UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the Quarterly Period Ended June 30, 2012

 

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

 

For the transition period from _____ to _____.

 

Commission File No. 001-15975

 

REMEDENT, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada		86-0837251
(State or Other Jurisdiction Of Incorporation or Organization)		(I.R.S. Employer Identification Number)
Zuiderlaan 1-3 bus 8, 9000 Ghent, Belgium		N/A
(Address of Principal Executive Offices)		(Zip Code)

 

Registrant’s telephone number, including area code 011 32 9 241 58 80

 

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

Yes x                                 No ¨

 

Indicate by check mark 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 x                                   No ¨

 

Indicate by checkmark 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	x
(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 x

 

As of August 14, 2012, there were 19,995,969 outstanding shares of the registrant’s common stock, includes 723,000 shares of treasury stock.

 

 

REMEDENT, INC.

 

FORM 10-Q INDEX

 

		Page Number
PART I – FINANCIAL INFORMATION
Item 1.  Financial Statements
Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and March 31, 2012		1
Consolidated Statements of Operations for the Three Months Ended June 30, 2012 and June 30, 2011 (Unaudited)		2
Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended June 30, 2012 and June 30, 2011 (Unaudited)		3
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2012 and June 30, 2011 (Unaudited)		4
Notes to Consolidated Financial Statements (Unaudited)		5
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.    Quantitative and Qualitative Disclosures About Market Risk		22
Item 4.  Controls and Procedures		23
PART II – OTHER INFORMATION
Item 1.     Legal Proceedings		23
Item 1A.  Risk Factors		23
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 3.     Defaults Upon Senior Securities		23
Item 4.     [Removed and Reserved.]		23
Item 5.     Other Information		23
Item 6.     Exhibits		24
Signature Page		25

 

 

PART I – FINANCIAL INFORMATION

Item 1.

 

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		June 30, 2012				March 31, 2012
		(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	42,563			$	203,584
Accounts receivable, net of allowance for doubtful accounts of $5,047 at June 30, 2012 and $12,361 at March 31, 2012			635,279				838,240
Inventories, net			1,040,630				1,077,766
Prepaid expense			1,046,913				1,149,264
Total current assets			2,765,385				3,268,854
PROPERTY AND EQUIPMENT, NET			596,346				641,220
OTHER ASSETS
Investment in GlamSmile Asia Ltd			2,162,557				2,092,518
Investment in Remedent OTC BV (Note 3)			813,441				962,505
Total assets		$	6,337,729			$	6,965,097
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion, long term debt		$	878,428			$	863,501
Line of Credit			1,509,234				1,079,263
Accounts payable			1,201,517				1,009,176
Accrued liabilities			252,261				536,331
Deferred revenue			37,141				57,254
Due to related parties (Note 3)			89,108				61,836
Total current liabilities			3,967,689				3,607,361
Long term debt less current portion			1,410,056				1,452,523
Total liabilities			5,377,745				5,059,884
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 June 30, 2012 and March 31, 2012 respectively)			19,996				19,996
Treasury stock, at cost; 723,000 shares outstanding at June 30, 2012 and March 31, 2012 respectively			(831,450	)			(831,450	)
Additional paid-in capital			24,906,269				24,906,269
Accumulated deficit			(21,502,620	)			(20,622,635	)
Accumulated other comprehensive income (loss) (foreign currency translation adjustment)			(1,747,073	)			(1,681,829	)
Obligation to issue shares (Note 3)			97,500				97,500
Total Remedent, Inc. stockholders’ equity			942,622				1,887,851
Non-controlling interest			17,362				17,362
Total stockholders’ equity			959,984				1,905,213
Total liabilities and equity		$	6,337,729			$	6,965,097

 

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

 

 

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the three months ended
		June 30,
		2012				2011
Net sales		$	414,534			$	3,001,971
Cost of sales			254,555				817,397
Gross profit			159,979				2,184,574
Operating Expenses
Research and development			11,177				116,496
Sales and marketing			172,554				665,978
General and administrative			634,323				1,152,007
Depreciation and amortization			89,594				178,870
TOTAL OPERATING EXPENSES			907,648				2,113,351
(LOSS) INCOME FROM OPERATIONS			(747,669	)			71,223
OTHER (EXPENSES) INCOME
Equity loss from investments			(79,025	)			—
Interest expense			(50,686	)			(111,522	)
Other (expenses) income			(2,606	)			51,649
TOTAL OTHER (EXPENSES) INCOME			(132,317	)			(59,873	)
NET (LOSS) INCOME BEFORE TAXES AND NON-CONTROLLING INTEREST			(879,986	)			11,350
INCOME TAXES			—				(86,393	)
NET (LOSS) INCOME BEFORE NON-CONTROLLING INTEREST			(879,986	)			(75,043	)
LESS: NET INCOME ATTRIBUTABLE TO THE NON-CONTROLLING INTEREST			—				259,630
NET (LOSS) INCOME ATTRIBUTABLE TO REMEDENT, INC. COMMON STOCKHOLDERS		$	(879,986	)		$	(334,673	)
(LOSS) INCOME PER SHARE
Basic		$	(0.04	)		$	(0.02	)
Fully diluted		$	(0.04	)		$	(0.02	)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic			19,995,969				19,995,969
Fully diluted			19,995,969				19,995,969

 

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

 

 

