hong Kong dollar and RMB against the United States dollar may cause us to recognize foreign currency transaction gains and losses, which may be material to our operations and impact our reported financial condition and results of operations

 

Substantially all of our assets and our operations are located outside of the United States, a significant number of sales  are generated outside of the United States subjecting us to risks associated with international operations.

 

Our operations are primarily in Europe and Asia and 88% of our sales for the fiscal year ended March 31, 2012 were generated from customers outside of the United States, compared to 82% of our sales for the fiscal year ended March 31, 2011. The international nature of our business subjects us to the laws and regulations of the jurisdictions in which we operate and sell our products.  In addition, we are subject to risks inherent in international business activities, including:

 

	•	difficulties in collecting accounts receivable and longer collection periods,
	•	Changes in overseas economic conditions,
	•	fluctuations in currency exchange rates,
	•	potentially weaker intellectual property protections,
	•	changing and conflicting local laws and other regulatory requirements,
	•	Political and economic instability,

 

 

	•	war, acts of terrorism or other hostilities,
	•	potentially adverse tax consequences,
	•	difficulties in staffing and managing foreign operations, or
	•	tariffs or other trade regulations and restrictions.

 

Our quarterly sales and operating results have fluctuated and may continue to fluctuate in future periods which may cause the price of our common stock to decline.

 

Our quarterly sales and operating results have fluctuated and are likely to continue to vary from quarter to quarter due to a number of factors, many of which are not within our control.  Factors that might cause quarterly fluctuations in our sales and operating results include, but are not limited by the following:

 

	•	Variation in demand for our products, including variation due to seasonality;
	•	Our ability to research, develop, introduce, market and gain market acceptance of new products and product enhancements in a timely manner;
	•	Our ability to control costs;
	•	The size, timing, rescheduling or cancellation of orders from distributors;
	•	The introduction of new products by competitors;
	•	Long sales cycles and fluctuations in sales cycles;
	•	The availability and reliability of components used to manufacture our products;
	•	Changes in our pricing policies or those of our suppliers and competitors, as well as increased price competition in general;
	•	The risks and uncertainties associated with our international business;
	•	Costs associated with any future acquisitions of technologies and businesses;
	•	Developments concerning the protection of our proprietary rights; and
	•	General global economic, political, international conflicts, and acts of terrorism.

 

We are economically sensitive to general economic conditions, including continued weakening of the economy, therefore the sale of our products could be adversely affected.

 

Our industry is sensitive to recessions in the general economy and future economic outlook. Our results may be dependent on a number of factors impacting consumer spending, including general economic and business conditions; and consumer confidence. The demand for our dental products may decline during recessionary periods and at other times when disposable income is lower. A downturn or an uncertain outlook in the economy may materially adversely affect our business.

 

 

An unsuccessful material strategic transaction or relationship could result in operating difficulties and other harmful consequences to our business.

 

We have evaluated, and expect to continue to evaluate, a wide array of potential strategic transactions and relationships with third parties.  From time to time, we may engage in discussions regarding potential acquisitions or joint ventures. Any of these transactions could be material to our financial condition and results of operations, and the failure of any of these material relationships and transactions may have a negative financial impact on our business.

 

Our products may be subject to government regulation and failure to comply with applicable regulations could result in fines, suspensions, seizure actions, product recalls, injunctions and criminal prosecutions.

 

Before most medical devices can be marketed in the United States, they are required by the United States Food and Drug Administration (“FDA”) to secure either clearance of a pre-market notification pursuant to Section 510(k) of the Federal Food, Drug and Cosmetic Act (“FDC Act”) (a “510(k) Clearance”) or approval of a pre-market approval application (“PMA”).  Obtaining approval of a PMA application can take several years.  In contrast, the process of obtaining 510(k) Clearance generally requires a submission of substantially less data and generally involves a shorter review period.  As discussed more specifically under the subsection title “Regulatory Issue,” most Class I and Class II devices enter the market via the 510(k) Clearance procedure, while new Class III devices ordinarily enter the market via the more rigorous PMA procedure.  Approval of a PMA application for a new medical device usually requires, among other things, extensive clinical data on the safety and effectiveness of the device.  PMA applications may take years to be approved after they are filed.  In addition to requiring clearance or approval for new medical devices, FDA rules also require a new 510(k) filing and review period, prior to marketing a changed or modified version of an existing legally marketed device, if such changes or modifications could significantly affect the safety or effectiveness of that device.  The FDA prohibits the advertisement or promotion of any approved or cleared device for uses other than those that are stated in the device’s approved or cleared application.

 

We have received approval from the FDA to market our RemeCure dental curing lamp in the United States.  We submitted our application for approval on FDA Form 510(k) on October 30, 2002 and received FDA approval for this product on January 9, 2003.  None of our other products have FDA approval for marketing in the United States.  However, we believe that our products, including for example, GlamSmile, do not require a 510(k) submission because the products fall within an exemption under the 510(k) regulation.

 

International sales of medical devices are also subject to the regulatory requirements of each country. In Europe, the regulations of the European Union require that a device have a CE Mark, a mark that indicates conformance with European Union laws and regulations before it can be sold in that market. In China, the SFDA requires registration of medical devices. The regulatory international review process varies from country to country. We rely upon our distributors, sales representatives and strategic partners in the foreign countries in which we market our products to ensure we comply with the regulatory laws of such countries. Failure to comply with the laws of such country will have a material adverse effect on our operations and, at the very least, could prevent us from continuing to sell products in such countries.

 

We may not have effective internal controls if we fail to remedy any deficiencies we may identify in our system of internal controls.

 

In connection with Section 404 of the Sarbanes-Oxley Act of 2002, we need to assess the adequacy of our internal control, remediate any weaknesses that may be identified, validate that controls are functioning as documented and implement a continuous reporting and improvement process for internal controls. We may discover deficiencies that require us to improve our procedures, processes and systems in order to ensure that our internal controls are adequate and effective and that we are in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. If the deficiencies are not adequately addressed, or if we are unable to complete all of our testing and any remediation in time for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the SEC rules under it, we would be unable to conclude that our internal controls over financial reporting are designed and operating effectively, which could adversely affect our investor confidence in our internal controls over financial reporting.

 

 

The loss of or a substantial reduction in, or change in the size or timing of, orders from distributors could harm our business .

 

Our international sales are principally comprised of sales through independent distributors, although we sell products in certain European countries through direct sales representatives.  A significant amount of our sales may consist of sales through distributors.  The loss of a substantial number of our distributors or a substantial reduction in, cancellation of or change in the size or timing of orders from our current distributors could harm our business, financial condition and results of operations.  The loss of a key distributor would affect our operating results due to the potential length of time that might be required to locate and qualify a new distributor or to retain direct sales representatives for the territory.

 

We do not have long term commitments from our suppliers and manufacturers.

 

We may experience shortages of supplies and inventory because we do not have long-term agreements with our suppliers or manufacturers.  Our success is dependent on our ability to provide our customers with our products.  Although we manufacture most of our products, we are dependent on our suppliers for component parts which are necessary for our manufacturing operations.  In addition, certain of our present and future products and product components are (or will be) manufactured by third party manufacturers.  Since we have no long-term contracts or other contractual assurances with these manufacturers for continued supply, pricing or access to component parts, no assurance can be given that such manufacturers will continue to supply us with adequate quantities of products at acceptable levels of quality and price.  While we believe that we have good relationships with our suppliers and our manufacturers, if we are unable to extend or secure manufacturing services or to obtain component parts or finished products from one or more manufacturers on a timely basis and on acceptable terms, our results of operations could be adversely affected.

 

We face intense competition, and many of our competitors have substantially greater resources than we do.

 

We operate in a highly competitive environment. There are numerous well-established companies and smaller entrepreneurial companies  with significant resources who are developing and marketing products and services that will compete with our products.  In addition, many of our current and potential competitors have greater financial, technical, operational and marketing resources.  These resources may make it difficult for us to compete with them in the development and marketing of our products, which could harm our business.

 

Our success will depend on our ability to update our technology to remain competitive.

 

The dental device and supply industry is subject to technological change.  As technological changes occur in the marketplace, we may have to modify our products in order to become or remain competitive.  While we are continuing our research and development in new products in efforts to strengthen our competitive advantage, no assurances can be given that we will successfully implement technological improvements to our products on a timely basis, or at all.  If we fail to anticipate or respond in a cost-effective and timely manner to government requirements, market trends or customer demands, or if there are any significant delays in product development or introduction, our revenues and profit margins may decline which could adversely affect our cash flows, liquidity and operating results.

 

 

We depend on market acceptance of the products of our customers.  If our products do not gain market acceptance, our ability to compete will be adversely affected.

 

Our success will depend in large part on our ability to successfully market our line of products. Although we intend to differentiate our products from our competitors by targeting different channels of distribution, no assurances can be given that we will be able to successfully market our products or achieve consumer acceptance.  Moreover, failure to successfully develop, manufacture and commercialize our products on a timely and cost-effective basis will have a material adverse effect on our ability to compete in our targeted market segments.  In addition, medical and dental insurance policies generally do not cover teeth whitening or other cosmetic dental procedures, including our products, which may have an adverse impact upon the market acceptance of our products.

 

We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.

 

To the extent that we operate outside the United States, we are subject to the Foreign Corrupt Practices Act (the “FCPA”) which generally prohibits U.S. companies and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment. In particular, we may be held liable for actions taken by our strategic or local partners even though such partners are foreign companies that are not subject to the FCPA. Any determination that we violated the FCPA could result in sanctions that could have a material adverse effect on our business.

 

Failure to meet customers’ expectations or deliver expected performance of our products could result in losses and negative publicity, which will harm our business .

 

If our products fail to perform in the manner expected by our customers, then our revenues may be delayed or lost due to adverse customer reaction, negative publicity about us and our products, which could adversely affect our ability to attract or retain customers.  Furthermore, disappointed customers may initiate claims for substantial damages against us, regardless of our responsibility for such failure.

 

If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our products.

 

Although we have not been a party to any product liability lawsuits and are currently not aware of any anticipated product liability claims with respect to our products, the nature of our business exposes us to product liability lawsuits arising out of the commercialization of our products.  In the future, an individual may bring a liability claim against us if one of our products causes, or merely appears to have caused, an injury.  If we cannot successfully defend ourselves against the product liability claim, we may incur substantial liabilities.  Regardless of merit or eventual outcome, liability claims may result in:

 

	•	decreased demand for our products;
	•	injury to our reputation;
	•	costs of related litigation;
	•	substantial monetary awards to customers;
	•	product recalls;
	•	loss of revenue; and
	•	the inability to commercialize our products.

 

 

We may have difficulty managing our growth.

 

We have been experiencing significant growth in the scope of our operations, including the launch of our retail direct to consumer business model in Asia through strategic partnerships.  This growth has placed significant demands on our management as well as our financial and operational resources.  In order to achieve our business objectives, we anticipate that we will need to continue to grow.  If this growth occurs, it will continue to place additional significant demands on our management and our financial and operational resources, and will require that we continue to develop and improve our operational, financial and other internal controls.  We have been distributing our products primarily in Europe and we have recently launched sales and distribution in the United States and Asia, this expansion could further increase the challenges involved in implementing appropriate operational and financial systems, expanding manufacturing capacity and scaling up production, expanding our sales and marketing infrastructure and capabilities and providing adequate training and supervision to maintain high quality standards.  The main challenge associated with our growth has been, and we believe will continue to be, our ability to recruit and integrate skilled sales, manufacturing and management personnel.  Our inability to scale our business appropriately or otherwise adapt to growth would cause our business, financial condition and results of operations to suffer.

 

It may be difficult to enforce a United States judgment against us, our officers and directors, or to assert United States securities laws claims in Belgium and to serve process on substantially all of our directors and officers and these experts.

 

A majority of our directors and our chief executive officer are nonresidents of the United States.  A substantial portion of our assets and all or a substantial portion of the assets of these officers and directors and experts are located outside of the United States.  As a result, it may be difficult to effect service of process within the United States with respect to matters arising under the United States securities laws or to enforce, in the United States courts, judgments predicated upon civil liability under the United States securities laws.  It also may be difficult to enforce in Belgium, in original actions or in actions for enforcement of judgment of United States courts, civil liabilities predicated upon United States securities laws.

