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Remedent, Inc. – ‘10-Q’ for 9/30/19

On:  Thursday, 11/14/19, at 4:32pm ET   ·   For:  9/30/19   ·   Accession #:  1104659-19-64260   ·   File #:  1-15975

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/14/19  Remedent, Inc.                    10-Q        9/30/19   67:4.1M                                   Toppan Merrill/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    206K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     26K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     26K 
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54: R3          Consolidated Balance Sheets (Parenthetical)         HTML     45K 
18: R4          Consolidated Statements of Operations               HTML     95K 
38: R5          Consolidated Statements of Comprehensive Income     HTML     42K 
                (Loss)                                                           
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53: R7          Description of the Company and Basis of             HTML     28K 
                Presentation                                                     
17: R8          Summary of Significant Accounting Policies          HTML     62K 
40: R9          Long-Term Investments                               HTML     87K 
49: R10         Concentration of Risk                               HTML     26K 
56: R11         Accounts Receivable and Allowance for Doubtful      HTML     35K 
                Accounts                                                         
37: R12         Inventories                                         HTML     42K 
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48: R14         Property and Equipment                              HTML     40K 
55: R15         Due to Related Parties and Related Party            HTML     23K 
                Transactions                                                     
36: R16         Accrued Liabilities                                 HTML     50K 
15: R17         Equity Compensation Plans                           HTML    106K 
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31: R20         Financial Instruments                               HTML    109K 
26: R21         Summary of Significant Accounting Policies          HTML     79K 
                (Policies)                                                       
46: R22         Summary of Significant Accounting Policies          HTML     44K 
                (Tables)                                                         
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                Accounts (Tables)                                                
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                financial statements and prepared under US GAAP                  
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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 September 30, 2019

¨ 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)

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 every Interactive Data File required to be submitted 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 such files).

Yes x                               No ¨

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

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

Yes ¨                                No x

The number of common shares of registrant’s stock outstanding as of November 14, 2019 was 19,995,969.

REMEDENT, INC.

FORM 10-Q INDEX

PART I – FINANCIAL INFORMATION

Item 1.

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

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

REMEDENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

REMEDENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company is a manufacturer and distributor of cosmetic dentistry products, including a full line of professional dental tooth whitening products which are distributed in Europe, Asia and the United States. The Company manufactures many of its products in Ghent, Belgium as well as outsourced manufacturing in Beijing, China.  The Company distributes its products using both its own internal sales force and through the use of third party distributors.

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

The Company’s financial statements have been prepared on an accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.

These financial statements of the Company are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Despite the net profit for the accounting years ending March 31, 2019, March 31, 2018 and March 31, 2017, the accumulated losses of the past affect the financial situation of the Company. The continuation of the Company as a going concern is dependent upon the Company’s ability to continue to generate profitable operations. As of September 30, 2019, the Company had a working capital deficit of $1,808,246, and an accumulated deficit of $18,067,902. Additional funding may be required in order to support the Company’s operations and the execution of its business plan.

There can be no assurance that the Company will be successful in raising the required capital or that it will ultimately attain a successful level of operations. 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 28, 2019 with the SEC.

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 September 30, 2019.

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, 2019, except as may be indicated below:

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 and six months ended September 30, 2019, are not necessarily indicative of the results that may be expected for the year ended March 31, 2020. Accordingly, your attention is directed to footnote disclosures found in the Annual Report on Form 10-K for the year ending March 31, 2019, and particularly to Note 2, which includes a summary of significant accounting policies.

Basis 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), Condor North America LLC, a Nevada Corporation, Remedent N.V.’s 50 % owned subsidiary, Biotech Dental Benelux N.V., a Belgium private company located in Ghent, Remedent N.V.’s 51% owned subsidiary, GlamSmile Deutschland GmbH, a German private company located in Munich (effective March 31, 2014 this subsidiary is inactive), Remedent N.V.’s 80 % owned subsidiary, GlamSmile Rome, an Italian private company located in Rome (effective March 31, 2014 this subsidiary is inactive).

Remedent N.V. owns 21.51% of Glamsmile Dental Technology Ltd., a Cayman Islands company (“Glamsmile Dental”). The subsidiaries of Glamsmile Dental include: Glamsmile (Asia) Limited, a company organized and existing under the laws of Hong Kong, 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% owned Shanghai Glamsmile Dental Clinic Co., Ltd., its 100% owned Guangzhou 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); In addition, a 3.03% ownership interest in Condor Technologies N.V. ( a Belgium private company) and a 26.09% ownership interest in Metrics in Balance N.V. (a Belgium corporation).