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

		For the three months ended June 30,
		2012				2011
NET INCOME (LOSS) ATTRIBUTABLE TO REMEDENT COMMON STOCKHOLDERS		$	(879,986	)		$	(334,673	)
OTHER COMPREHENSIVE
INCOME (LOSS):
Foreign currency translation adjustment			(65,244	)			57,279
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO REMEDENT COMMON STOCKHOLDERS		$	(945,230	)		$	(277,934	)

 

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

 

 

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the three months ended June 30,
		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	(879,986	)		$	(75,043	)
Adjustments to reconcile net income (loss) to net cash used by operating activities
Depreciation and amortization			89,594				178,870
Inventory reserve			(8,348	)			(24,365	)
Allowance for doubtful accounts			(7,314	)			744
Value of stock options issued to employees			—				13,025
Equity investment			79,025				—
Changes in operating assets and liabilities:
Accounts receivable			202,961				672,254
Inventories			37,136				(130,602	)
Prepaid expenses			102,351				(111,593	)
Accounts payable			167,918				10,914
Accrued liabilities			(284,070	)			(304,676	)
Deferred revenue			(20,113	)
Accrued and unpaid interest on long term debt			—				41,702
Due to related parties			27,272				(95,354	)
Net cash used by operating activities			(493,574	)			175,876
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of patent rights			—				(25,440	)
Purchases of equipment			(20,297	)			(23,574	)
Net cash used by investing activities			(20,297	)			(49,014	)
CASH FLOWS FROM FINANCING ACTIVITIES
Loan payable			—				1,000,000
Net (repayments of) capital lease note payable			(27,540	)			(46,838	)
Proceeds from line of credit			429,971				143,441
Net cash provided by financing activities			402,431				1,096,603
NET (DECREASE) INCREASE IN CASH			(111,440	)			1,223,465
Effect of exchange rate changes on cash and cash equivalents			(49,581	)			89,697
CASH AND CASH EQUIVALENTS, BEGINNING			203,584				1,662,520
CASH AND CASH EQUIVALENTS, ENDING		$	42,563			$	2,975,682
Supplemental Information:
Interest paid		$	38,220			$	36,397
Income taxes paid		$	—			$	—

 

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

 

 

REMEDENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.

DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION

 

The Company is a manufacturer and distributor of cosmetic dentistry products, including a full line of professional dental 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 and in France.  The Company distributes its products using both its own internal sales force and through the use of third party distributors.

 

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

 

In July 2012 we received €500,000 as partial payment for the sale of our 100% interest in the share capital of Remedent OTC B.V. (See Note 19). However, despite the net profit of the past fiscal year, the accumulated losses of the past affect the financial situation of the Company. Moreover there has been increased pressure on the operating cash flows of the Company and by consequence additional funding will be required to support the Company’s operations and the execution of the business plan.  These risks, among others, are also discussed in ITEM 1A –RISK FACTORS in the Company’s annual report on Form 10-K filed on July 16, 2012 with the SEC. Despite these matters of emphasis, the financial statements have been prepared on a going concern basis.

 

In these notes, the terms “Remedent”, “Company”, “we”, “us” or “our” mean Remedent, Inc. and all of its subsidiaries, whose operations are included in these consolidated financial statements.

 

The Company has conducted a subsequent events review through the date the financial statements were issued, and has concluded that there were no subsequent events requiring adjustments or additional disclosures to the Company's financial statements at June 30, 2012.

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accounting policies of the Company, as applied in the interim consolidated financial statements presented herein are substantially the same as presented in the Company’s Form 10-K for the year ended March 31, 2012, except as may be indicated below:

 

Organization and Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of: Remedent N.V. (incorporated in Belgium) located in Ghent , Belgium, Remedent Professional, Inc. and Remedent Professional Holdings, Inc. (both incorporated in California and inactive), Glamtech-USA, Inc. (a Delaware corporation acquired effective August 24, 2008), Remedent N.V.’s  51% owned subsidiary, GlamSmile Deutschland GmbH, a German private company located in Munich and Remedent N.V.’s 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, and Note 19 – Subsequent Event).

 

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.

 

 

Interim Financial Information

 

The interim consolidated financial statements of Remedent, Inc. and Subsidiaries (the “Company”) are condensed and do not include some of the information necessary to obtain a complete understanding of the financial data. Management believes that all adjustments necessary for a fair presentation of results have been included in the unaudited consolidated financial statements for the interim periods presented. Operating results for the three months ended June 30, 2012, are not necessarily indicative of the results that may be expected for the year ended March 31, 2013. Accordingly, your attention is directed to footnote disclosures found in the Annual Report on Form 10-K for the year ending March 31, 2012, and particularly to Note 2, which includes a summary of significant accounting policies.

 

Warranties

 

The Company typically warrants its products against defects in material and workmanship for a period of 18 months from shipment.

 

A tabular reconciliation of the Company’s aggregate product warranty liability for the reporting periods is as follows:

 

		Three months ended June 30, 2012				Year ended March 31, 2012
Product warranty liability:
Opening balance		$	20,019			$	21,260
Accruals for product warranties issued in the period			(1,069	)			(2,002	)
Adjustments to liabilities for pre-existing warranties			—				761
Ending liability		$	18,950			$	20,019

 

Based upon historical trends and warranties provided by the Company’s suppliers and sub-contractors, the Company has made a provision for warranty costs of $18,950 and $20,019 as of June 30, 2012 and March 31, 2012, respectively.

 

Computation of Earnings (Loss) per Share

 

Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income (loss) per common share attributable to common stockholders assuming dilution is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued.