 

If we are unable to protect our intellectual property rights or our intellectual property rights are inadequate, our competitive position could be harmed or we could be required to incur expenses to enforce our rights .

 

Our future success will depend, in part, on our ability to obtain and maintain patent protection for our products and technology, to preserve our trade secrets and to operate without infringing the intellectual property of others.  In part, we rely on patents to establish and maintain proprietary rights in our technology and products.  While we hold licenses to a number of issued patents and have other patent applications pending on our products and technology, we cannot assure you that any additional patents will be issued, that the scope of any patent protection will be effective in helping us address our competition or that any of our patents will be held valid if subsequently challenged.  Other companies also may independently develop similar products, duplicate our products or design products that circumvent our patents.

 

In addition, if our intellectual property rights are inadequate, we may be exposed to third-party infringement claims against us.  Although we have not been a party to any infringement claims and are currently not aware of any anticipated infringement claim, we cannot predict whether third parties will assert claims of infringement against us, or whether any future claims will prevent us from operating our business as planned.  If we are forced to defend against third-party infringement claims, whether they are with or without merit or are determined in our favor, we could face expensive and time-consuming litigation.  If an infringement claim is determined against us, we may be required to pay monetary damages or ongoing royalties.  In addition, if a third party successfully asserts an infringement claim against us and we are unable to develop suitable non-infringing alternatives or license the infringed or similar intellectual property on reasonable terms on a timely basis, then our business could suffer.

 

 

If we are unable to meet customer demand or comply with quality regulations, our sales will suffer .

 

We manufacture many of our products at our Deurle, Belgium production facilities.  In order to achieve our business objectives, we will need to significantly expand our manufacturing capabilities to produce the systems and accessories necessary to meet demand.  We may encounter difficulties in scaling-up production of our products, including problems involving production capacity and yields, quality control and assurance, component supply and shortages of qualified personnel.  In addition, our manufacturing facilities are subject to periodic inspections by foreign regulatory agencies.  Our success will depend in part upon our ability to manufacture our products in compliance with regulatory requirements.  Our business will suffer if we do not succeed in manufacturing our products on a timely basis and with acceptable manufacturing costs while at the same time maintaining good quality control and complying with applicable regulatory requirements.

 

We are dependent on Guy De Vreese, our Chairman and Chief Executive Officer, and any loss of such key personnel could result in the loss of a significant portion of our business.

 

Our success is highly dependent upon the key business relations and expertise of Guy De Vreese, our Chairman and Chief Executive Officer.  Unlike larger companies, we rely heavily on a small number of officers to conduct a large portion of our business.  The loss of service of our Chairman and Chief Executive Officer along with the loss of his numerous contacts and relationships in the industry would have a material adverse effect on our business.  We do not have an employment agreement with Guy De Vreese.

 

If we cannot build and maintain strong brand loyalty our business may suffer.

 

We believe that the importance of brand recognition will increase as more companies produce competing products.  Development and awareness of our brands will depend largely on our ability to advertise and market successfully.  If we are unsuccessful, our brands may not be able to gain widespread acceptance among consumers.  Our failure to develop our brands sufficiently would have a material adverse effect on our business, results of operations and financial condition.

 

Risks Relating To Our Common Stock

 

There is a limited public trading market for our common stock.

 

Our Common Stock presently trades on the Over-the-Counter Bulletin Board under the symbol “REMI.” We cannot assure you, however, that such market will continue or that you will be able to liquidate your shares acquired in this offering at the price you paid or otherwise.  We also cannot assure you that any other market will be established in the future.  The price of our common stock may be highly volatile and your liquidity may be adversely affected in the future.

 

Our common stock is thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

 

There is limited market activity in our stock and we are too small to attract the interest of many brokerage firms and analysts. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained. While we are trading on the Over-The-Counter Bulletin Board, our trading volume may be limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in Over- the–Counter Bulletin Board stocks and certain major brokerage firms restrict their brokers from recommending Over-the-Counter Bulletin Board stocks because they are considered speculative, volatile, thinly traded and the market price of the common stock may not accurately reflect our underlying value. The market price of our common stock could be subject to wide fluctuations in response to quarterly variations in our revenues and operating expenses, announcements of new products or services by us, significant sales of our common stock, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.

 

 

The ownership of our stock is highly concentrated in our management.

 

As of June 25, 2012, our present directors and executive officers, and their respective affiliates beneficially owned approximately 29% of our outstanding common stock, including underlying options that were exercisable or which would become exercisable within 60 days.  As a result of their ownership, our directors and executive officers and their respective affiliates collectively are able to significantly influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.  This concentration of ownership may also have the effect of delaying or preventing a change in control.

 

We have a substantial number of shares authorized but not yet issued.

 

Our Articles of Incorporation authorize the issuance of up to 50,000,000 shares of common stock and 10,000,000 shares of preferred stock.  Our Board of Directors has the authority to issue additional shares of common stock and preferred stock and to issue options and warrants to purchase shares of our common stock and preferred stock without stockholder approval.  Future issuance of common stock and preferred stock could be at values substantially below current market prices and therefore could represent further substantial dilution to our stockholders.  In addition, the Board could issue large blocks of voting stock to fend off unwanted tender offers or hostile takeovers without further stockholder approval.

 

We have historically not paid dividends and do not intend to pay dividends.

 

We have historically not paid dividends to our stockholders and management does not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future.  We intend to retain future earnings, if any, for use in the operation and expansion of our business.

 

Our stock may be governed by the “penny stock rules,” which impose additional requirements on broker-dealers who make transactions in our stock.

 

SEC rules require a broker-dealer to provide certain information to purchasers of securities traded at less than $5.00, which are not traded on a national securities exchange.  Since our common stock is not currently traded on an exchange, our common stock is considered a “penny stock,” and trading in our common stock is subject to the requirements of Rules 15g-1 through 15g-9 under the Securities Exchange Act of 1934 (the “Penny Stock Rules”).  The Penny Stock Rules require a broker-dealer to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market.  The broker-dealer must also give bid and offer quotations and broker and salesperson compensation information to the prospective investor orally or in writing before or with the confirmation of the transaction.  In addition, the Penny Stock Rules require a broker-dealer to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction before a transaction in a penny stock.  These requirements may severely limit the liquidity of securities in the secondary market because few broker-dealers may be likely to undertake these compliance activities.  Therefore, the disclosure requirements under the Penny Stock Rules may have the effect of reducing trading activity in our common stock, which may make it more difficult for investors to sell their shares.

 

ITEM 1B — UNRESOLVED STAFF COMMENTS

 

Not Applicable.

 

 

ITEM 2 — PROPERTIES

 

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 ($7,624 per month at March 31, 2012).

 

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 ($8,675 per month at March 31, 2012).

 

ITEM 3 — LEGAL PROCEEDINGS

 

To the best knowledge of management, there are no material legal proceedings pending against the Company.

 

ITEM 4 — [RESERVED AND REMOVED]

 

PART II

 

ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is quoted on the Over the Counter Bulletin Board under the symbol “REMI.”  The following table shows the range of the high and low bid for our common stock as reported by the Over-The-Counter Bulletin Board for the time periods indicated:

 

		Bid Prices
		High				Low
Quarter ended June 30, 2010		$	0.40			$	0.30
Quarter ended September 30, 2010		$	0.40			$	0.24
Quarter ended December 31, 2010		$	0.60			$	0.25
Quarter ended March 31, 2011		$	0.75			$	0.31
Quarter ended June 30, 2011		$	0.47			$	0.32
Quarter ended September 30, 2011		$	0.45			$	0.19
Quarter ended December 31, 2011		$	0.30			$	0.18
Quarter ended March 31, 2012		$	0.50			$	0.16

 

Bid quotations represent interdealer prices without adjustment for retail markup, markdown and/or commissions and may not necessarily represent actual transactions.

 

Stockholders

 

As of June 25, 2012, the number of stockholders of record was approximately 188, not including beneficial owners whose shares are held by banks, brokers and other nominees.

 

Dividends

 

We have not paid any dividends on our common stock, and we do not anticipate paying any dividends in the foreseeable future. Our Board of Directors intends to follow a policy of retaining earnings, if any, to finance the growth of the company. The declaration and payment of dividends in the future will be determined by our Board of Directors in light of conditions then existing, including our  earnings, financial condition, capital requirements and other factors.

 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

As of March 31, 2012, we had three equity compensation plans approved by our stockholders (1) our Incentive and Nonstatutory Stock Option Plan enacted in 2001 (the “2001 Plan”), (2) our 2004 Incentive and Nonstatutory Stock Option Plan (the “2004 Plan”); and (3) our 2007 Equity Incentive Plan (the “2007 Plan”). Our stockholders approved the 2001 Plan reserving 250,000 shares of common stock of the Company pursuant an Information Statement on Schedule 14C filed with the Commission on August 15, 2001. In addition, our 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, our 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 our stockholders, we have 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 us.

 

The following table provides aggregate information as of March 31, 2012 and March 31, 2011 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, 2010			250,000				1.20			$	668,166				0.89			$	1,000,000				1.15			$	350,000			$	0.97
Cancelled or expired			—				—				(110,666	)			4.00				—				—				—				—
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				1.19				532,500				0.96				1,000,000				1.15				350,000				0.97
Options exercisable March 31, 2012			12,500				1.19				532,500				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			2 years								5.28 years								6.1 years								4.6 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			1,545,000			$	1.13				505,000
Equity Compensation Plans not approved by security holders			820,000			$	.97				NA
Total			2,365,000			$	1.08				505,000

 

For the year ended March 31, 2012, the Company recognized $50,387 (2011 — $113,682) in compensation expense in the consolidated statement of operations.

 

ITEM 6 — SELECTED FINANCIAL DATA

 

Not Applicable.

 

ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

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 listed in the section of this Annual Report entitled “Risk Factors” and from time to time in our Securities and Exchange Commission filings under “risk factors” and elsewhere.

 

Each forward-looking statement should be read in context with, and with an understanding of, the various disclosures concerning our business made elsewhere in this Annual Report, as well as other public reports filed by us with the Securities and Exchange Commission. Readers should not place undue reliance on any forward-looking statement as a prediction of actual results of developments. Except as required by applicable law or regulation, we undertake no obligation to update or revise any forward-looking statement contained in this Annual Report. This section should be read in conjunction with our consolidated financial statements.

 

 

Overview

 

We design, develop, manufacture and distribute cosmetic dentistry products.  Leveraging our knowledge of regulatory requirements regarding dental products and management’s experience in the needs of the professional dental community, we have developed a line of professional veneers as well as a family of teeth whitening products for both professional and “Over-The-Counter” (“OTC”) use, that are distributed in Europe, Asia and the United States.  We manufacture many of our products in our facility in Deurle, Belgium as well as outsourced manufacturing in China and France. We distribute our products using both our own internal sales force and through the use of third party distributors.  We have established dealers in 28 countries encompassing, Europe, Asia, Latin America, the Pacific Rim and the Middle East.

 

Recent Developments

 

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. In September 2010, we entered into a license agreement with EM (the “EM license agreement”). Under the EM license agreement, we granted EM an exclusive license to certain Asian territories in exchange for $500,000 which was received during the year ended March 31, 2011. The Company received a further $500,000 from EM as an advance payment for veneers.  The $500,000 advance, less taxes withheld, was recorded as deferred revenue of $475,250 as of March 31, 2011.  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

 

On January 28, 2012, we 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 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.

 

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. In addition, at the closing, the Investors have a right to appoint one director of Glamsmile Dental, and as such it is contemplated that after the closing the Board of Directors of Glamsmile Dental will consists of Mr. De Vreese, Mr. Lok and a director appointed by the Investors.

 

 

Under the terms of the Share Purchase Agreement, we agreed 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, we also entered 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, we entered into a Distribution, License and Manufacturing Agreement with Glamsmile Dental pursuant to which we 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 off set to payment of certain invoices of Glamsmile (Asia) Limited).

