Annual Report — Small Business — [x] Reg. S-B Item 405 — Form 10-KSB
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10KSB40 Annual Report -- Small Business -- [x] Reg. S-B 45 197K
Item 405
2: EX-3.2 Articles of Incorporation/Organization or By-Laws 3 10K
3: EX-3.3 Articles of Incorporation/Organization or By-Laws 4 12K
4: EX-3.4 Articles of Incorporation/Organization or By-Laws 2 10K
5: EX-3.5 Articles of Incorporation/Organization or By-Laws 3 11K
6: EX-3.6 Articles of Incorporation/Organization or By-Laws 3 11K
7: EX-3.7 Articles of Incorporation/Organization or By-Laws 3 10K
8: EX-10.15 Material Contract 9 36K
9: EX-10.16 Material Contract 15 55K
10: EX-10.17 Material Contract 4 14K
11: EX-21.1 Subsidiaries of the Registrant 2 5K
10KSB40 — Annual Report — Small Business — [x] Reg. S-B Item 405
Document Table of Contents
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2001
or
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 001-15975
REMEDENT USA, INC.
(Name of small business issuer as specified in its charter)
NEVADA 86-0837251
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1220 BIRCH WAY
ESCONDIDO, CALIFORNIA 92027
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(Address of principal executive offices) (Zip code)
(760) 781-3333
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(Issuer's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.001 per share
Check whether Registrant (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
the Form 10-KSB. [X]
Registrant's revenues for its fiscal year ended March 31, 2001, were $436,448.
As of June 25, 2001, Registrant had 13,187,316 shares of its $.001 par value
Common Stock issued and outstanding with an aggregate market value of the common
stock held by non-affiliates of $1,727,745. This calculation is based upon the
closing sales price of $0.28 per share on June 25, 2001.
Transitional Small Business Disclosure Format (check one). Yes [ ] No [X]
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TABLE OF CONTENTS
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PART I PAGE
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Item 1 Description of Business 1
Item 2 Properties 10
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a Vote of Security Holders 10
PART II
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Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 11
Item 6 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 7 Financial Statements 15
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
PART III
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Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 16
Item 10 Executive Compensation 18
Item 11 Security Ownership of Certain Beneficial Owners and
Management 19
Item 12 Certain Relationships and Related Transactions 20
Item 13 Exhibits and Reports on Form 8-K 23
Financial Statements F-1
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
(a) HISTORY AND ORGANIZATION
Remedent USA, Inc. was incorporated under the laws of Arizona in
September 1996. We were initially formed for the purposes of developing,
marketing and distributing the Remedent Toothbrush, a new single-handle
toothbrush, gumbrush and tongue cleaner designed to improve oral care at an
affordable price. Remedent USA, Inc. is the successor entity resulting from an
October 2, 1998 reorganization with Resort World Enterprises, Inc., a
non-operating public company incorporated under the laws of Nevada, whose stock
was traded on the over-the-counter bulletin board ("OTC BB") market. Through
articles of merger filed with the states of Nevada and Arizona, 100% of the
issued and outstanding shares of Remedent were exchanged for approximately 79%
of the issued and outstanding shares of common stock of Resort World
Enterprises. The terms of the Stock Exchange Agreement required: (i) that all of
the officers and directors of Resort World Enterprises resign and that the
officers and directors of Remedent prior to the merger be appointed as the
officers and directors of the surviving company; and (ii) that the name of
Resort World Enterprises be changed, through the filing of an Amendment to the
Articles of Incorporation, to Remedent USA, Inc. Consequently, we, as the
surviving company, are now known as and conduct business under the name of
Remedent USA, Inc. Since our inception, neither our predecessor nor us have been
a party to any bankruptcy, receivership or similar proceeding.
(b) OUR BUSINESS
Our primary product, the Remedent Tooth and Gumbrush ("Remedent
Toothbrush") combines a toothbrush, gumbrush and tongue cleaner into a single
instrument. It was invented and developed in Europe under the direction of Jean
Louis Vrignaud over a four year period beginning in 1992. All rights, title and
interest in the Remedent Toothbrush were assigned to Remedent USA, Inc. by Mr.
Vrignaud, for the purposes of developing, producing and marketing this product
worldwide. Our initial marketing efforts included direct marketing to dental
professionals, a formulated marketing campaign through Double Eagle Market
Development Company in the Northwestern states and a promotional mail-out
consisting of the Remedent Toothbrush on educational videos, coupons and
brochures. Our agreement with this company was canceled in July of 2000
The Remedent Toothbrush is a multi-purpose brush consisting of a
twin-headed gumbrush on one end and a toothbrush with an underside tongue
cleaner on the other. The triple action of the Remedent Toothbrush targets the
gums, teeth and tongue, thus improving the odds for better overall oral hygiene,
and is strategically priced within the premium toothbrush segment, approximately
$3.29 to $5.00.