 

On April 1, 2009, the Company adopted changes issued by the FASB to the calculation of earnings per share. These changes state that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method for all periods presented. The adoption of this change had no impact on the Company’s basic or diluted net loss per share because the Company has never issued any share-based awards that contain non-forfeitable rights.

 

At each of June 30, 2012 and March 31, 2012, the Company had 19,995,969, shares of common stock issued and outstanding.  At June 30, 2012 and March 31, 2012, the Company had  3,848,379 and 7,794,627 warrants outstanding respectively and 2,157,500 options outstanding respectively.  As of June 30, 2012, all outstanding warrants and options were excluded from the computation of earnings per share because their effect would have been anti-dilutive.

 

Comprehensive income (loss) includes all changes in equity except those resulting from investments by owners and distributions to owners, including accumulated foreign currency translation, and unrealized gains or losses on marketable securities.

 

The Company’s only component of other comprehensive income is the accumulated foreign currency translation consisting of (loss) and gains of $(65,244) and $57,279 for the three months ended June 30, 2012 and 2011, respectively. These amounts have been recorded as a separate component of stockholders’ equity (deficit).

 

 

New Accounting Pronuncements

 

In June 2011, the Financial Accounting Standards Board (“FASB”) amended its rules regarding the presentation of comprehensive income. The objective of this amendment is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. Specifically, this amendment requires that all non-owner changes in shareholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new rules will become effective during interim and annual periods beginning after December 15, 2011, with the exception of the requirement to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements, which has been deferred pending further deliberation by the FASB. Because the standard only impacts the presentation of comprehensive income and does not impact what is included in comprehensive income, the standard will not have a significant impact on the Company's consolidated financial statements. The Company adopted this accounting standard during the quarter ended June 30, 2012.

 

In September 2011, the FASB issued Accounting Standards Update No. 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment”("ASU"). This newly issued accounting standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a "qualitative" assessment to determine whether further impairment testing is necessary. Under the revised standard, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step impairment test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required; otherwise, no further testing is required. Prior to the issuance of the revised standard, an entity was required to perform step one of the impairment test at least annually by calculating and comparing the fair value of a reporting unit to its carrying amount. Under the revised standard, if an entity determines that step one is necessary and the fair value of the reporting unit is less than its carrying amount, then step two of the test will continue to be required to measure the amount of the impairment loss, if any. These amendments do not change the current guidance for testing other indefinite-lived intangible assets for impairment. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted this standard for the quarter ended June 30, 2012 and it did not impact the Company’s financial position or results from operations.

 

3 .     LONG-TERM INVESTMENTS

 

REMEDENT OTC 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 three months ended June 30, 2012, the Company recorded an equity loss of $(149,064) in “Other (expenses) income” for its portion of the net loss recorded by Remedent OTC BV.

 

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.

 

Deconsolidation

 

On January 28, 2012, the Company entered into a Preference A Shares and Preference A-1 Shares Purchase Agreement (“Share Purchase Agreement”) with Glamsmile Dental Technology Ltd., a Cayman Islands company and a subsidiary of the Company (“Glamsmile Dental”), Glamsmile (Asia) Limited, a company organized and existing under the laws of Hong Kong and a substantially owned subsidiary of Glamsmile Dental, Beijing Glamsmile Technology Development Ltd., Beijing Glamsmile Trading Co., Ltd., Beijing Glamsmile Dental Clinic Co., Ltd., and Shanghai Glamsmile Dental Clinic Co., Ltd., Gallant Network Limited, a shareholder of Glamsmile Dental (“Gallant”), and IDG-Accel China Growth Fund III L.P. (“IDG Growth”), IDG-Accel China III Investors L.P.(“IDG Investors”) and Crown Link Group Limited (“Crown”)(“IDG Growth, IDG Investors and Crown collectively referred to as the “Investors”), pursuant to which the Investors agreed to (i) purchase from the Company an aggregate of 2,857,143 shares of Preference A-1 Shares of Glamsmile Dental, which represents all of the issued and outstanding Preference A-1 Shares of Glamsmile Dental, for an aggregate purchase price of $2,000,000, and (ii) purchase from Glamsmile Dental an aggregate of 5,000,000 shares of Preference A Shares for an aggregate purchase price of $5,000,000.

 

Under the terms of the Share Purchase Agreement, the Company agreed (a) to indemnify the Investors and their respective affiliates for losses arising out of a breach, or inaccuracy or misrepresentation in any representation or warranty made by the Company or a breach or violation of a covenant or agreement made by the Company for up to $1,500,000, and (b) to transfer 500,000 shares of Glamsmile Dental owned by the Company to the Investors in the event of breach of certain covenants by the Company. In connection with the Share Purchase Agreement, the Company also agreed to enter into an Investor’s Rights Agreement, Right of First Refusal and Co-Sale Agreement, and Voting Agreement with the parties.

 

In addition, in connection with the contemplated transactions in the Share Purchase Agreement on January 20, 2012, the Company entered into a Distribution, License and Manufacturing Agreement with Glamsmile Dental pursuant to which the Company appointed Glamsmile Dental as the exclusive distributor and licensee of Glamsmile Veneer Products bearing the “Glamsmile” name and mark in the B2C Market in the People’s Republic of China (including Hong Kong and Macau) and Republic of China (Taiwan) and granted related manufacturing rights and licenses in exchange for the original issuance of 2,857,143 shares of Preference A-1 Shares of Glamsmile Dental and $250,000 (the receipt of which was acknowledged as an offset to payment of certain invoices of Glamsmile (Asia) Limited).