 

During the fiscal year ended March 31, 2012, we opened a new Glamsmile Studio in Rome, Italy. In addition, we are developing a ‘prefab’ veneer which would be a ‘ready-to-use’ veneer, called ‘River 8’ offered at a lower price than traditional veneers. It is anticipated that the launch will be during the first six months of the next fiscal year.

 

Financial Results and Trends

 

Revenue decreased by approximately 23% to $9,687,292 in the year ended March 31, 2012 as compared to $12,581,708 in the year ended March 31, 2011.  In fiscal 2012, we experienced a decline in revenues as a result of the deconsolidation of our OTC division Sylphar at the quarter ending September 2011 and secondly, the deconsolidation of our Asian Division at the end of January 2012 resulting in decreased revenue for both entities. The equity method is currently being used in calculating the monthly results, whereas, in fiscal 2011, the reported revenue stands for a full years revenue for all divisions.

 

Our net income/( loss) attributable to our stockholders was $0.02 for fiscal 2012 and $(0.08) for fiscal 2011. Our net income for fiscal 2012 was positively impacted by a gain of $2,085,669 on the sale of our Asian division as explained in the heading “Recent Developments” above and the sale of assets and IP by Remedent N.V. to its Asian Subsidiary for $ 601,391. We also recognized $173,337 in equity income from our investments in the year ended March 31, 2012, namely our investment in the OTC Division and our Asian Veneer Division.

 

Our net income for fiscal 2011 was negatively impacted by an impairment loss of $750,000 for Soca Networks Singapore (“Soca”), an investment made in a production facility to produce our GlamSmile Veneers.

 

Critical Accounting Estimates

 

Basis for Presentation

 

Our financial statements have been prepared on an accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America.

 

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.

 

Goodwill

 

Goodwill is not amortized, but is tested for impairment on an annual basis as of March 31, or whenever events or circumstances indicate that the carrying amount may not be recoverable. These impairment tests are based upon a comparison of the fair value of the reporting units to their respective carrying amount. If the carrying amount of the reporting unit exceeds its fair value, the goodwill impairment loss is measured as the excess of the carrying amount of goodwill over its implied fair value. As of March 31, 2012 the goodwill is no longer recorded because the Asia branch is no longer fully consolidated. Furthermore the goodwill is retained in the gain on sale calculation .

 

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 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.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company sells professional dental equipment to various companies, primarily to distributors located in Western Europe and the United States of America, 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 $156,239 at March 31, 2012 and $130,407 at March 31, 2011.

 

 

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.

 

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, 2012 and March 31, 2011, advertising expense was $590,285 and 709,885, 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, 2012, 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 18 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, 2012				Year ended March 31, 2011
Product warranty liability:
Opening balance		$	21,260			$	20,238
Reductions for payments made
Accruals for product warranties issued in the period			(2,002	)			(11,620	)
Adjustments to liabilities for pre-existing warranties			761				12,642
Ending liability		$	20,019			$	21,260

 

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 $20,019 and $21,260 as of March 31, 2012 and March 31, 2011, 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, 2012 and 2011, the Company had 19,995,969, shares of common stock issued and outstanding.  At March 31, 2012 and 2011, the Company had 7,794,627 and 7,794,627 warrants outstanding, respectively and 1,895,000 and 2,157,500 options outstanding, respectively.  All outstanding warrants and options were excluded from the computation of earnings per share for the year ended March 31, 2012 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, 2012 and 2011 respectively, it would have excluded all warrants and all but 200,000 and 1,165,000 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., Sylphar N.V., GlamSmile Rome and GlamSmile Deutschland GmbH, is the Euro, for Sylphar Asia Ptd Ltd  the Singapore Dollar and 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 marketable securities.

 

The Company’s only component of other comprehensive income is the accumulated foreign currency translation consisting of gains and (losses) of $(846,880) and $(184,890) for the years ended March 31, 2012 and 2011, respectively. These amounts have been recorded as a separate component of stockholders’ equity (deficit).

 

Stock Based Compensation

 

The Company has a stock-based compensation plan. 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.

 

Recently Issued 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.

 

RESULTS OF OPERATIONS

 

For the Fiscal Years Ending March 31, 2012 and 2011

 

Comparative details of results of operations for the years ended March 31, 2012 and 2011 as a percentage of sales are as follows:

 

 

		2012				2011
NET SALES			100.00	%			100.00	%
COST OF SALES			23.00	%			31.38	%
GROSS PROFIT			77.00	%			68.62	%
OPERATING EXPENSES
Research and development			3.70	%			3.41	%
Sales and marketing			22.40	%			17.65	%
General and administrative			41.08	%			39.53	%
Depreciation and amortization			5.84	%			6.20	%
TOTAL OPERATING EXPENSES			99.32	%			66.79	%
(LOSS) INCOME FROM OPERATIONS			(5.19	)%			1.84	%
Other income (expense)			21.84	%			(6.76	)%
INCOME (LOSS) BEFORE INCOME TAXES & NON-CONTROLLING INTEREST			16.66	%			(4.93	)%
Income tax expense			(3.25	)%			(1.75	)%
NET INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST			13.40	%			(6.68	)%
NON-CONTROLLING INTEREST			8.34	%			5.62	%
NET INCOME (LOSS)			5.06	%			(12.30	)%

 

*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 since September 30, 2011, while previously the financials of Remedent OTC BV and its subsidiaries were fully included in the financial statements of Remedent Inc., 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 statement of Remedent Inc.

 

Net Sales

 

Net sales decreased by approximately 23% to $9,687,292 in the year ended March 31, 2012 as compared to $12,581,708 in the year ended March 31, 2011.  The decrease in sales is primarily due to the deconsolidation of our OTC division at the quarter ending September 2011 and secondly, the deconsolidation of our Asian Division at the end of January 2012, resulting in decreased revenue. For both entities, the equity method is currently being used in calculating the monthly results, whereas, in fiscal 2011, we reported a full year of revenue for all divisions.

 

Cost of Sales

 

Cost of sales decreased approximately 43.6% to $2,227,891 in the year ended March 31, 2012 as compared to $3,947,699 in the year ended March 31, 2011.  Cost of sales as a percentage of sales has decreased because of the deconsolidation of our OTC division at the quarter ending September 2011, known for its higher costs in reference to the cost of goods, compared to the costs of goods for the veneer product sold by our GlamSmile Divisions, whereas for the year ended March 2011, we reported a full year of cost of goods for all divisions.

 

Gross Profit

 

Our gross profit decreased by $1,174,608 or 13.6%, to $7,459,401 for the fiscal year ended March 31, 2012 as compared to $8,634,009 for the year ended March 31, 2011 as a result of the deconsolidation of our OTC division at the quarter ending September 2011 and secondly, the deconsolidation of our Asian Division at the end of January 2012, resulting in decreased gross profit. For both entities, the equity method is currently being used in calculating the monthly results, whereas, in fiscal 2011 we reported Gross Profit for all divisions

 

 

Operating Expenses

 

Research and Development.  Our research and development expenses decreased $119,305 to $309,939 for the year ended March 31, 2012 as compared to $429,244 for the year ended March 31, 2011, a decrease of 27.8%.  Research and development expenses have decreased primarily because of completion of RemeScar product and the launch of the final RemeScar product, reducing our research and development expense significantly. Secondly, the deconsolidation of our Sylphar division at the end of September 2011, also contributed to a decrease in Research and Development expenses.

 

Sales and marketing costs.  Our sales and marketing costs increased $196,126 to $2,416,812 or 8.8% for the year ended March 31, 2012 as compared to $2,220,686 for the year ended March 31, 2011.  The increase is largely due to our new Asian GlamSmile Sales Facilities.

 

General and administrative costs.  Our general and administrative costs for the year ended March 31, 2012 and 2011 were $4,686,347 and $4,972,982 respectively, representing a decrease of $286,635 or 5.8%.  The decrease in general and administrative costs as compared to the prior year primarily as a result of the deconsolidation of our OTC division at the quarter ending September 2011 and secondly, the deconsolidation of our Asian Division at the end of January 2012, resulting in a decreased General and administrative cost. For both entities, the equity method is currently applicable, whereas, in fiscal 2011, we reported general and administrative costs for a full year for all divisions.

 

Depreciation and amortization.  Our depreciation and amortization decreased $231,221 or 29.6%, to $548,662 for the year ended March 31, 2012 as compared to $779,883 for the year ended March 31, 2011. The decrease  is largely due to the deconsolidation of both entities, as described above.

 

Net interest expense.   Our net interest expense was $387,292 for the year ended March 31, 2012 as compared to $260,235 for the year ended March 31, 2011, an increase of $127,057 or 48.8%. Interest expense has increased primarily because of increased utilization of our available bank credit line and increased debt

 

Liquidity and Capital Resources

 

Cash and Cash Equivalents

 

Our balance sheet at March 31, 2012 reflects cash and cash equivalents of $203,584 as compared to $1,662,520 as of March 31, 2011, a decrease of $1,458,936.  Net cash used by operations was $150,552 for the year ended March 31, 2012 as compared to net cash used by operations of $135,226 for the year ended March 31, 2011, an increase year over year of $15,326 in cash used by operations. 

 

As of March 31, 2012, there has been no indication of a trend of increased doubtful accounts.  As a result, at this time, we do not anticipate increased reserves.

 

Investing Activities

 

Net cash used by investing activities was $3,840,048 for the year ended March 31, 2012 as compared to net cash used by investing activities of $533,001 for the year ended March 31, 2011. Cash used in investing activities in the year ended March 31, 2012 was primarily cash divested as a result of the deconsolidation of the GlamSmile Asia division as well as of the OTC division.

 

 

Financing Activities

 

Net cash provided by financing activities totaled $2,524,412 for the year ended March 31, 2012 as compared to net cash provided by financing activities of $1,702,939 for the year ended March 31, 2011. Net cash provided from financing activities in the year ended March 31, 2012 was higher than in the year ended March 31, 2011 primarily because of the partial sale of our investment in Asia and because we received a short term loan offset by net repayments against our line of credit in the amount of $414,061.   We did not complete any private placements in either 2012 or 2011.

 

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..  On January 3, 2008, an amendment was made decreasing the mixed-use line of credit to €2,050,000, to be used by Remedent NV and/or Sylphar NV. Each line of credit carries its own interest rates and fees as provided in the Facility and varies from the current prevailing bank rate

 

The latest amendment to the Facility, dated June 7, 2010, amended and split the line of credit to €1,250,000, to be used by Remedent NV and €1,000,000 to be used Sylphar NV. Each 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 concerning Remedent N.V. and similar for Sylphar N.V. Remedent N.V is currently only utilizing two lines of credit, advances based on account receivables and the straight loan. As of March 31, 2012 and March 31, 2011, Remedent N.V. had in aggregate, $1,079,263 and $1,452,024 in advances outstanding, respectively, under the mixed-use line of credit facilities.

 

During the years ended March 31, 2012 and March 31, 2011, we recognized an increase in cash and cash equivalents of $7,252 and $14,342, respectively, from the effect of exchange rates between the Euro and the US Dollar.

 

Internal and External Sources of Liquidity

 

As of March 31, 2012, we had current assets of $3,268,854 compared to $7,354,170 at March 31, 2011. This decrease of $4,085,316 was due to a decrease in cash of $1,458,936, a decrease in accounts receivable of $1,926,411,  and a decrease in inventories of $1,086,280, offset by an increase in prepaid expenses of $386,311.

 

Current liabilities at March 31, 2012 of $3,607,361 were $2,708,997 less than current liabilities as at March 31, 2011 of $6,316,358.  The decrease was primarily a result of the decrease in our line of credit by $1,081,411, a decrease in short term debt of $400,000, a decrease in accounts payable of $ 735,077, a decrease in accrued liabilities of $719,817, a decrease in deferred revenue of $417,996 and a decrease in our due to related parties of $33,518, offset by an increase in the current portion of our long term debt of $ 678,822 respectively. The main reason for the decrease overall is the deconsolidation of our OTC division and our Asian investment, which are accounted for using the equity method at the end of March 31, 2012.