Remedent, Inc. is a holding company with headquarters in Ghent, Belgium. Remedent Professional, Inc. and Remedent Professional Holdings, Inc. have been dormant since inception.

For all periods presented, all significant inter-company accounts and transactions have been eliminated in the consolidated financial statements and corporate administrative costs are not allocated to subsidiaries.

Warranties

The Company typically warrants its products against defects in material and workmanship for a period of 24 months from shipment.

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

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 $5,445 and $5,619 as of September 30, 2019 and March 31, 2019, 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 September 30, 2019 and March 31, 2019, the Company had 19,995,969, shares of common stock issued and outstanding.  The Company did not have any warrants or options outstanding at either of September 30, 2019 or March 31, 2019.

Conversion of Foreign Currencies

The reporting and functional currency for the consolidated financial statements of the Company is the U.S. dollar. The home currency for the Company’s European subsidiaries, Remedent N.V., Biotech Dental Benelux N.V., Metrics in Balance N.V. , GlamSmile Rome and GlamSmile Deutschland GmbH, is the Euro, for Glamsmile Asia Ltd., and its subsidiaries, the Hong Kong dollar and the Chinese Renmimbi (“RMB”) for Mainland China. The assets and liabilities of companies whose functional currency is other that the U.S. dollar are included in the consolidation by translating the assets and liabilities at the exchange rates applicable at the end of the reporting period. The statements of income of such companies are translated at the average exchange rates during the applicable period. Translation gains or losses are accumulated as a separate component of stockholders’ equity.

Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes in equity except those resulting from investments by owners and distributions to owners, including accumulated foreign currency translation, and unrealized gains or losses on ‘Available For Sale (AFS)’ securities. During the six months ended September 30, 2019 and 2018 the Company did not record any unrealized gains or losses on AFS securities.

The Company’s only component of other comprehensive income is the accumulated foreign currency translation consisting of gains of $12,264 and $16,376 for the six months ended September 30, 2019 and 2018, respectively. These amounts have been recorded as a separate component of stockholders’ equity (deficit).

Recent Accounting Pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (the “FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification.

The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s consolidated financial position and results of operations.

Adopted Accounting Pronouncements

In February 2016, the FASB established ASU Topic 842 – Leases, by issuing ASU Topic No. 2016-02 (“Topic 842”), which requires lessees to recognize lease on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU Topic 2018-11 – Targeted Improvements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and a lease liability for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.

The Company adopted Topic 842 in the first quarter of 2019 utilizing the modified retrospective transition method and a cumulative effect adjustment at the beginning of the first quarter of 2019. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date, and (3) initial direct costs for any existing leases as of the adoption date. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of the right-to-use assets. The adoption of Topic 842 resulted in the recognition of right-of use assets of approximately $180,926 and lease liabilities for operating leases of approximately $180,926 and no cumulative effect adjustment on retained earnings on its unaudited Consolidated Balance Sheets or material impact to its unaudited Consolidated Statements of Operations and Comprehensive Loss in the period of adoption. Right-of-use assets are included in Prepaid and other assets, and lease liabilities are included in Accrued liabilities in the unaudited consolidated balance sheet for the period ended September 30, 2019. See Note 13 — Leases, for additional information.

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:

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.

On January 30, 2014, the Company has sold a total of 2,500,000 ordinary shares of its investment in GlamSmile Dental Technology Ltd for $3,000,000 and recognized a gain on the sale in the amount of $1,582,597.

Effective March 31, 2014 the Company has retained a 21.51% ownership in GlamSmile Asia Ltd. 

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:

For the six month periods ended September 30, 2019 and September 30, 2018 the Company recorded equity (loss) income of $19,573 and $34,398 respectively as “Other (expenses) income” for its portion of the net income recorded by GlamSmile Dental Technology Ltd.

The following tables represent the summary financial information of GlamSmile Asia as derived from its financial statements and prepared under US GAAP:

CONDOR TECHNOLOGIES (formerly Medical Franchises & Investments”)

Effective March 31, 2013, the Company acquired 6.12% of the issued and outstanding shares of Condor Technologies NV (formerly Medical Franchises & Investments N.V.), a Belgium corporation in exchange for a cash prepayment of $314,778 that was made during the fiscal year ended March 31, 2012. The Company’s investment in 70,334 shares of MFI NV has been recorded at the fair value of $787,339 which is the quoted market price of approximately USD $11.19 (€8.70) per share. As a result of our adoption of ASU 2016-01, the investment is being recognized as a financial instrument with a readily determinable fair value and an unrecognized loss of $(42,973) has been recorded in income due to the fair value per share at March 31, 2019, being $18.99 (€16,90) per share. The fair value per share at September 30, 2019 was $16,33 (€15,00) per share, resulting in a loss of $(186,879) which was recorded in income. Further, as a result of our adoption of ASU 2016-01, we have recorded a transition date adjustment as at April 1, 2018 to reclassify the unrecognized profit of $178,361 recorded in 2018 from other comprehensive income to deficit.