 

On February 10, 2012, the sale of the Preference A-1 Shares and the Preference A Shares was completed. As a result of the closing, the equity ownership of Glamsmile Dental, on an as converted basis, is as follows: 31.4% by the Investors, 39.2 % by Gallant, and 29.4% by the Company. Mr. De Vreese, our chairman, will remain as a director of Glamsmile Dental along with Mr. David Lok, who is the Chief Executive Officer and director of Glamsmile Dental and principal of Gallant. The Investors have a right to appoint one director of Glamsmile Dental, and accordingly the Board of Directors of Glamsmile Dental will consist of Mr. De Vreese, Mr. Lok and a director appointed by the Investors.

 

In conjunction with the transaction and resulting deconsolidation of Glamsmile Dental, the Company recorded a gain of $1,470,776, calculated as follows:

 

Consideration received		$	2,000,000
Fair value of 29.4% interest			2,055,884
Carrying value of non-controlling interest			1,117,938
Less: carrying value of former subsidiary’s net assets			(2,002,329	)
Goodwill			(699,635	)
Investment China & Hong Kong			(1,082	)
Rescission agreement  Excelsior  (Note 11)			(1,000,000	)
		$	1,470,776

 

For the three month period ended June 30, 2012 the Company recorded equity income of $70,039 “Other (expenses) income” for its portion of the net income recorded by GlamSmile Dental Technology Ltd.

 

 

4.

DISTRIBUTION AGREEMENTS

 

Den-Mat Distribution Agreement

 

On August 24, 2008, the Company entered into a distribution agreement (the “Distribution Agreement”) with Den-Mat Holdings, LLC, a Delaware limited liability company (“Den-Mat”).   Pursuant to the Distribution Agreement, the Company appointed Den-Mat to be the sole and exclusive distributor to market, license and sell certain products relating to the Company’s GlamSmile tray technology, including, but not limited to, its GlamSmile veneer products and other related veneer products (the “Products”), throughout the world, with the exception of Australia, Austria, Belgium, Brazil, France (including all French overseas territories “Dom-Tom”), Germany, Italy, New Zealand, Oman, Poland, Qatar, Saudi Arabia, Singapore, Switzerland, Thailand, and United Arab Emirates (collectively the “Excluded Markets”) and the China Market (the “Territory”).

 

As consideration for such distribution, licensing and manufacturing rights, Den-Mat agreed to pay the Company:

 

(i)

an initial payment of $2,425,000 (received);

(ii)

a payment of $250,000 for each of the first three contract periods in the initial Guaranty Period, subject to certain terms and conditions;

(iii)

certain periodic payments as additional paid-up royalties in the aggregate amount of $500,000 (received);

(iv)

a payment of $1,000,000 promptly after Den-Mat manufactures a limited quantity of products at a facility owned or leased by Den-Mat;

(v)

A payment of $1,000,000 promptly upon completion of certain training of Den-Mat’s personnel;

(vi)

a payment of $1,000,000 upon the first to occur of (a) February 1, 2009 or (b) the date thirty (30) days after den-Mat sells GlamSmile Products incorporating twenty thousand (20,000) Units/Teeth to customers regardless of whether Den-Mat has manufactured such Units/Teeth in a Den-Mat facility or has purchased such Units/Teeth from the Company;

(vii)

certain milestone payments; and

(viii)

certain royalty payments.

 

The Company has received $698,597 in royalty payments and $4,000,000 in milestone payments, subsequent to the initial payment of $2,425,000.

 

Further, as consideration for Den-Mat’s obligations under the Distribution Agreement, the Company agreed to, among other things:

 

(i)

issue to Den-Mat or an entity to be designated by Den-Mat, warrants to purchase up to 3,378,379 shares of the Corporation’s common stock, par value $0.001 per share (the “Warrant Shares”) at an exercise price of $1.48 per share, exercisable for a period of five years (the “Den-Mat Warrant”) (The warrants were  issued in the period ended September 30, 2008 and were valued at $4,323,207 based upon the Black-Scholes option pricing model utilizing a market price on the date of grant of $1.48 per share, an annualized volatility of 131%, a risk free interest rate of 3.07% and an expected life of five years.  The expense was originally classified as a non-operating expense however, we have subsequently reclassified the expense to operations since our agreement with Den-Mat is in the normal course of our operations.  The reclassification increased our operations expenses by $4,323,207, while reducing our other expenses by the same amount, resulting in no net impact upon our consolidated net loss for the year ended March 31, 2009.

 

(ii)

execute and deliver to Den-Mat a registration rights agreement covering the registration of the Warrant Shares (the “Registration Rights Agreement”) which as of March 31, 2011 has not yet been filed (*); and

 

(iii)

cause its Chairman of the Board, Guy De Vreese, to execute and deliver to Den-Mat a non-competition agreement.

 

(*) In 2009, the Company and Den-Mat agreed that the shares underlying the warrants would be registered pursuant to a registration statement upon the earlier occurrence of (a) Den-Mat’s demand for the shares to be registered, or (b) an initiation and filing of a registration statement by other investors or the Company.  As of 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.

 

Effective March 27, 2012 the Company and Den-Mat entered into a termination and license agreement, as follows:

 

(a)

the parties have agreed to terminate the distribution, manufacturing and license agreement and any ancillary agreements (the “Agreements”);

 

(b)

Den-Mat will pay the Company $200,000 cash in complete satisfaction of any and all payments due (received); and

 

(c)

the Company grants to Den-Mat a non-exclusive, irrevocable, perpetual, royalty free license to use within the territory of intellectual property that was the subject of the Agreements and license with Den-Mat.