 

Our cash and cash equivalents of $203,584 as of March 31, 2012 are not sufficient to support our operations through our current fiscal year and we need additional financing. During the year ended March 31, 2012, we have been unable to generate cash flows sufficient to support our operations and have been dependent on loans and strategic partnerships. We remain dependent on outside sources of funding until our results of operations provide positive cash flows. During our current fiscal year, we expect to continue to incur operating losses. With our current level of funding, substantial doubt exists about our ability to continue as a going concern.

 

The financial statements contained in this report do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to continue in existence. Our ability to continue as a going concern is dependent upon our ability to generate sufficient cash flows to meet our obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitable operations. However, there is no assurance that profitable operations or sufficient cash flows will occur in the future.

 

 

We have supported current operations by raising additional operating cash through loans and strategic partnerships. This has provided us with the cash inflows to continue our business plan, but has not resulted in significant improvement in our financial position. We are considering alternatives to address our cash flow situation that include raising capital through additional sale of our common stock and/or debentures. This could result in substantial dilution of existing stockholders.

 

As discussed in this Report, we anticipate that we will need to raise additional funds to satisfy our working 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.  As such, the Company is in discussions to sell its 50 % interest in the OTC Division for 1,000,000 Euros (at closing rate of March 31, 2012, $1,334,600). The sale is planned because management wants to focus completely on its core business within the professional dental community and the veneer market.

 

However, there can be no assurance that we will be successfully in the implementation of our plan, our current financial position can be improved, that we will be able to locate a strategic partner, that we can raise additional working capital, or that we can achieve positive cash flows from operations. Our long-term viability as a going concern is dependent upon our ability to (i) locate sources of debt or equity funding to meet current commitments and near-term future requirements and (ii) achieve profitability and ultimately generate sufficient cash flow from operations to sustain our continuing operations. In the event we are unable to raise additional funds, we may draw funds from the balance remaining on our credit facility or may have to postpone our expansion plans to establish additional dental studios in Europe and China.

 

Off-Balance Sheet Arrangements

 

At March 31, 2012, we were not a party to any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

 

ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable

 

ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The Financial Statements that constitute Item 8 are included at the end of this report beginning on Page F-1.

 

ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A - CONTROLS AND PROCEDURES

 

(a)          Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to the Company, including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2012, our disclosure controls and procedures are effective at these reasonable assurance levels.

 

 

(b)           Management’s Report on Internal Control over Financial Reporting

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

As of March 31, 2012, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on the assessment, management determined that the Company maintained effective internal control over financial reporting as of March 31, 2012 based on the COSO criteria.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to permanent  rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

 

Change in Internal Control Over Financial Reporting

 

There have been no changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

ITEM 9B— OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors, Executive Officers and Significant Employees

 

The following table sets forth the names and ages of our current directors and executive officers, the principal offices and positions with us held by each person and the date such person became our director or executive officer.  Our executive officers are elected annually by the Board of Directors.  Each year the stockholders elect the board of directors.  The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors.  There was no arrangement or understanding between any executive officer or director and any other person pursuant to which any person was elected as an executive officer or director.  There are no family relationships between any of our directors, executive officers, director nominees or significant employees.  Mr. Kolsteeg is independent as determined by the NASDAQ rules.

 

 

Person		Age		Position
Guy De Vreese		57		Chairman, Chief Executive Officer
Stephen Ross		53		Chief Financial Officer, Director, Secretary
Fred Kolsteeg		69		Director
Philippe Van Acker		47		Director, Chief Accounting Officer

 

Biographies

 

Guy De Vreese, Chairman.  From April 1, 2002, Mr. De Vreese has served as our Chairman of the Board.  Effective upon Mr. List’s resignation as Chief Executive Officer, on December 10, 2008 Mr. De Vreese became our Chief Executive Officer.  From June 2001 Mr. De Vreese has also served as President of Remedent N.V. and he has served as President of DMDS, Ltd., a European subsidiary of Dental & Medical Systems, Inc. DMDS, Ltd. developed and marketed high-tech dental equipment.  In August 1996, Mr. De Vreese founded DMD N.V., a Belgian company that was the independent European distributor for DMDS products and was its Chief Executive Officer until DMD purchased its distribution rights in April 1998.  Mr. De Vreese later worked as CEO from 1996 through February 1999 for Lident, N.V., a Belgian company that merged with DMD and specialized in digital photography and developer of imaging software.  Mr. De Vreese also served as a consultant providing services to DMDS, Ltd. from February 1999 to June 2001.  Mr. De Vreese resides in Belgium. Mr. De Vreese’s years of experience in the dental industry  provides us with invaluable industry contacts and know-how, in addition to special insight into our customers’ needs and requirements. In addition, Mr. De Vreese’s extensive experience in our industry, commitment to research and development of innovative dental products, and in-depth knowledge of our company gained by serving as our CEO provide valuable insights for our Board.  The Board believes that Mr. De Vreese demonstrated leadership abilities and business judgment, provide an important leadership element to our Board

 

Stephen Ross, Director, Chief Financial Officer, Secretary.  Mr. Ross has served as our director since August 2001 and as our Secretary since April 2002.  He also served as our Chief Financial Officer from August 2001 until March 2005.  He was reappointed as Chief Financial Officer, effective December 18, 2008.  From February 1998 through January 2001, Mr. Ross was CFO of Dental & Medical Diagnostic Systems, Inc., a company that developed and marketed high-tech dental equipment and declared bankruptcy in July 2001.  Commencing in 1996 and terminating February 1998, Mr. Ross served as a senior management consultant with Kibel and Green, a corporate restructuring and management firm.  Prior to working for Kibel and Green, Mr. Ross served as CFO and co-founder of a personal care company, and as tax manager with an accounting firm.  Mr. Ross resides in Los Angeles, California. Our Board believes that  Mr. Ross’ financial background, relevant expertise in our industry and knowledge of our company gained by serving as our CFO provide special insight and perspective for our Board. Our Board believes that Mr. Ross’ leadership and management experience at multiple companies enables him to provide our Board with critical perspectives on issues important to our business. In addition, our Board believes that our CFO should serve on the Board of Directors to facilitate direct access and open communication on issues relating to internal controls over financial reporting.

 

Fred Kolsteeg, Director.  Mr. Kolsteeg has served as a director of the Company since April 2002.  Since 1996, Mr. Kolsteeg has served as the president of WAVE Communications, a Dutch based advertising agency.  Prior to founding WAVE in 1996, he founded several other advertising agencies such as ARA, Team and Team Saatchi.  Mr. Kolsteeg has also worked at Phillips and Intermarco Publicis.  Mr. Kolsteeg resides in Holland.   Mr. Kolsteeg  has experience managing operations and finance for multiple businesses. Our Board believes that this experience, adds valuable perspectives and he is an “audit committee financial expert” as defined in SEC rules.

 

 

Philippe Van Acker, Director, Chief Accounting Officer.  Mr. Van Acker was appointed as our Chief Financial Officer as of March 30, 2005.  Effective December 18, 2008, Mr. Van Acker resigned as Chief Financial Officer and became our Chief Accounting Officer as well as assuming a position on the Board of Directors.  From July 2001 to March 30, 2005, Mr. Van Acker has served as a director of our subsidiary, Remedent N.V. where he has also served as financial controller.  From 1999 to 2001, Mr. Van Acker served as Director of Finance for DMDS, Ltd., a European subsidiary of Dental & Medical Diagnostic Systems, Inc., a company that developed and marketed high-tech dental equipment.  From 1992 to 1999, Mr. Van Acker held various positions with Pfizer Medical Technology Group.  Mr. Van Acker resides in Belgium.  Mr. Van Acker’s executive management experience and extensive background in finance and investment matters provide important contributions and critical insight to our Board.  The Board believes that Mr. Van Acker’s financial background  and understanding of the dental industry and our business bring perspectives beneficial to the Board as the company seeks to expand its presence in Europe and China.

 

Legal Proceedings

 

None of our directors or executive officers were involved in a legal proceeding during the past ten years which are material to an evaluation of the ability or integrity of any director, person nominated to become a director or executive officer of the Company and required to be disclosed under Item 401(f) of Regulation S-K.

 

Director Committees and Director Independence

 

The Company does not have a separate compensation, nominating or audit committee.  The Board of Directors has determined that Mr. Kolsteeg is  “independent,” as independence is defined in the listing standards for the Nasdaq Stock Market.  Accordingly, we have one director who is “independent.”

 

Board Leadership Structure and Role in Risk Oversight

 

The Board does not have a policy as to whether the roles of our Chairman and Chief Executive Officer should be separate. Instead, the Board makes this determination based on what best serves the our Company’s needs at any given time.   Currently, Mr. De Vreese holds the positions of Chairman and Chief Executive Officer of our Company, and the Board has one independent director. The Board may decide to separate the positions of Chairman and Chief Executive Officer in the future if the Board believes it is in the best interest of the Company and our stockholders.

 

The Board believes that effective board leadership is highly dependent on the experience, skills and personal interaction between persons in leadership roles.  The Company believes that having one person, particularly Mr. De Vreese  with his extensive knowledge of the industry and executive management experience, his extensive knowledge of the operations of the Company and his own commitment to innovation and strategic thinking, serve as both Chief Executive Officer and Chairman is the best leadership structure for the Company because it demonstrates to our employees, customers and stockholders that the Company is under strong leadership, with a single person setting the tone and having primary responsibility for managing the Company’s operations. Accordingly, with significant input from our Board, Mr. De Vreese sets the strategic direction for our Company and provides daily leadership and guidance to our managements and employees.  In addition, this unity of leadership promotes strategy development and execution, timely decision-making and effective management of Company resources.  The Company believes that it has been well-served by this structure.

 

In its governance role, and particularly in exercising its duty of care and diligence, the Board is responsible for ensuring that appropriate risk management policies and procedures are in place to protect the company’s assets and business.  Our Board has broad and ultimate oversight responsibility for our risk management processes and programs and executive management is responsible for the day-to-day evaluation and management of risks to the company.

 

 

Audit Committee Financial Expert

 

Our Board of Directors has not established a separate audit committee within the meaning of Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Instead, our entire Board of Directors acts as the audit committee within the meaning of Section 3(a)(58)(B) of the Exchange Act. In addition,  our Board of Directors has not made a determination as to whether a director on the Board meets the definition of an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. We continue to seek  candidates for outside directors and for a financial expert to serve on a separate audit committee when we establish one. Due to our small size and limited resources, it has been difficult to recruit outside directors and financial experts, especially due to the fact that we do not have directors and officer’s liability insurance to offer suitable candidates.

 

In fulfilling its oversight responsibilities, the Board has reviewed and discussed the audited financial statements with management and discussed with the independent auditors the matters required to be discussed by SAS 61. Management is responsible for the financial statements and the reporting process, including the system of internal controls. The independent auditors are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles.

 

The Board discussed with the independent auditors, the auditors’ independence from the management of the Company and received written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1.

 

After Board review and discussions, as mentioned above, the Board recommended that the audited financial statements be included in the Company’s Annual Report on Form 10-K.

 

Governance Committee and Nominations to the Board of Directors

 

There were no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.

 

Code of Ethics

 

We have adopted a written Code of Ethics that applies to our senior management. A copy of our Code of Ethics, executed by the Chief Executive Officer and Chief Financial Officer, has been filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ended March 31, 2003. A copy of our Code of Ethics is available to any stockholder by addressing a request to the attention of the Secretary of the Company and mailing such request to the Company’s corporate offices. Any amendment to the Code of Ethics or any waiver of the Code of Ethics will be disclosed promptly following the date of such amendment or waiver pursuant to a Form 8-K filing with the Securities and Exchange Commission.

 

Compliance with Section 16 of the Securities Exchange Act of 1934

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities, to file with the Securities and Exchange Commission (hereinafter referred to as the “Commission”) initial statements of beneficial ownership, reports of changes in ownership and Annual Reports concerning their ownership, of Common Stock and other of our equity securities on Forms 3, 4, and 5, respectively. Executive officers, directors and greater than 10% stockholders are required by Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on information available to us in public filings,  we believe that all reports required by Section 16(a) for transactions in the year ended March 31, 2012, were timely filed.