MFI NV has been founded to market an advance in dental technology which has the potential to replace the process of making mechanical impressions of teeth and bite structures with a digital/optical scan.

METRICS IN BALANCE N.V.

Effective November 22, 2018, the Company acquired 63,112 shares or 3.08% of the issued and outstanding shares of Metrics in Balance N.V., a Belgium Corporation (“MIB”). As of March 29, 2019, our 60% ownership of SmileWise was merged into MIB, and we converted cash payments to MIB of $123,912 (€ 110,271) to MIB shares; resulting in an increased in our shareholding of MIB by 1,082,190 shares to a total of 1,145,302 or 26.09%. MIB listed on the Euronext, Paris, France in March 2018 and trading has been minimal to date. Consequently, the quoted market price has not been disclosed because it may not be representative of the fair value of our investment. MIB has been founded to allow healthcare and dental professionals to determine the relationship between malocclusion and posture problems thereby enabling therapy to improve quality of life.

As a result of the increase in share ownership the Company has determined that significant control exists and consequently the investment is being recorded as an equity investment and all gains or losses are recorded in income.

During the year ended March 31, 2019 we recorded $2,832,822 in equity income comprised of a gain on merger of SmileWise in the amount of $3,007,301 resulting from the re-measurement of the value of SmileWise, offset by an equity loss of $174,479. SmileWise was fair valued using an average of discounted cash flow and comparable exit methods employing the following inputs: discounted cash flows using a weighted average cost of capital (“WAAC”) of 23%; software as a service (“SaaS”) multiples, dental industry multiples and mergers and acquisition (“M&A”) multiples of between 5.1 and 18.5. As at March 31, 2019 unrealized net gains on our investment in MIB were $2,832,822. As at September 30, 2019, we recorded a net loss for the three and six months ending September 30, 2019 of $(868) and $(3,646) respectively, reflecting Remedent’s 26.09%.

The following table represents the summary financial information of MIB as derived from its financial statements and prepared under US GAAP:

SMILEWISE CORPORATE B.V.B.A.

Effective April 16, 2018, the Company acquired 60% of the issued and outstanding shares of SmileWise Corporate B.V.B.A., a Belgium corporation (“SmileWise’) in exchange for a cash payment of $2,592 (€2,226) that was made during April 2018. As of March 29, 2019, 100% of SmileWise was merged into MIB. This merger/integration was completed because SmileWise needed a new ‘practice-building’ clinical concept and MIB needed a team to fill the clinics with patients. SmileWise is a dental marketing agency and software developer catering to dentists.

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 September 30, 2019, five customers accounted for 12.94% of the Company’s trade accounts receivables, and two customers accounted for 6.91%.  At September 30, 2018, five customers accounted for 87.49% of the Company’s trade accounts receivables, and two customers accounted for 81.08%.    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 six months ended September 30, 2019 the Company had five suppliers who accounted for 46.88% of accounts payable. For the six months ended September 30, 2018 the Company had five suppliers who accounted for 49.10% of accounts payable.

Revenues —  For the six months ended September 30, 2019 the Company had five customers that accounted for 41.8% of total revenues. One of the five customers accounted for 10.33% of total revenues. For the six months ended September 30, 2018 the Company had five customers that accounted for 84.02% of total revenues. One of the five customers accounted for 30.35% of total revenues.

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

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

Prepaid expenses and other assets are summarized as follows:

Property and equipment are summarized as follows:

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

Compensation:

During the six month periods ended September 30, 2019 and 2018 respectively, the Company incurred $96,379 and $99,163 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 and reflects arms’ length consideration payable for similar services or transfers.

Accrued liabilities are summarized as follows:

As of September 30, 2019, the Company had two equity compensation plans approved by its stockholders (1) the 2004 Incentive and Non-statutory Stock Option Plan (the “2004 Plan”); and (2) the 2007 Equity Incentive Plan (the “2007 Plan”). The Company’s 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 previously 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 September 30, 2019 with respect to all compensation plans (including individual compensation arrangements) under which equity securities are authorized for issuance.