 

5.

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 June 30, 2012, five customers accounted for 55.45% of the Company’s trade accounts receivables, and one customer accounted for 32.35%.   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 three months ended June 30, 2012 the Company had five suppliers who accounted for 30.86% of gross purchases. For the three months ended June 30, 2011 the Company had five suppliers who accounted for 26.2% of gross purchases.

 

Revenues —  For the three months ended June 30, 2012 the Company had five customers that accounted for 56.13% of total revenues. For the three months ended June 30, 2011 the Company had five customers that accounted for 32,37% of total revenues.

 

6.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

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

 

		June 30, 2012				March 31, 2012
Accounts receivable, gross		$	640,326			$	850,601
Less: allowance for doubtful accounts			(5,047	)			(12,361	)
Accounts receivable, net		$	635,279			$	838,240

 

 

7.

INVENTORIES

 

Inventories at period end are stated at the lower of cost (first-in, first-out) or net realizable value and consisted of the following:

 

		June 30, 2012				March 31, 2012
Raw materials		$	56,638			$	58,189
Components			303,062				283,572
Finished goods			828,821				892,244
			1,188,521				1,234,005
Less: reserve for obsolescence			(147,891	)			(156,239	)
Net inventory		$	1,040,630			$	1,077,766

 

8.

PREPAID EXPENSES

 

Prepaid expenses are summarized as follows:

 

		June 30, 2012				March 31, 2012
Prepaid materials and components		$	763,910			$	882,998
Prepaid Consulting			34,275				—
VAT payments in excess of VAT receipts			76,811				60,252
Prepaid interest			—				18,109
Prepaid rent			127,909				145,138
Other			44,008				42,767
		$	1,046,913			$	1,149,264

 

9.

PROPERTY AND EQUIPMENT

 

Property and equipment are summarized as follows:

 

		June 30, 2012				March 31, 2012
Furniture and Fixtures		$	546,404			$	540,104
Machinery and Equipment			1,542,391				1,499,271
			2,088,795				2,039,375
Accumulated depreciation			(1,492,449	)			(1,398,155	)
Property & equipment, net		$	596,346			$	641,220

 

10.

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 June 30, 2012 and March 31, 2012, Remedent N.V. had in aggregate, $1,509,234 and $1,079,263 in advances outstanding, respectively, under the mixed-use line of credit facilities.

 

 

11.

LONG TERM DEBT

 

Capital Lease Agreements:

 

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 $215,716). 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 $318,229).

 

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 June 30, 2012 and March 31, 2012 of the equipment subject to the foregoing leases are $233,551 and $273,557 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			79,228
2014			82,805
2015			83,509
2016			—
Later years			—
Total minimum lease payments			245,542
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			245,542
Less: Amount representing interest (*)			11,991
Present value of minimum lease payments (**)		$	233,551

 

*  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 $73,495 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.

 

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.

 

12.

DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS

 

Transactions with related parties not disclosed elsewhere in these financial statements consisted of the following:

 

Compensation:

 

During the three month periods ended June 30, 2012 and 2011 respectively, the Company incurred $149,846 and $164,275 respectively, as compensation for all directors and officers.

 

 

All related party transactions involving provision of services or tangible assets were recorded at the exchange amount, which is the value established and agreed to by the related parties reflecting arms length consideration payable for similar services or transfers.

 

13.

ACCRUED LIABILITIES

 

Accrued liabilities are summarized as follows:

 

		June 30, 2012				March 31, 2012
Accrued employee benefit taxes and payroll		$	105,111			$	358,148
Accrued travel			9,475				10,010
Commissions			145				687
Accrued audit and tax preparation fees			20,000				11,318
Reserve for warranty costs			18,950				20,019
Reserve for income taxes			1,840				2,936
Accrued interest			12,130				1,322
Accrued consulting fees			69,516				16,129
Other accrued expenses			15,094				115,762
		$	252,261			$	536,331

 

14.

EQUITY COMPENSATION PLANS

 

As of March 31, 2012, the Company had three equity compensation plans approved by its stockholders (1) the 2001 Incentive and Non-statutory Stock Option Plan (the “2001 Plan”), (2) the 2004 Incentive and Non-statutory Stock Option Plan (the “2004 Plan”); and (3) the 2007 Equity Incentive Plan (the “2007 Plan”). The Company’s stockholders approved the 2001 Plan reserving 250,000 shares of common stock of the Company pursuant to an Information Statement on Schedule 14C filed with the Commission on August 15, 2001. In addition, the Company’s stockholders approved the 2004 Plan reserving 800,000 shares of common stock of the Company pursuant to an Information Statement on Schedule 14C filed with the Commission on May 9, 2005.  Finally, the Company’s stockholders approved the 2007 Plan reserving 1,000,000 shares of common stock of the Company pursuant to a Definitive Proxy Statement on Schedule 14A filed with the Commission on October 2, 2007.

 

In addition to the equity compensation plans approved by the Company’s stockholders, the Company has issued options and warrants to individuals pursuant to individual compensation plans not approved by our stockholders.  These options and warrants have been issued in exchange for services or goods received by the Company.

 

The following table provides aggregate information as of June 30, 2012 with respect to all compensation plans (including individual compensation arrangements) under which equity securities are authorized for issuance.