 

 

ITEM 11 — EXECUTIVE COMPENSATION

 

Summary Compensation

 

Our Board of Directors has not established a separate compensation committee nor any other committee that acts as such a committee. Instead, the entire Board of Directors reviews and approves executive compensation policies and practices, reviews, salaries and bonuses for our officers, administers our benefit plans, and considers other matters as may, from time to time, be referred to it. We do not currently have a Compensation Committee Charter.  Our Board continues to emphasize the important link between our performance, which ultimately benefits all stockholders, and the compensation of our executives. Therefore, the primary goal of our executive compensation policy is to closely align the interests of the stockholders with the interests of the executive officers. In order to achieve this goal, we attempt to (i) offer compensation opportunities that attract and retain executives whose abilities and skills are critical to our long-term success and reward them for their efforts in ensuring our success and (ii) encourage executives to manage from the perspective of owners with an equity stake in the Company.

 

The following table sets forth information regarding all forms of compensation received by the named executive officers during the fiscal years ended March 31, 2012 and March 31, 2011, respectively:

 

SUMMARY COMPENSATION TABLE
Name and Principal Position (a)		Year (b)				Salary ($) (c)				Bonus ($) (d)				Stock Awards ($) (e)				Option Awards ($) (f)				Non-Equity Incentive Plan Compensation ($) (g)				Nonqualified Deferred Compensation Earnings ($) (h)				All Other Compensation ($) (i)				Total ($) (j)
Guy De Vreese, CEO and Chairman			2012			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	348,249	(1)		$	348,249	(1)
			2011			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	333,819	(1)		$	333,819	(1)
Philippe Van Acker,			2012			$	189,403			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	189,403
Chief Accounting Officer, Director			2011			$	175,491			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	175,491
Stephen Ross			2012			$	120,000			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	120,000
CFO, Director			2011			$	240,000			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	-0-			$	240,000

 

(1)

These amounts are consulting fees, including a car allowance paid by Remedent N.V. to Lausha, N.V., a company controlled by Mr. De Vreese, pursuant to an oral consulting agreement between Lausha N.V. and Remedent N.V.

 

Outstanding Equity Awards at Fiscal Year End

 

The following table provides information with respect to the named executive officers concerning unexercised stock options held by them at March 31, 2012.  As of March 31, 2012, there were no outstanding stock awards and columns (g) through (j) have been omitted.

 

 

OPTION AWARDS
Name (a)		Number of Securities Underlying Unexercised Options (#) Exercisable (b)				Number of Securities Underlying Unexercised Options (#) Unexercisable (c)				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)				Option Exercise Price ($) (e)				Option Expiration Date (f)
Guy De Vreese			100,000				-0-							$	1.75			20-Sept-2017
Philippe Van Acker			75,000				-0-							$	2.46			23-Dec-2015
Philippe Van Acker			50,000				-0-							$	1.75			20-Sept-2017
Philippe Van Acker			100,000				-0-							$	0.50			19-Mar-2019
Stephen Ross			12,500				-0-							$	2.00			8-Apr-2014
Stephen Ross			100,000				-0-							$	0.50			19-Mar-2019

 

Director Compensation Table

 

Generally, our directors do not receive any cash compensation, but are entitled to reimbursement of their reasonable expenses incurred in attending directors’ meetings.  However, at the discretion of our Board of Directors, we may periodically issue stock options under our stock option plan to directors.

 

Our directors did not receive any compensation for board services during the fiscal year ended March 31, 2012.

 

Employment Agreements

 

Our subsidiary, Remedent, N.V., has an employment agreement with Mr. Philippe Van Acker,  our Chief Accounting Officer.  We do not currently have any other employment agreements with our executive officers. However, we anticipate having employment contracts with executive officers and key personnel as necessary, in the future.

 

Long-Term Incentive Plans-Awards in Last Fiscal Year

 

We do not currently have any long-term incentive plans.

 

ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth information regarding the beneficial ownership of our common stock as of  June 25, 2012.  The information in this table provides the ownership information for:

 

a.

each person known by us to be the beneficial owner of more than 5% of our common stock;

 

 

b.

each of our directors;

 

c.

each of our executive officers; and

 

d.

our executive officers, directors and director nominees as a group.

 

Beneficial ownership has been determined in accordance with Rule 13d-3 of the 1934 Exchange Act and includes voting or investment power with respect to the shares.  Unless otherwise indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them.  Common stock beneficially owned and percentage ownership is based on 19,995,969 shares outstanding as of June 25, 2012.

 

Name of Beneficial Owner  (1)		Shares Beneficially Owned				Percentage Beneficially Owned
Guy De Vreese, CEO, Chairman (2)
Xavier de Cocklaan 42
9831 Deurle, Belgium			4,733,680				23.67	%
Philippe Van Acker, Director (3)
Xavier de Cocklaan 42
9831 Deurle, Belgium			225,000				1.13	%
Stephen Ross, CFO, Secretary, Director (4)
1921 Malcolm #101
Los Angeles, CA 90025			576,327				2.88	%
Fred Kolsteeg, Director (5)
Managelaantje 10
3062 CV Rotterdam
The Netherlands			295,000				1.48	%
All Officers and Directors as a Group (4 persons)			5,945,007				29.16	%
5% or Greater Stockholders
Austin W. Marxe and David M. Greenhouse (6)
153 East 53rd Street, 55th Floor
New York, NY 10022			4,520,933				22.61	%
Den-Mat Holdings, LLC (7)
2727 Skyway Drive
Santa Maria, CA 93455			3,378,379				14.45	%

 

*       Less than one percent

 

1.

Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act.  Pursuant to the rules of the Securities and Exchange Commission, shares of common stock which an individual or group has a right to acquire within 60 days pursuant to the exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be beneficially owned and outstanding for the purpose of computing the percentage ownership of any other person shown in the table.

 

 

2.

Guy De Vreese holds 3,304,426 shares in his own name, which such amount includes  100,000 shares of common stock underlying options which vested on September 17, 2007 and have an exercise price of $1.75 per share; 72,787 shares of common stock held in the name of Lausha N.V., a Belgian company controlled by Guy De Vreese; 6,467 shares of common stock held in the name of Lident N.V., a Belgian company controlled by Guy De Vreese; and 1,400,000 shares of common stock held in the name of Lausha HK, a Hong Kong company controlled by Guy De Vreese.

 

3.

Includes  75,000 shares of common stock underlying options which vested on December 2005 and have an exercise price of $2.46 per share; 50,000 shares of common stock underlying options which have vested as of September 17, 2009 and have an exercise price of $1.75 per share; and 100,000 shares of common stock underlying options which were fully vested on March 19, 2009 and have an exercise price of $0.50 per share.

 

4.

Includes 12,500 shares of common stock underlying options which vested on April 8, 2004 and have an exercise price of $2.00 per share; and 100,000 shares of common stock underlying options which were fully vested on March 19, 2009 and have an exercise price of $0.50 per share.

 

5.

Includes 200,000 shares of common stock underlying options which were fully vested on March 19, 2009 and have an exercise price of $0.50 per share.

 

6.

Austin W. Marxe (Marxe) and David M. Greenhouse (Greenhouse) share voting and investment control over  all securities owned by Special Situations Fund III QP, L.P. (QP), Special Situations Cayman Fund, L.P. (CAY) and Special Situations Private Equity Fund, LP (PE). 541,075 shares of Common Stock are owned by QP, 960,075 shares of Common Stock are owned by CAY and 3,019,783 shares of Common Stock are owned by PE. The interest of Marxe and Greenhouse in the shares of Common Stock owned by QP, CAY and PE is limited to the extent of his pecuniary interest.

 

7..

Consists of warrants to purchase 3,378,379 shares of common stock.

 

ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

Related Transactions

 

Compensation

 

During the years ended March 31, 2012 and 2011 respectively, the Company incurred $664,586 and $749,310 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.

 

 

Other Transactions

 

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 the 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 sublicensable 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), as the terms and transactions are further detailed in the First Fit Distribution Agreement.  The consummation of the transactions described herein and contemplated in the First Fit Distribution Agreement are subject to certain closing conditions which includes, in addition to customary closing conditions: the completion of Den-Mat’s due diligence with respect to the First Fit Products to its satisfaction; execution and delivery of  Non-Competition Agreements by Guy De Vreese and Evelyne Jacquemyns; and the delivery of the Development Payment and first installment of the License Payment (the “Development Payment” and License Payment” are defined below).  The First Fit Distribution Agreement provides that the consummation of the transactions contemplated therein will occur upon the performance or waiver of such closing conditions.  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 as follows: (a) Fifty Thousand Dollars ($50,000) within seven (7) days after the effective date of the First Fit Distribution Agreement (the “Effective Date”), and (b) Three Hundred Fifty Thousand Dollars ($350,000) within twenty one (21) days after the Effective Date ; (ii) a non-refundable license fee of Six Hundred Thousand Dollars ($600,000) payable in three (3) equal installments of $200,000 each, with the first installment payable on the closing date contemplated in the First Fit Distribution Agreement (the “Closing Date”), and with the second and third installments payable on the 30th and 60th day, respectively, after the Closing Date; (iii) certain royalty payments based on the sales of the First Fit Products by Den-Mat or its sublicensees; and (iv) certain minimum royalty payment to maintain exclusivity, as such  terms are more particularly described in the First Fit Distribution Agreement.

 

On March 29, 2010, a certain Amendment No. 1 to First Fit Crown Distribution and License Agreement (“First Fit Amendment”) between the Company and Den-Mat, pursuant to which the Company agreed to sell to Den-Mat all of the intellectual property or used by Company related to the First Fit product (“First Fit IP”) became effectuated upon Company’s receipt of Den-Mat’s countersignatures to the First Fit Amendment.  The First Fit Amendment amends the First Fit-Crown Distribution and License Agreement dated June 3, 2009 between the Company and Den-Mat, pursuant to which Den-Mat was granted certain license and distribution rights relating to the First Fit IP and First Fit products.  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, (b) $525,000 on or before March 15, 2010 (c) $700,000 on June 30, 2010, and (d) $500,000 on December 31, 2010, June 30, 2011 and December 31, 2011. In connection with the execution of the First Fit Agreement, Den-Mat also agreed to make an advance cash payment of $75,000 to the Company towards the purchase price.  In addition to the cash component, Den-Mat agreed to pay Remedent a capital payment equal to a certain percent of Den-Mat’s net revenues generated by the sale of the First Fit products.

 

In connection with our Distribution, License & Manufacturing Agreement with Den-Mat (the “Distribution Agreement”) dated as August 2008, as amended and restated by the parties on June 3, 2009 pursuant to the Amended and Restated Distribution, License and Manufacturing Agreement, and as consideration for Den-Mat’s obligations under the Distribution Agreement, we agreed, among other things, to issue Den-Mat or an entity to be designated by Den-Mat, warrants to purchase up to three million three hundred seventy-eight thousand three hundred seventy-nine (3,378,379) shares of our common stock, par value $0.001 per share at an exercise price of $1.48 per share, exercisable for a period of five years . 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.

 

 

On March 29, 2010, concurrently with the execution of the First Fit Amendment (as described above), the Company and Den-Mat entered into Amendment No. 2 to the Amended and Restated Distribution, License and Manufacturing Agreement (“Glamsmile Amendment”) with Den-Mat pursuant to which certain provisions of a certain Amended and Restated Distribution, License and Manufacturing Agreement previously entered into by the Company and Den-Mat on June 3, 2009 and subsequently amended on August 11, 2009, were amended.  The Glamsmile Amendment became effective concurrently with the effectiveness of the First Fit Amendment.  Among other things, the Glamsmile Amendment (1) permits the Company to purchase its requirements for GlamSmile Products from another party, other than Den-Mat, provided Company pays De-Mat a royalty payment on net revenues received by Company per unit/tooth, (2) decreases the percentage of securities to be covered in a warrant to purchase securities of B2C Market Subsidiary and the exercise price of such warrant to be issued to Den-Mat  in the event a B2C Market Subsidiary is formed under the terms set forth in such agreement, (3) expands the definition of “Excluded Market” to include Australia, Belgium, France and United Arab Emirates, and (4) provides a consulting fee, equal to a percentage of net revenues received by Den-Mat from the Sale of Unit/Teeth and trays, to the Company for its services, support and certain additional consideration, (5) terminates certain provisions relating to minimum requirement obligations and rights, and (6) amends the formula for calculation a certain exit fee in the event of a change of control.