A summary of the Company’s equity compensation plans approved and not approved by shareholders is as follows:

For the six month periods ended September 30, 2019 and September 30, 2018 the Company has not recognized any stock based compensation expense in the consolidated statement of operations.  No stock options were granted or cancelled in the six month periods ended September 30, 2019 and September 30, 2018.

The Company’s only operating segment consists of dental products and oral hygiene products sold by Remedent Inc., Condor North America LLC., Remedent N.V., Metrics in Balance N.V. and Biotech Dental Benelux N.V. Our operations are primarily in Europe and Asia and 100% of our sales for the six months ended September 30, 2019 and 100.00% of our sales for the six months ended September 30, 2018 were generated from customers outside of the United States.

The Company enters into operating leases primarily for real estate, office equipment and vehicles. Lease terms generally range from four to nine years. On April 1, 2019, the Company adopted Topic 842, using the modified-retrospective approach as discussed in Note 2, and as a result, recognized a right-of-use asset of $170,898 and a lease liability of $170,898. No cumulative-effect adjustment to retained earnings was required upon adoption of Topic 842. Right-of use-assets are recorded in prepaid expenses and other current assets and lease liabilities are recorded in accrued liabilities or other liabilities depending on whether they are current or noncurrent.. The Company uses a 12% rate to determine the present value of the lease payments.

Information related to the Company’s right-of-use assets and related liabilities were as follows:

The Company excludes short-term leases (those with lease terms of less than one year at inception) from the measurement of lease liabilities or right-of-use assets.

Maturities of lease liabilities as of September 30, 2019, were as follows:

As of September 30, 2019, right-of-use assets were $134,284 and lease liabilities were $134,284. During the six months ended September 30, 2019, the Company did not enter into any new lease arrangements, and did not have any arrangements that had not yet commenced.

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:

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 three month period ended September 30, 2019. 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):

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 September 30, 2019 and September 30, 2018. 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 September 30, 2019.  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 13, 2018 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 September 30, 2019. The information contained in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019 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:

Net Sales

Net sales decreased by approximately 30.0% to $242,070 for the three months ended September 30, 2019 as compared to $345,640 for the three months ended September 30, 2018.  The decrease in sales is primarily due to the operational change in our GlamSmile division. We are now receiving a royalty payment from our Belgium customers based on quarterly production, rather than invoicing on a finished good basis, thereby providing our customers with more flexibility and ensuring we are paid on a timely basis for each veneer produced. The decrease in sales is also partially due to the reduced sales of our Condor 3D Scanner in the North American market. In anticipation of our additional tool for the Condor 3D Scanner, which will be an easy-to-use addition (with none to minimum additional user training required) to the already existing Condor 3D Scanner and which will be available by the year-end, we reduced our active approach in the US market.

Net sales decreased by approximately 29.3% to $552,034 for the six months ended September 30, 2019 as compared to $780,488 for the six months ended September 30, 2018.  Net sales decreased in the six months ended September 30, 2018 for the same reason as the three month variance.

Cost of Sales

Cost of sales decreased approximately 41.8% to $67,863 for the three months ended September 30, 2019 as compared to $116,536 for the three months ended September 30, 2018.  The decrease in cost of sales is primarily due to the operational change in our GlamSmile division as we changed our profit model for the Belgium customers to a royalty income, resulting in decreased cost of sales. Also, the reduced sales of our Condor 3D Scanner (in anticipation of the launch of our additional tool, the “Condor Flash”) has also decreased our cost of sales.

Cost of sales decreased approximately 34.8% to $144,870 for the six months ended September 30, 2019 as compared to $222,070 for the six months ended September 30, 2018. Cost of sales decreased mainly because of decreased sales.

Gross Profit

Our gross profit decreased by $54,897 or 24.0% to $174,207 for the three months ended September 30, 2019 as compared to $229,104 for the three months ended September 30, 2018 due to the reduced sales described above. Our gross profit as a percentage of sales increased to 71.97% in the three months ended September 30, 2019 as compared to 66.28% for the three months ended September 30, 2018.

Our gross profit decreased by $151,254 or 27.1%, to $407,164 for the six months ended September 30, 2019 as compared to $558,418 for the six months ended September 30, 2018 primarily because of decreased sales.

Operating Expenses

Research and Development.  Our research and development costs were nil for each of the three months ended September 30, 2019 and 2018 and for the six months ended September 30, 2019, and $120 for the six months ended September 30, 2018. Our research and development expenses have decreased because of the finalization of our Software program the “Smile me Mirror”.