 

		2001 Plan								2004 Plan								2007 Plan								Other
		Outstanding Options				Weighted Average Exercise Price				Outstanding Options				Weighted Average Exercise Price				Outstanding Options				Weighted Average Exercise Price				Outstanding Options				Weighted Average Exercise Price
Options outstanding, March 31, 2012 and June 30, 2012			12,500				1.19				532,500				0.96				1,000,000				1.21				350,000				.97
Options exercisable June 30, 2012			12,500				1.19				532,500				0.96				1,000,000				1.21				350,000				.97
Exercise price range			$0.50 - $2.39								$0.50 - $2.46								$0.50 - $1.75								$.39 - 1.75
Weighted average remaining life			1.8 years								5.0  years								5.9 years								4.3 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 three month period ended June 30, 2012 the Company recognized $Nil (2011 — $13,025) in compensation expense in the consolidated statement of operations.  No stock options were granted or cancelled/expired in the three month period ended June 30, 2012.

 

15.	COMMON STOCK WARRANTS AND OTHER OPTIONS

 

As of June 30, 2012 and March 31, 2012, the Company had warrants to purchase the Company’s common stock outstanding that were not granted under shareholder approved equity compensation plans as follows:

 

		Outstanding Warrants				Weighted Average Exercise Price
Warrants outstanding March 31, 2012			7,794,627				1.50
Warrants expired			(3,946,248	)			1.55
Warrants outstanding and exercisable June 30, 2012			3,848,379			$	1.40
Exercise price range			$1.00 to $1.65
Weighted average remaining life			1.0 Years

 

 

16.

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 three month period ended June 30, 2012				Revenues for the three month period ended June 30, 2011
		Revenues (a)				Revenues (a)
United States		$	—			$	320,047
Europe			414,534				1,759,149
China			—				922,775
Total		$	414,534			$	3,001,971

 

		Long-lived Assets As at June 30, 2012				Long-lived Assets As at March 31, 2012
United States		$	2,975,998			$	3,055,023
Europe			596,346				641,220
Total		$	3,572,344			$	3,696,243

 

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

 

17.

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 commening September 1, 2008 at a base rent of € 5,712 per month for the total location ($7,216 per month at June 30, 2012).

 

Secondly, the Company leases an office facility of 1,991 square feet in Rome, Italyto support the sales and marketing division of our veneer business, from an unrelated party pursuant to a six year lease commencing July 1, 2011, at a base rent of €6,500 per month for the total location ($8,211 per month at June 30, 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		$	313,719
March 31, 2014			389,447
March 31, 2015			335,637
March 31, 2016			240,874
March 31, 2016			203,719
After five years			89,588
Total:		$	1,572,984

 

 

18.

FINANCIAL INSTRUMENTS

 

The FASB ASC topic 820 on fair value measurement and disclosures establishes three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), observable inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2), and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).

 

The carrying values and fair values of our financial instruments are as follows:

 

						July 31, 2012								March 31, 2012
						Carrying				Fair				Carrying				Fair
		Level				value				Value				value				value
Cash			1			$	42,563			$	42,563			$	203,584			$	203,584
Accounts receivable			2			$	635,279			$	635,279			$	838,240			$	838,240
Long term investments and advances OTC Division			2			$	813,441			$	813,441			$	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			$	2,162,557			$	2,162,557			$	2,092,518			$	2,092,518
Line of credit			2			$	1,509,234			$	1,509,234			$	1,079,263			$	1,079,263
Short term debt			2			$	878,428			$	878,428			$	863,501			$	863,501
Deferred revenue			2			$	37,141			$	37,141			$	57,254			$	57,254
Accounts payable			2			$	1,201,517			$	1,201,517			$	1,009,176			$	1,009,176
Accrued liabilities			2			$	252,261			$	252,261			$	536,331			$	536,331
Long term debt			2			$	1,410,056			$	1,410,056			$	1,452,523			$	1,452,523

 

The following method was used to estimate the fair values of our financial instruments:

 

The carrying amount of level 1 and level 2 financial instruments approximates fair value because of the short maturity of the instruments.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. Level 3 financial assets also include certain investment securities for which there is limited market activity such that the determination of fair value requires significant judgment or estimation.

 

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no significant transfers between Level 1, Level 2, or Level 3 during the fiscal years ended March 31, 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):

 

		Three month period ended June 30, 2012
Long term investments and advances:
Beginning balance		$	2,092,518
Gains (losses) included in net loss			70,039
Transfers in (out of level 3)			—
Ending balance		$	2,162,557

 

 

19.

SUBSEQUENT EVENT

 

Effective July 13, 2012 the Company sold 100% of its interest in the share capital of Remedent OTC B.V., to an arm’s length party for the total sales price of €500,000 to be paid immediately (received in July 2012).

 

Terms of the sale provide that the purchase price shall be increased by (a) an amount of €250,000 under the condition that Sylphar N.V., has a minimum turnover for the current fiscal year, ending March 31, 2013 of €3,250,000; and (b) a further amount of €250,000 upon Sylphar’s achievement of a certain milestone of a License and Service Agreement with an independent third party.