 

On March 27, 2012, the distribution agreements with Den-Mat were terminated pursuant to a certain Termination and Distribution Agreement with Den-Mat (“Den-Mat Distribution Agreement”). Pursuant to the Den-Mat Distribution Agreement, we granted Den-Mat a non-exclusive, irrevocable, perpetual, royalty free, license to use within certain territory, which among other territories excludes China, Macau, Hong Kong, and Taiwan, the intellectual property that was the subject of the license to Den-Mat under the Amended and Restated Distribution, License and Manufacturing Agreement dated June 3, 2009, as amended from time to time (“Prior Agreements”), as such intellectual property relates the products which was the subject of the Prior Agreements. In connection with the termination of the Prior Agreements, under the Den-Mat Distribution Agreement, Den-Mat agreed to pay us $200,000.

 

Guy De Vreese, our Chairman of the Board and Chief Executive Officer, is the managing director of our subsidiary, Remedent N.V.  Mr. De Vreese provides his services as Remedent N.V.’s Managing Director through his company, Lausha, N.V.  Lausha, N.V.  has an oral consulting arrangements with Remedent N.V. that provide for Mr. De Vreese’s services and is a  company controlled by Mr. De Vreese.  On March 20, 2006, Lausha N.V. and Lident N.V. merged into Lausha N.V., controlled by Mr. De Vreese.  Lausha N.V. received a total of $348,249 and $333,819 as compensation for services relating to his duties as Managing Director of Remedent N.V. on a-day-to-day base  for the years ending March 31, 2012 and March 31, 2011, respectively.

 

Director Independence

 

Due the Company’s size and limited resources, the Company does not have a separate compensation, nominating or audit committee.  The Board of Directors has determined that Mr. Kolsteeg is  “independent,” as independence is defined in the listing standards for the Nasdaq Stock Market.  Accordingly, we have one director who is “independent.”

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Audit Fees . The aggregate fees paid for the annual audit of financial statements included in our Annual Report for the year ended March 31, 2012 and the review of our quarterly reports for such year, amounted to $78,128. The aggregate fees paid for the annual audit of financial statements included in our Annual Report for the year ended March 31, 2012 and the review of our quarterly reports for such years amounted to $66,719.

 

Audit Related Fees . For the years ended March 31, 2012 and March 31, 2011, we paid $ 12,074 and $20,332, respectively, to PKF for other audit related fees.

 

 

Tax Fees . For the years ended March 31, 2012 and March 31, 2011, we paid $1,824 and $2,834,, respectively, to PKF for fees associated with tax return preparation.

 

The above-mentioned fees are set forth as follows in tabular form:

 

		2012				2011
Audit Fees		$	78,128			$	66,719
Audit Related Fees		$	12,074			$	20,332
Tax Fees		$	1,824			$	2,834
All Other Fees			-				-

 

The Company’s Board of Directors serves as the Audit Committee and has unanimously approved all audit and non-audit services provided by the independent auditors. The independent accountants and management are required to periodically report to the Board of Directors regarding the extent of services provided by the independent accountants, and the fees for the services performed to date.

 

There have been no non-audit services provided by our independent accountant for the year ended March 31, 2012.

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)(1)

Financial Statements .

Consolidated balance sheet as of March 31, 2012 and March  31, 2011, and the related consolidated statements of operations, stockholders’ equity, cash flows, and comprehensive loss for each of the years in the 2 year period ended March 31, 2012.

 

(a)(2)

Schedules .

All schedules have been omitted because they are not required, not applicable, or the information is otherwise set forth in the consolidated financial statements or the notes thereto.

 

(a)(3)

Exhibits .

 

The information required by this Item is set forth in the section of this Annual Report entitled “EXHIBIT INDEX” and is incorporated herein by reference.

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	REMEDENT, INC.
Dated: July 16, 2012	/s/ Guy De Vreese
	By: Guy De Vreese
	Its: Chief Executive Officer (Principal Executive
	Officer)
Dated: July 16, 2012	/s/ Stephen Ross
	By: Stephen Ross
	Its: Chief Financial Officer (Principal Financial
	Officer and Principal Accounting Officer)

 

In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Dated: July 16, 2012	/s/ Guy De Vreese
	Guy De Vreese, Chairman of the Board of Directors, and
	Chief Executive Officer (“Principal Executive Officer”)
Dated: July 16, 2012	/s/ Stephen Ross
	Stephen Ross, Director and Chief Financial
	Officer  (Principal Financial Officer and
	Principal Accounting Officer)
Dated: July 16, 2012	/s/ Philippe Van Acker
	Philippe Van Acker, Director and Chief
	Accounting Officer
Dated: July 16, 2012	/s/ Fred Kolsteeg
	Fred Kolsteeg, Director

 

 

EXHIBIT INDEX

 

Exhibit No.		Description
2.1		Stock Exchange Agreement with Resort World Enterprises, Inc. (1)
3.1		Articles of Incorporation of Jofran Confectioners International, Inc., a Nevada corporation, dated July 31, 1986 (1)
3.2		Amendment to Articles of Incorporation changing name from Jofran Confectioners International, Inc., a Nevada corporation, to Cliff Typographers, Inc., a Nevada corporation, dated July 31, 1986 (1)
3.3		Amendment to Articles of Incorporation changing name from Cliff Typographers, Inc., a Nevada corporation, to Cliff Graphics International, Inc., a Nevada corporation, dated January 9, 1987 (1)
3.4		Amendment to Articles of Incorporation changing name from Cliff Graphics International, Inc., a Nevada corporation, to Global Golf Holdings, Inc., a Nevada corporation, dated March 8, 1995 (1)
3.5		Amendment to Articles of Incorporation changing name from Global Golf Holdings, Inc., a Nevada corporation, to Dino Minichiello Fashions, Inc., a Nevada corporation, dated November 20, 1997 (1)
3.6		Amendment to Articles of Incorporation changing name from Dino Minichiello Fashions, Inc., a Nevada corporation, to Resort World Enterprises, Inc., a Nevada corporation, dated August 18, 1998 (1)
3.7		Amendment to Articles of Incorporation changing name from Resort World Enterprises, Inc., a Nevada corporation, to Remedent, Inc., dated October 5, 1998 (1)
3.8		Amended and Restated Articles of Incorporation changing name from Remedent, USA, Inc. to Remedent, Inc. and to effect a one-for-twenty reverse stock split on June 3, 2005 (2)
3.9		Amended and Restated Bylaws (2)
4.1		Specimen of Stock Certificate (3)
10.1		Incentive and Nonstatutory Stock Option Plan, dated May 29, 2001 (1)
10.2		2004 Incentive and Nonstatutory Stock Option Plan (4)
10.3		Voting Agreement between Remedent, Inc., and Robin List, dated December 10, 2008    (5)
10.4		Distribution, License and Manufacturing Agreement dated as of January 20, 2012, (the “Effective Date”) by and among Remedent, Inc., a Nevada corporation (“Remedent Nevada”), Remedent N.V., a company incorporated under the laws of Belgium (“Remedent Belgium) and GlamSmile Dental Technology, Ltd., a company incorporated under the laws of the Cayman Islands *
10.5		Termination and License Agreement dated March 27, 2012*
14.1		Code of Ethics, adopted March 25, 2003 (22)
21.1		List of Subsidiaries*

 

 

	31.1		Certifications of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act.*
	31.2		Certifications of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act.*
	32.1		Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act.*
	32.2		Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act.*

 

	101.INS		XBRL Instance Document (7)
	101.SCH		XBRL Taxonomy Extension Schema (7)
	101.CAL		XBRL Taxonomy Extension Calculation Linkbase (7)
	101.DEF		XBRL Taxonomy Extension Definition Linkbase (7)
	101.LAB		XBRL Taxonomy Extension Label Linkbase (7)
	101.FRE		XBRL Taxonomy Extension Presentation Linkbase (7)

 

 

*	Filed herewith
(1)	Incorporated by reference from Registration Statement on Form SB-2 filed with the SEC on July 24, 2002.
(2)	Incorporated by reference from Form 8-K filed with the SEC on June 8, 2005.
(3)	Incorporated by reference from Form SB-2 filed with the SEC on August 4, 2005.
(4)	Incorporated by reference from Form SB-2/A filed with the SEC on October 26, 2005.
(5)	Incorporated by reference from Form 8-K filed with the SEC on December 16, 2008.
(6)	Incorporated by reference from Form 10-KSB filed with the SEC on July 15, 2003.

 

(7)

XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

REMEDENT, INC. AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

 

MARCH 31, 2012

 

Index

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-1
CONSOLIDATED BALANCE SHEETS	F-2
CONSOLIDATED STATEMENTS OF OPERATIONS	F-3
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)	F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS	F-5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)	F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-7

 

 

INDEPENDENT AUDITORS’ REPORT

 

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Remedent, Inc.

 

We have audited the accompanying consolidated balance sheets of Remedent, Inc. as of March 31, 2012 and March 31, 2011 and the related consolidated statements of operations, stockholders’ equity, cash flows, and comprehensive loss for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2012 and March 31, 2011 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

  

The accompanying consolidated financial statements have been prepared assuming Remedent, Inc. will continue as a going concern. As described in note 1, at March 31, 2012 the financial situation of the Company has been affected by the losses carried forward and the increased pressure on the operating cash flows. This going concern assumption is appropriate on the condition that sufficient funding will be realized to support the Company’s operations. Without devaluing the unqualified opinion expressed above, we want to draw your attention to Note 1 which, the Board of Directors comments the risks regarding the going concern perspective. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the company be unable to continue in existence.

 

Brussels - Belgium, July 16, 2012

 

PKF bedrijfsrevisoren CVBA

Statutory Auditors

Represented by

 

/s/ Gunther Loits
Registered Auditor

 

Tel +32 (0)2 242 11 40 / Fax +32 (0)2 242 03 45 / glo@pkf.be / www.pkf.be

PKF bedrijfsrevisoren CVBA / burgerlijke vennootschap met handelsvorm

Metrologielaan 10, bus 15 / 1130 Brussel / BTW BE 0439 814 826 / RPR Antwerpen

 

PKF bedrijfsrevisoren CVBA is a member firm of the PKF International Limited network of legally independent firms.

 

 

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		March 31, 2012				March 31, 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	203,584			$	1,662,520
Accounts receivable, net of allowance for doubtful accounts of $12,361 at March 31, 2012 and $28,975 at March 31, 2011			838,240				2,764,651
Inventories, net			1,077,766				2,164,046
Prepaid expense			1,149,264				762,953
Total current assets			3,268,854				7,354,170
PROPERTY AND EQUIPMENT, NET			641,220				1,401,735
OTHER ASSETS
Investment in GlamSmile Asia Ltd			2,092,518				—
Investment in Remedent OTC BV (Note 3)			962,505				—
Patents, net			—				166,746
Goodwill (Note 3)			—				699,635
Total assets		$	6,965,097			$	9,622,286
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion, long term debt		$	863,501			$	184,679
Line of Credit			1,079,263				2,160,674
Short term loan (Note 4)			—				400,000
Accounts payable			1,009,176				1,744,253
Accrued liabilities			536,331				1,256,148
Deferred revenue			57,254				475,250
Due to related parties (Note 3)			61,836				95,354
Total current liabilities			3,607,361				6,316,358
Long term debt less current portion			1,452,523				273,557
Total liabilities			5,059,884				6,589,915
EQUITY:
Preferred Stock $0.001 par value (10,000,000 shares authorized, none issued and outstanding)			—				—
Common stock, $0.001 par value; (50,000,000 shares authorized, 19,995,969 shares issued and outstanding at March 31, 2012 and March 31, 2011 respectively)			19,996				19,996
Treasury stock, at cost; 723,000 shares outstanding at March 31, 2012 and March 31, 2011 respectively			(831,450	)			(831,450	)
Additional paid-in capital			24,906,269				24,855,883
Accumulated deficit			(20,622,635	)			(21,113,118	)
Accumulated other comprehensive income (loss) (foreign currency translation adjustment)			(1,681,829	)			(834,949	)
Obligation to issue shares (Note 3)			97,500				97,500
Total Remedent, Inc. stockholders’ equity			1,887,851				2,193,862
Non-controlling interest			17,362				838,509
Total stockholders’ equity			1,905,213				3,032,371
Total liabilities and equity		$	6,965,097			$	9,622,286