Sales and marketing costs. Our sales and marketing costs for the three months ended September 30, 2019 and 2018 were $93,560 and $141,473 respectively, representing a decrease of $47,913 or 33.9%. The decrease is largely due to decreased attendance at trade shows and reduced travelling due to our reduced active approach in the US market.

Our sales and marketing costs decreased by $135,074 or 40.3% to $200,298 for the six months ended September 30, 2019 as compared to $335,372 for the six months ended September 30, 2018 mainly because of our reduced advertising and marketing costs in reference to the new and additional Condor 3D Scanner tool.

General and administrative costs. Our general and administrative costs for the three months ended September 30, 2019 and 2018 were $158,039 and $175,354 respectively, representing a decrease of $17,315 or 9.9%. The decrease in general and administrative costs is largely due to increased synergy between our internal divisions as a result of ongoing internal reorganization.

Our general and administrative costs for the six months ended September 30, 2019 and 2018 were $328,995 and $442,821 respectively, representing a decrease of $113,826 or 25.7%.  The decrease in general and administration costs is largely due to increased synergy between our internal divisions as a result of ongoing internal reorganization.

Depreciation and amortization.   Our depreciation and amortization decreased $5,786 or 23.2% to $19,134 for the three months ended September 30, 2019 as compared to $24,920 for the three months ended September 30, 2018. 

Our depreciation and amortization was $41,569 for the six months ended September 30, 2019 versus $49,335 for the six months ended September 30, 2018.

Other income (expense).   Our other income / (expense) was ($72,721) for the three months ended September 30, 2019 as compared to $29,539 for the three months ended September 30, 2018, an increase in expense of $102,260. The increase in other expense was primarily as a result of decreased equity income from our investments.

Our net other income / (expense) decreased by $201,186 to ($171,350) for the six months ended September 30, 2019 as compared to $29,836 for the six months ended September 30, 2016, for the same reason as the three month variance.

Internal and External Sources of Liquidity

As of September 30, 2019, we had current assets of $891,691 compared to $655,933 at March 31, 2019. This increase of $235,758 was primarily due to an increase in cash of $18,271, an increase in accounts receivable of $209,318, and an increase in inventories of $17,953 offset by a decrease in prepaid expense and other current assets of $9,784.

As of September 30, 2019, we had cash and cash equivalents of $84,810. 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 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 September 30, 2019 reflects cash and cash equivalents of $84,810 as compared to $66,539 as of March 31, 2019, an increase of $18,271.

Operations

Net cash provided (used) by operations was $(21,074) for the six months ended September 30, 2019 as compared to ($29,687) the six months ended September 30, 2018. The decrease in net cash used by operations for the six months ended September 30, 2019 as compared to the six months ended September 30, 2018 is primarily as a result of a $95,654 increase in net loss offset by non-cash adjustments to net loss and working capital adjustments of $104,267.

Investing activities

Net cash provided by investing activities totaled $nil for the three months ended September 30, 2019, as compared to $nil for the three months ended September 30, 2018.  

Financing activities

Net cash provided by financing activities totaled $nil for the three months ended September 30, 2019, as compared to $nil for the three months ended September 30, 2018.  

During the three months ended September 30, 2019 and September 30, 2018, we recognized an increase / (decrease) in cash and cash equivalents of $39,345 and ($8,069), respectively, from the effect of exchange rates between the Euro and the US Dollar.

Off-Balance Sheet Arrangements

At September 30, 2019, 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 September 30, 2019.  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 September 30, 2019.

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 September 30, 2019 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

* Filed herewith

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.

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing		Date		Other Filings
		9/30/20
		3/31/20		10-K
Filed on:		11/14/19
For Period end:		9/30/19
		7/28/19
		4/1/19
		3/31/19		10-K
		3/29/19
		11/22/18
		9/30/18		10-Q
		7/13/18		10-K
		6/30/18		10-Q
		4/16/18
		4/1/18
		3/31/18		10-K,  NT 10-K
		3/31/17		10-K
		9/30/16		10-Q
		3/31/15		10-K
		3/31/14		10-K,  NT 10-K
		1/30/14
		3/31/13		10-K,  NT 10-K
		3/31/12		10-K,  NT 10-K
		2/10/12		8-K
		1/31/12
		1/28/12		8-K
		1/20/12
		6/27/11
		3/31/11		10-K,  NT 10-K
		3/31/10		10-K,  10-K/A,  NT 10-K
		1/1/10
		4/1/09
		8/24/08		8-K,  8-K/A
		10/2/07		DEF 14A
		5/9/05		DEF 14C
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Filing Submission 0001104659-19-064260   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

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