 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward Looking Statements

 

The discussion contained herein is for the three months ended June 30, 2012 and June 30, 2011. The following discussion should be read in conjunction with the Company’s consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012.  In addition to historical information, this section contains “forward-looking” statements, including statements regarding the growth of product lines, optimism regarding the business, expanding sales and other statements. Words such as expects, anticipates, intends, plans, believes, sees, estimates and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Actual results could vary materially from the description contained herein due to many factors including continued market acceptance of our products. In addition, actual results could vary materially based on changes or slower growth in the oral care and cosmetic dentistry products market; the potential inability to realize expected benefits and synergies; domestic and international business and economic conditions; changes in the dental industry; unexpected difficulties in penetrating the oral care and cosmetic dentistry products market; changes in customer demand or ordering patterns; changes in the competitive environment including pricing pressures or technological changes; technological advances; shortages of manufacturing capacity; future production variables impacting excess inventory and other risk factors.  Factors that could cause or contribute to any differences are discussed in “Risk Factors” and elsewhere in the Company’s annual report on Form 10-K filed on July 16, 2012 with the Securities and Exchange Commission.  Except as required by applicable law or regulation, the Company undertakes no obligation to revise or update any forward-looking statements contained in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012. The information contained in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012 is not a complete description of the Company’s business or the risks associated with an investment in the Company’s common stock. Each reader should carefully review and consider the various disclosures made by the Company in this Quarterly Report on Form 10-Q and in the Company’s other filings with the Securities and Exchange Commission.

 

Overview

 

We specialize in the research, development, and manufacturing of oral care and cosmetic dentistry products.  We are one of the leading manufacturers of cosmetic dentistry products in Europe.  Leveraging our knowledge of regulatory requirements regarding dental products and management’s experience in the needs of the professional dental community, we design, develop, manufacture and distribute our cosmetic dentistry products, including a full line of professional dental products that are distributed in Europe, Asia and the United States.    We distribute our products using both our own internal sales force and through the use of third party distributors.

 

 

Result of Operations

 

Comparative detail of results as a percentage of sales, is as follows:

 

		For the three months ended
		June 30,
		2012				2011
		(unaudited)
NET SALES			100.00	%			100.00	%
COST OF SALES			61.41	%			27.23	%
GROSS PROFIT			38.59	%			72.77	%
OPERATING EXPENSES
Research and development			2.70	%			3.88	%
Sales and marketing			41.63	%			22.18	%
General and administrative			153.02	%			38.38	%
Depreciation and amortization			21.61	%			5.96	%
TOTAL OPERATING EXPENSES			218.96	%			70.40	%
INCOME (LOSS) FROM OPERATIONS			(180.36	)%			2.37	%
Other income (expense)			(31.92	)%			(1.99	)%
INCOME (LOSS) BEFORE TAXES AND NON-CONTROLLING INTEREST			(212.28	)%			0.38	%
Income taxes			0.00	%			(2.88	)%
INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST			(212.28	)%			(2.50	)%
Non-controlling interest			0.00	%			8.65	%
NET INCOME (LOSS)			(212.28	)%			(11.15	)%

 

*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 86% to $414,534 for the three months ended June 30, 2012 as compared to $3,001,971 for the three months ended June 30, 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 the three months ended June 30, 2011, we reported a full quarter of revenue for all divisions. Additionally, we received a non recurring fee in connection with the First Fit Distribution agreement and Royalty fees in reference to the Distribution agreement which were included in the quarter ending June 30, 2011.

 

   Cost of Sales

 

Cost of sales decreased approximately 68.9% to $254,555 for the three months ended June 30, 2012 as compared to $817,397 for the three months ended June 30, 2011.  The decrease in cost of 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 cost of sales. Cost of sales as a percentage of sales has increased because of the deconsolidation of our Asian division at the end of January 2012, known for its higher margins due to direct selling, the deconsolidation of our OTC Division and the non-recurring Royalty fees in reference to the DenMat distribution agreement and the non-recurring fees in reference to the First Fit Agreement, both included in the quarter ending June 30, 2011.

 

Gross Profit

 

Our gross profit decreased by $2,024,595 or 92.7%, to $159,979 for the three months ended June 30, 2012 as compared to $2,184,574 for the three months ended June 30, 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 the quarter ended June 30, 2011 we reported gross profit for all divisions. Our gross profit as a percentage of sales decreased to 38.59% in the three months ended June 30, 2012 as compared to 72.77% for the three months ended June 30, 2011. The decrease in gross profit is the result of the sales of the OTC Division and our Asian Division, combined with the non-recurring royalty fees in reference to the DenMat Distribution agreement and the non-recurring fee in connection with the first Fit Distribution agreement which were included in the quarter ending June 30, 2011.

 

 

Operating Expenses

 

Research and Development .  Our research and development expenses decreased $105,319 to $11,177 for the three months ended June 30, 2012 as compared to $116,496 for the three months ended June 30, 2011, a decrease of 90.4%.  Research and development expenses have decreased 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. For both entities, the equity method is currently being used in calculating the monthly results, whereas, in the three months ended June 30, 2011, we reported a full quarter of Research and Development Expenses for all divisions.

 

Sales and marketing costs. Our sales and marketing costs for the three months ended June 30, 2012 and 2011 were $172,554 and $665,978 respectively, representing a decrease of $493,424 or 74.1%.  The decrease in sales and marketing costs as compared to the three months ended June 30, 2011 is 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 sales and marketing cost. For both entities, the equity method is currently applicable, whereas, for the three months ending June 30, 2011, we reported sales and marketing costs for a full quarter for all divisions.

 

General and administrative costs. Our general and administrative costs f for the three months ended June 30, 2012 and 2011 were $634,323 and $1,152,007 respectively, representing a decrease of $517,684 or 44.9%.  The decrease in general and administrative costs as compared to the three months ended June 30, 2011 is a result of the deconsolidation of our OTC division at the quarter ending September 2011 and 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, for the three months ending June 30, 2011, we reported general and administrative costs for a full quarter for all divisions.