 

COMMITMENTS (Note 21)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

		For the years ended March 31,
		2012				2011
Net sales		$	9,687,292			$	12,581,708
Cost of sales			2,227,891				3,947,699
Gross profit			7,459,401				8,634,009
Operating Expenses
Research and development			309,939				429,244
Sales and marketing			2,416,812				2,220,686
General and administrative			4,686,347				4,972,982
Depreciation and amortization			548,662				779,883
TOTAL OPERATING EXPENSES			7,961,760				8,402,795
OPERATING INCOME (LOSS)			(502,359	)			231,214
NON-OPERATING (EXPENSE) INCOME
Gain on sale of asset (Note 3)			2,085,669				—
Equity income from investments			173,337				—
Impairment of long-term investments and advances (Note 11 )			—				(750,000	)
Interest expense			(387,292	)			(260,235	)
Other income			244,276				159,289
TOTAL OTHER INCOME (EXPENSES)			2,115,990				(850,946	)
PROFIT (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			1,613,650				(619,732	)
Income tax expense			(315,069	)			(220,297	)
NET INCOME (LOSS)			1,298,561				(840,029	)
NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS			(808,078	)			(707,146	)
NET INCOME (LOSS) ATTRIBUTABLE TO REMEDENT INC. Common Stockholders		$	490,483			$	(1,547,175	)
PROFIT (LOSS) PER SHARE
Basic		$	0.02			$	(0.08	)
Fully diluted		$	0.02			$	(0.08	)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic			19,995,969				19,995,969
Fully diluted			20,019,969				19,995,969

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED MARCH 31, 2012 and 2011

 

		Shares				Amount				Additional Paid in Capital				Obligation to Issue Shares				Accumulated Deficit				Treasury Stock				Other Comprehensive Income (Loss)				Total				Non- controlling Interest (net of OCI)				Total
						$				$				$				$				$				$				$				$				$
Balance, March 31, 2010			19,995,969				19,996				24,742,201				97,500				(19,565,943	)			(831,450	)			(650,059	)			3,812,245				114,002				3,926,247
Value of stock options issued to employees			—				—				113,682				—				—				—				—				113,682				—				113,682
Unrealized foreign exchange gain (loss)			—				—				—				—				—				—				(184,890	)			(184,890	)			17,361				(167,529	)
Net (loss) income for the year			—				—				—				—				(1,547,175	)			—				—				(1,547,175	)			707,146				(840,029	)
Balance, March 31, 2011			19,995,969				19,996				24,855,883				97,500				(21,113,118	)			(831,450	)			(834,949	)			2,193,862				838,509				3,032,371
Value of stock options issued to employees			—				—				50,386				—				—				—				—				50,386				—				50,386
Deconsolidation			—				—				—				—				—				—				—				—				(1,629,225	)			(1,629,225	)
Unrealized foreign exchange gain (loss)			—				—				—				—				—				—				(846,880	)			(846,880	)			-				(846,880	)
Net income for the year			—				—				—				—				490,483				—				—				490,483				808,078				1,298,561
Balance, March 31, 2012			19,995,969				19,996				24,906,269				97,500				(20,622,635	)			(831,450	)			(1,681,829	)			1,887,851				17,362				1,905,213

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the year ended March 31,
		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit (loss)		$	1,298,561			$	(840,029	)
Adjustments to reconcile net (loss) to net cash used by operating activities:
Gain on Sale Asia (note3)			(1,470,776	)			—
Non cash revenue			(475,250	)			—
Impairment of long-term investments and advances			—				750,000
Depreciation and amortization			548,662				779,883
Inventory reserve			25,832				48,072
Allowance for doubtful accounts			(16,614	)			(36,870	)
Value of stock options issued to employees and consultants			50,387				113,682
Investment income			(173,337	)			—
Changes in operating assets and liabilities:
Accounts receivable			790,249				(1,957,720	)
Inventories			228,790				(2,354	)
Prepaid expenses			(804,000	)			157,534
Accounts payable			(171,692	)			(214,156	)
Accrued liabilities			(626,896	)			764,612
Due to related parties			61,836				(173,130	)
Accrued and unpaid interest on debt			42,467				—
Deferred revenue			582,004				475,250
Net cash used by operating activities			(109,777	)			(135,226	)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash divested on deconsolidation of Remedent OTC BV			(2,372,445	)			—
Cash divested on deconsolidation of GlamSmile Asia			(1,044,674	)			—
Purchases of patent rights			(101,759	)			(51,233	)
Purchases of equipment			(321,170	)			(481,768	)
Net cash used by investing activities			(3,840,048	)			(533,001	)
CASH FLOWS FROM FINANCING ACTIVITIES
Short term loan			1,000,000				400,000
Proceeds from issuance of GlamSmile Asia preferred stock (Note 3)			2,000,000				—
Repayments of capital lease note payable			(61,527	)			(183,135	)
Advances (repayments) of line of credit			(414,061	)			1,486,074
Net cash provided by financing activities			2,524,412				1,702,939
NET INCREASE (DECREASE) IN CASH			(1,466,188	)			1,034,712
Effect of exchange rate changes on cash and cash equivalents			(33,523	)			14,342
CASH AND CASH EQUIVALENTS, BEGINNING			1,662,520				613,466
CASH AND CASH EQUIVALENTS, ENDING		$	203,584			$	1,662,520
Supplemental Cash Flow Information :
Interest paid		$	252,208			$	133,397
Income taxes paid		$	—			$	—
SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES:
Deferred revenue converted to loan (Note 14)		$	500,000			$	—

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

		For the year ended March 31,
		2012				2011
Net Profit(Loss) attributable to Remedent, Inc. common shareholders		$	490,483			$	(1,547,175	)
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment			(846,880	)			(184,890	)
Total Other Comprehensive Profit (Loss)			(356,397	)			(1,732,065	)
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST			—				21,996
COMPREHENSIVE PROFIT(LOSS) ATTRIBUTABLE TO REMEDENT, INC. common shareholders		$	(356,397	)		$	(1,710,069	)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

REMEDENT, INC. AND SUBSIDIARIES

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 and retail “Over-The-Counter” tooth whitening products which are distributed in Europe, Asia and the United States. The Company manufactures many of its products in its facility in Deurle, Belgium as well as outsourced manufacturing in its facility in Beijing, China.  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.

 

Despite the net profit of the current accounting 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. 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, 2012.

 

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 100 % owned subsidiary, GlamSmile Rome, a Italian private company located in Rome.

 

Remedent Inc.’s 50% owned subsidiary, Remedent OTC B.V. (a Dutch Holding company) which owns a 75% interest in Sylphar Holding B.V. (a Dutch holding company) through which ownership Remedent Inc. ultimately has a 37.5% ownership interest in Sylphar N.V., a 100% owned company by Sylphar Holding BV, Sylphar USA, a 100% owned Nevada corporation by Sylphar Holding BV. and Sylphar Asia Pte Ltd. , formerly Remedent Asia Pte Ltd. a 100% owned Singapore company owned by Sylphar Holding BV, is accounted for using the equity method after September 30, 2011(see Note 3 – Long-term Investment).

 

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. The rebranded Sylphar Asia Pte. Ltd. (formerly Remedent Asia Pte. Ltd.), commenced operations as of July 2005.

 

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.

 

 

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.

 

Goodwill

 

Goodwill is not amortized, but is tested for impairment on an annual basis as of March 31, or whenever events or circumstances indicate that the carrying amount may not be recoverable. These impairment tests are based upon a comparison of the fair value of the reporting units to their respective carrying amount. If the carrying amount of the reporting unit exceeds its fair value, the goodwill impairment loss is measured as the excess of the carrying amount of goodwill over its implied fair value. As of March 31, 2012 the goodwill is no longer recorded because the Asia branch is no longer fully consolidated. Furthermore the goodwill is retained in the gain on sale calculation (see Note 3)

 

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 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.

 

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company sells professional dental equipment to various companies, primarily to distributors located in Western Europe and the United States of America, 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 $156,239 at March 31, 2012 and $130,407 at March 31, 2011.

 

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.

 

 

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, 2012 and March 31, 2011, advertising expense was $590,285 and 709,885, 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, 2012, 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 18 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, 2012				Year ended March 31, 2011
Product warranty liability:
Opening balance		$	21,260			$	20,238
Reductions for payments made
Accruals for product warranties issued in the period			(2,002	)			(11,620	)
Adjustments to liabilities for pre-existing warranties			761				12,642
Ending liability		$	20,019			$	21,260

 

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 $20,019 and $21,260 as of March 31, 2012 and March 31, 2011, 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, 2012 and 2011, the Company had 19,995,969, shares of common stock issued and outstanding.  At March 31, 2012 and 2011, the Company had 7,794,627 and 7,794,627 warrants outstanding, respectively and 1,895,000 and 2,157,500 options outstanding, respectively.  All outstanding warrants and options were excluded from the computation of earnings per share for the year ended March 31, 2012 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, 2012 and 2011 respectively, it would have excluded all warrants and all but 200,000 and 1,165,000 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., Sylphar N.V., GlamSmile Rome and GlamSmile Deutschland GmbH, is the Euro, for Sylphar Asia Ptd Ltd  the Singapore Dollar and 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 marketable securities.

 

The Company’s only component of other comprehensive income is the accumulated foreign currency translation consisting of gains and (losses) of $(846,880) and $(184,890) for the years ended March 31, 2012 and 2011, respectively. 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 18. 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.

 

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 six months ended March 31, 2012, the Company recorded equity income of $136,703 in “Other income” for its portion of the net income recorded by Remedent OTC BV.

 

The following tables represent the summary financial information of Remedent OTC BV as derived from its financial statements and prepared under GAAP:

 

 

		Year ended				Year ended
Operating data:		March 31, 2012				March 31, 2011
Revenues		$	2,465,876			$	5,840,322
Gross profit			1,617,779				3,524,959
Income (loss) from operations			93,273				590,945
Net income		$	103,998			$	548,045

 

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, 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.

 

(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 noncontrolling 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

 

For the period February 11, 2012 through March 31, 2012, the Company recorded equity income of $36,634 in “Other income” for its portion of the net income recorded by GlamSmile Dental Technology Ltd.

 

4.   SHORT TERM LOAN

 

On March 25, 2011, the Company entered into a Loan Agreement (the “Loan Agreement”) with an unrelated private individual pursuant to which the Company borrowed $400,000 in exchange for a secured  promissory note (“Promissory Note”)  for a total repayment amount of $500,000 (“Repayment Amount”) which was repaid in January 2012.

 

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;

(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.

 

 

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)) 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, 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.  At March 31, 2011 five customers accounted for a total of  61% of the Company’s trade accounts receivable and one of those customers accounted for 24.6% 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, 2012, the Company had five suppliers who accounted for 34.5% of gross purchases. For the year ended March 31, 2011, the Company had five suppliers who accounted for 37% of gross purchases.  

 

 

Revenues — For the year ended March 31, 2012 the Company had five customers that accounted for 26.44% of total revenues. For the year ended March 31, 2011 the Company had five customers that accounted for 37.14% of total revenues.

 

7.   ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

The Company’s accounts receivable at year end were as follows:

 

		March 31, 2012				March 31, 2011
Accounts receivable, gross		$	850,601			$	2,793,626
Less: allowance for doubtful accounts			(12,361	)			(28,975	)
Accounts receivable, net		$	838,240			$	2,764,651

 

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, 2012				March 31, 2011
Raw materials		$	58,189			$	72,305
Components			283,572				685,553
Finished goods			892,244				1,536,595
			1,234,005				2,294,453
Less: reserve for obsolescence			(156,239	)			(130,407	)
Net inventory		$	1,077,766			$	2,164,046

 

9.   PREPAID EXPENSES

 

Prepaid expenses are summarized as follows:

 

		March 31, 2012				March 31, 2011
Prepaid materials and components		$	882,998			$	469,784
Prepaid Belgium income taxes			—				8,249
VAT payments in excess of VAT receipts			60,252				153,012
Royalties			18,109				—
Prepaid trade show expenses			—				25,973
Prepaid rent			145,138				11,907
Other			42,767				94,028
		$	1,149,264			$	762,953

 

10.   PROPERTY AND EQUIPMENT

 

Property and equipment are summarized as follows:

 

		March 31, 2012				March 31, 2011
Furniture and Fixtures		$	540,104			$	985,926
Machinery and Equipment			1,499,271				2,894,888
Tooling			—				188,450
			2,039,375				4,069,264
Accumulated depreciation			(1,398,155	)			(2,667,529	)
Property & equipment, net		$	641,220			$	1,401,735

 

 

11.   LONG TERM INVESTMENTS AND ADVANCES

 

Soca Networks Singapore (“Soca”)

 

Pursuant to the terms of a letter of intent dated December 17, 2007, the Company has agreed to purchase 20% of Soca for a total purchase price of $750,000. Half of the purchase price has been advanced $375,000 to Soca as a down payment, pending completion of the agreement terms.  The balance of $375,000 cash was paid to Soca in March of 2008.  Finalization of the 20% acquisition was dependent upon completion of a Vietnamese production facility and commencement of operations.  To date, the anticipated deadlines for completion of the construction facility, and finalization of our agreement with Soca have not been met.  Management believes that the $750,000 advance will be recoverable against production costs in the future, but the timeframe for the recovery cannot be predicted with any certainty.  As a result, the Company determined that a 100% impairment allowance as at March 31, 2011 was appropriate. As of March 31, 2012 there has been no change in this investment.

 

12.   LICENSED PATENTS

 

Universal Applicator Patent

 

In September 2004, the Company entered into an agreement with Lident N.V. (“Lident”), a company controlled by Mr. De Vreese, the Company’s Chairman, to obtain an option, exercisable through December 31, 2005, to license an international patent (excluding the US) and worldwide manufacturing and distribution rights for a potential new product which Lident had been assigned certain rights by the inventors of the products, who are unrelated parties, prior to Mr. De Vreese association with the Company. The patent is an Italian patent which relates to a single use universal applicator for dental pastes, salves, creams, powders, liquids and other substances where manual application could be relevant. The Company has filed to have the patent approved throughout Europe. The agreement required the Company to advance to the inventors through Lident a fully refundable deposit of €100,000 subject to the Company’s due diligence regarding the enforceability of the patent and marketability of the product, which, if viable, would be assigned to the Company for additional consideration to the inventors of €100,000 and an ongoing royalty from sales of products related to the patent equal to 3% of net sales and, if not viable, the deposit would be repaid in full by Lident. The consideration the Company had agreed to pay Lident upon the exercise of the option is the same as the consideration Lident is obligated to pay the original inventors. Consequently, Lident would not have profited from the exercise of the option. Furthermore, at a meeting of the Company’s Board of Directors on July 13, 2005, the Board accepted Lident’s offer to facilitate an assignment of Lident’s intellectual property rights to the technology to the Company in exchange for the reimbursement of Lident’s actual costs incurred relating to the intellectual property. Consequently, when the Company exercises the option, all future payments, other than the reimbursement of costs would be paid directly to the original inventors and not to Lident.

 

On December 12, 2005, the Company exercised the option and the Company and the patent holder agreed to revise the assignment agreement whereby the Company agreed to pay €50,000 additional compensation in the form of prepaid royalties instead of the €100,000 previously agreed, €25,000 of which was paid by the Company in September 2005 and the remaining €25,000 is to be paid upon the Company’s first shipment of a product covered by the patent. As of March 31, 2011 the Company has not yet received the final Product and therefore, $35,433 (€25,000) has been written off during the year ended March 31, 2011. Further, the patent has been completely amortized over five (5) years and accordingly, the Company has recorded $118,840 of accumulated amortization for this patent.

 

13.   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.   On January 3, 2008, an amendment was made decreasing the mixed-use line of credit to €2,050,000, to be used by Remedent NV and/or Sylphar NV. Each line of credit carries its own interest rates and fees as provided in the Facility and varies from the current prevailing bank rate.

 

 

The latest amendment to the Facility, dated June 7, 2010, amended and split the line of credit to €1,250,000, to be used by Remedent NV and € 1,000,000 to be used Sylphar NV. Each 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 concerning Remedent N.V. and similar for Sylphar N.V. Remedent N.V is currently only utilizing two lines of credit, advances based on account receivables and the straight loan. As of March 31, 2012 and March 31, 2011, Remedent N.V. had in aggregate, $1,079,263 and $1,452,024 (Combined with Sylphar $ 2,160,674 at end March 31, 2011) in advances outstanding, respectively, under the mixed-use line of credit facilities.

 

14.   LONG TERM DEBT

 

On August 18, 2009, the Company entered into a capital lease agreement over a three year period for additional manufacturing equipment totaling €170,756 (US $227,891). 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 $336,190).

The leases require monthly payments of principal and interest at between 7.43% and 9.72% and provide for buyouts at the conclusion of the lease terms of between 1% and 4% of the original value of the contract.

 

In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases.

 

The net book value as of March 31, 2012 and March 31, 2011 of the equipment subject to the foregoing leases are $273,557 and $458,236 respectively.

 

The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of March 31, 2012:

 

Year ending March 31:
2013			121,611
2014			82,805
2015			83,509
2016			—
Later years			—
Total minimum lease payments			287,925
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			287,925
Less: Amount representing interest (*)			14,368
Present value of minimum lease payments (**)		$	273,557

 

*  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 $113,501 and $160,056 respectively.

 

Secured Debt Agreements

 

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.

 

In September 2010, we entered into a license agreement with EM (the “EM license agreement”). Under the EM license agreement, we granted EM an exclusive license to certain Asian territories in exchange for $500,000 which was received during the year ended March 31, 2011.

 

The Company received a further $500,000 from EM as an advance payment for veneers.  The $500,000 advance, less taxes withheld, was recorded as deferred revenue of $475,250 as of March 31, 2011.  

 

 

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.

 

15.   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, 2012 and 2011 respectively, the Company incurred $664,586 and $749,310 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.

 

16.   ACCRUED LIABILITIES

 

Accrued liabilities are summarized as follows:

 

		March 31, 2012				March 31, 2011
Accrued employee benefit taxes and payroll		$	358,148			$	545,815
Accrued travel			10,010				26,468
Advances and deposits			—				374,511
Commissions			687				26,553
Accrued audit and tax preparation fees			11,318				21,586
Reserve for warranty costs			20,019				21,260
Reserve for income taxes			2,936				113,588
Accrued interest			1,322				2,704
Accrued consulting fees			16,129				19,935
Other accrued expenses			115,762				103,728
		$	536,331			$	1,256,148

 

17.   INCOME TAXES

 

The domestic and foreign (“Belgium”, “Singapore”, Hong Kong and China) components of income (loss) before income taxes and minority interest were comprised of the following:

 

		March 31, 2012				March 31, 2011
Domestic		$	(776,668	)		$	(1,896,529	)
Foreign			2,176,183				1,276,797
		$	1,399,515			$	(619,732	)

 

 

The Company’s domestic and foreign components of deferred income taxes are as follows:

 

		March 31, 2012				March 31, 2011
Domestic — Net operating loss carryforward		$	7,805,133			$	7,533,300
Foreign — Net operating loss carryforward			244,774				691,369
Total			8,049,907				8,224,669
Valuation allowance			(8,049,907	)			(8,224,669	)
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, 2012 and March 31, 2011 are as follows:

 

		March 31, 2012				March 31, 2011
Domestic
Pre tax income (loss)		$	(776,668	)		$	(1,896,529	)
Statutory tax rate			35	%			35	%
Tax benefit based upon statutory rate			(271,833	)			(663,785	)
Valuation allowance			271,833				663,785
Net domestic income tax (benefit)			—				—
Foreign
Pre tax income (loss)			2,176,183				1,276,797
Statutory tax rate			35	%			35	%
Tax expense (benefit) based upon statutory rate			761,664				446,879
Permanent differences			446,595				226,582
			—				—
Net foreign income tax expense (benefit)			315,069				220,297
Total Income tax (benefit )		$	315,069			$	220,297

 

18.   EQUITY COMPENSATION PLANS

 

As of March 31, 2011, 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, 2012 and March 31, 2011 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, 2010			250,000				1.20			$	668,166			0.89				$	1,000,000			1.15				$	350,000			$	0.97
Cancelled or expired			—				—			(110,666)				4.00				—				—				—				—
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				1.00				532,500				0.96				1,000,000				1.15				350,000				0.97
Options exercisable March 31, 2012			12,500				1.00				532,500				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			2 years								5.28 years								6.1 years								4.6 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			1,545,000			$	1.13				505,000
Equity Compensation Plans not approved by security holders			820,000			$	.97				NA
Total			2,365,000			$	1.08				505,000

 

For the year ended March 31, 2012, the Company recognized $50,387 (2011 — $113,682) in compensation expense in the consolidated statement of operations.

 

19.   COMMON STOCK WARRANTS AND OTHER OPTIONS

 

As of March 31, 2012 and March 31, 2011, 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 and options outstanding, March 31, 2010			11,108,305			$	1.55
Cancelled or expired			(3,318,678	)			1.58
Warrants outstanding March 31, 2011 and March 31, 2012			7,794,627				1.50
Warrants exercisable March 31, 2012			7,794,627			$	1.50
Exercise price range		$	1.00 to $1.65
Weighted average remaining life			.75 Years

 

During the year ended March 31, 2010 as consideration for certain services the Company granted our investor relations consultants warrants to purchase up to 1,210,000 shares of our common stock, at an exercise price of $1.00 per share, subject to certain vesting restrictions.  A total of 370,000 of the warrants vested on the July 15, 2009 grant date and an additional 100,000 vested during the period ended December 31, 2009.  The balance of the warrants were cancelled effective November 30, 2009.

 

20.   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, 2012				Long-lived Assets As at
		(a)				March 31, 2012
United States		$	1,120,437			$	3,055,023
Europe			5,010,610				641,220
China			3,556,245				—
Total		$	9,687,292			$	3,696,243

 

		Revenues For the year ended March 31, 2011				Long-lived Assets As at
		Revenues (a)				March 31, 2011
United States		$	2,324,102			$	700,222
Europe			7,868,285				1,183,795
China			2,388,597				383,871
Singapore			724				229
Total		$	12,581,708			$	2,268,116

 

(a) Revenues are attributed to country based on location of customer.

 

 

21.   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 ($7,624 per month at March 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 a six year lease commencing July 1, 2011, at a base rent of € 6,500 per month for the total location ($8,675 per month at March 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 March 31, 2012:

 

March 31, 2013		$	458,010
March 31, 2014			407,013
March 31, 2015			349,960
March 31, 2016			254,469
March 31, 2016			215,217
After five years			94,644
Total:		$	1,779,313

 

22.   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, 2012								March 31, 2011
						Carrying				Fair				Carrying				Fair
		Level				value				Value				value				value
Cash			1			$	203,584			$	203,584			$	1,662,520			$	1,662,520
Accounts receivable			2			$	838,240			$	838,240			$	2,764,651			$	2,764,651
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			$	2,092,518			$	2,092,518			$	—			$	—
Line of credit			2			$	1,079,263			$	1,079,263			$	2,160,674			$	2,160,674
Short term debt			2			$	863,501			$	863,501			$	400,000			$	400,000
Deferred revenue			2			$	57,254			$	57,254			$	475,250			$	475,250
Accounts payable			2			$	1,009,176			$	1,009,176			$	1,744,252			$	1,744,252
Accrued liabilities			2			$	536,331			$	536,331			$	1,256,148			$	1,256,148
Long term debt			2			$	1,452,523			$	1,452,523			$	458,236			$	458,236

 

 

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, 2012 or March 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):

 

		Year ended March 31, 2012				Year ended March 31, 2011
Long term investments and advances:
Beginning balance		$	—			$	750,000
Gains (losses) included in net loss							(750,000	)
Transfers in (out of level 3)			2,092,518				—
Ending balance		$	2,092,518			$	—