 

Depreciation and amortization .   Our depreciation and amortization decreased $89,276 or 49.9%, to $89,594 for the three months ended June 30, 2012 as compared to $178,870 for the three months ended June 30, 2011.   The decrease is largely due to the deconsolidation of both entities, as described above.

 

Other income (expense).   Our other income (expense) was $(132,317) for the three months ended June 30, 2012 as compared to $(59,873) for the three months ended June 30, 2011, an increase in expense of $72,444.   The increase in expense is largely because of an equity loss of $(149,064) for our portion of the net loss recorded by Remedent OTC BV, offset by a equity income of $70,039 for our portion on the net income recorded by GlamSmile Dental Technology Ltd. -

 

Internal and External Sources of Liquidity

 

As of June 30, 2012, we had current assets of $2,765,385 compared to $3,268,854 at March 31, 2012. This decrease of $503,469 was primarily due to a decrease in cash and cash equivalents of $161,021 and a decrease in accounts receivable, inventories and prepaid expense of $202,961, $37,136 and $102,351 respectively. Current liabilities at June 30, 2012 were $3,967,689 as compared to $3,607,361 at March 31, 2012.  The increase in current liabilities of $360,328 was primarily as a result of a decrease in accrued liabilities in the amount of $284,070 and a decrease in deferred revenue of $20,113, offset by an increase in our line of credit of $429,971, current portion of our long-term debt in the amount of $ 14,927, accounts payable $192,341 and amounts due to related parties of $27,272.

 

As of June 30, 2012, we had cash and cash equivalents of $42,563. In July 2012 we received €500,000 as partial payment for the sale of our 100% interest in the share capital of Remedent OTC B.B.V. We anticipate that we will need to raise additional funds to satisfy our work capital requirements and implement our business strategy to expand our direct to consumer business model. We intend to continue to look for opportunities to expand the number of GlamSmile Studios in China and Europe.  We will continue to review our expected cash requirements, make all efforts to collect any aged receivables, and take appropriate cost reduction measures to ensure that we have sufficient working capital to fund our operations. In the event additional needs for cash arise, we may seek to raise additional funds from a combination of sources including issuance of debt or equity securities. Additional financing may not be available on terms favorable to us, or at all. Any additional financing activity could be dilutive to our current stockholders. If adequate funds are not available or are not available on acceptable terms, our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited.

 

 

Cash and Cash equivalents

 

Our balance sheet at June 30, 2012 reflects cash and cash equivalents of $42,563 as compared to $203,584 as of March 31, 2012, a decrease of $161,021.

 

Operations

 

Net cash (used by) operations was $493,574 for the three months ended June 30, 2012 as compared to net cash provided by operations of $175,876for the three months ended June 30, 2011. The increase in net cash used by operations for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 is primarily as a result of the deconsolidation of Remedent OTC BV at the quarter ending September 2011 and the deconsolidation of our Asian division at the end of January 2012.

 

Investing activities

 

Net cash used in investing activities totaled $20,297 for the three months ended June 30, 2012 as compared to net cash used in investing activities of $49,014 for the three months ended June 30, 2011. Cash used in the three months ended June 30, 2012 was mainly for additional equipment. Cash used in the three months ended June 30, 2011 was mainly for equipment for our new planned GlamSmile Studios.

 

Financing activities

 

Net cash provided by financing activities totaled $402,431 for the three months ended June 30, 2012, as compared to $1,096,603 for the three months ended June 30, 2011.  The decrease in the net cash provided by financing activities in the three month period ended June 30, 2012 of $694,172 was primarily as a result of our increased use of our line of credit offset by last year’s increased long term debt of $ 1,000,000.

 

During the three months ended June 30, 2012 and June 30, 2011, we recognized (decrease) in cash and cash equivalents of $(49,581) and $89,697, respectively, from the effect of exchange rates between the Euro and the US Dollar.

 

Off-Balance Sheet Arrangements

 

At June 30, 2012, we did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Not Applicable.

 

 

Item 4.  Controls and Procedures

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the required time periods and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objective, and management is required to exercise its judgment in evaluating the cost-benefit relationship of possible controls and procedures..

 

Management conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2012.  Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2012.

 

Changes in Internal Control Over Financial Reporting

 

There have been no material changes in our  internal controls over financial reporting identified in connection with the evaluation of disclosure controls and procedures discussed above that occurred during the quarter ended June 30, 2012 or subsequent to that date that have materially affected, or are reasonably likely to materially affect, our  internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

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

 

Item 1A.  Risk Factors

 

Not Applicable.

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

Item 4.  [Removed and Reserved]

 

Item 5.  Other Information

 

None.

 

 

Item 6.  Exhibits

 

EXHIBIT INDEX

 

Exhibit No		Description
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
101.SCH**		XBRL Taxonomy Extension Schema
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase
101.DEF**		XBRL Taxonomy Extension Definition Linkbase
101.LAB**		XBRL Taxonomy Extension Label Linkbase
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase

 

 

* Filed herewith

 

**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.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	REMEDENT, INC.
Date:    August 14, 2012	By:	/s/ Guy De Vreese
		Name:	Guy De Vreese
		Title:	Chief Executive Officer
			(Principal Executive Officer)
Date:    August 14, 2012	By:	/s/ Philippe Van Acker
		Name:	Philippe Van Acker
		Title:	Chief Financial Officer
			(Principal Accounting Officer)