We consider the toothbrush portion of the Remedent Toothbrush to be
equal to or better than other high premium toothbrushes as it incorporates what
we believe to be the best features of all other high quality brushes. The wide
design embodies a greater number of bristles designed to provide effective
plaque removal in less time. However, unlike other toothbrushes on the market,
the Remedent Toothbrush also features a tongue cleaner and gumbrush. The
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tongue cleaner is designed to draw the plaque off the tongue which has been
loosened by brushing, while the gumbrush portion consists of facing twin brushes
with bristle configuration designed to provide a simultaneous and thorough
cleaning of the gums.
In addition to the Remedent Toothbrush, we are currently working on the
development of eight additional products for distribution within the oral
hygiene market. These include new manual brushes with additional cosmetic and
ergonomic features, electronic toothbrushes for both adults and children, and
floss dispensers. We plan to release one new product into the market
approximately every nine months, the first of which is planned for release in
June 2002. The development of our future products depends entirely on our
ability to generate sufficient cash flows from our current product or the
ability to raise additional financing.
As a result of our net losses incurred since inception, working capital
deficit, and doubt about our ability to continue as a going concern, we have
reassessed our operations and business structure and have implemented a
corporate restructuring plan. This plan entails the possible ceasing of direct
sales and marketing of our Remedent Toothbrush, and acquisition of and expansion
into diversified business ventures.
To reduce overhead and operating costs, we are reviewing the
possibility of ceasing the direct sales and marketing of our Remedent
Toothbrush, and licensing the product and related technology to a third party
marketer and distributor. This would eliminate all cash requirements for this
product, as the licensor would support the requisitioning, marketing and
distribution of the product. We are currently in negotiations with a
well-established oral care distributing company, and are attempting to finalize
an agreement prior to the beginning of the second quarter 2002.
As discussed above, we will continue to develop additional products for
distribution within the oral hygiene market, and will analyze whether to license
the related technology or distribute in-house, on a case-by-case basis.
Additionally, we are currently in negotiations for the acquisition of a
professional employer organization ("PEO") which we also hope to finalize prior
to the beginning of the second quarter 2002. PEO firms manage payroll and human
resource functions as well as provide health, unemployment and workers
compensation insurance for small and mid-size businesses. These firms allow
these smaller businesses to shift legal risk, lower administrative costs, and
obtain lower insurance rates as part of the firm's group of customers.
We hope to complete additional PEO acquisitions within the next twelve
months, and attempt to improve on industry operating results through the
introduction of additional products and services, and efficient consolidation
and integration of these entities.
Our first target is a family owned and operated firm with growing
revenues and current-year profitable operations. The proposed acquisition will
be entirely for stock and will require minimal capital investment, as current
management will remain intact.
On July 1, 2001 we will also begin developing, manufacturing, marketing
and distributing high-technology dental equipment. We have retained 14
additional personnel, seven engineers and seven operations and finance, with
strong backgrounds in the business of high-technology dental equipment. We will
market dental curing and whitening lamps, interoral cameras and
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hand-held penlights. We plan to introduce these products in October 2001. In
connections with this new business, we have formed three wholly-owned
subsidiaries, Remedent Professional Holdings, Inc. ("RPH"), Remedent
Professional, Inc. ("Remedent Professional") and Remedent NV. RPH will act as
the holding company, owning 100% of Remedent Professional, which will market and
distribute domestically, and Remedent NV, which will market and distribute
internationally.
Our objectives are to become a leading developer and manufacturer of
high-technology dental equipment and oral hygiene products, and operator of PEO
organizations in the United States. We believe our restructuring plan positions
us for these objectives. Our marketing strategy will focus on enhancing the
reputation of our existing product as well as establishing a reputation for our
new products, increasing market penetration, and continuing to develop
additional products.
(c) Competition
The oral hygiene and dental products markets are intensely competitive.
Within the oral hygiene market, there are currently more than 200 competitors,
while within the dental products market, there are at least 12 companies which
offer dental curing and whitening lamps and interoral cameras. Our competitors
have greater financial and other resources, and, consequently, are better able
to market and generate consumer awareness of their product.
Within the oral hygiene market, we compete with other companies
primarily on the basis of price and utility, with our principal competitors
being Colgate-Palmolive, Gillette, Johnson & Johnson, Proctor & Gamble, Smith
Kline, Beecham and Mentadent.
Within the dental products market, we will be competing with other
companies primarily on the basis of price, technology, customer service and
value-added services, with our principal competitors being Patterson Dental Co.,
Henry Schein, Inc., Dentsply, Ultrak, Air Techniques, Kreativ Products, American
Dental Technologies and Argon Laser.
Within the PEO market, we will be competing with other organizations
primarily on the basis of price, insurance rates and value-added services, with
our principal competitor being Administaff.
(d) Business Strategy
Currently, we compete in the premium quality segment of the
toothbrush/oral hygiene industry and by October 2001, will begin marketing
products within the high-technology dental equipment market, both highly
competitive markets. To compete in these markets, our business strategy is to:
- Strengthen and broaden core brands through marketing
and advertising, product development and
manufacturing;
- Emerge with cutting-edge technology.
- Expand our presence in all markets in which we
compete and enter new markets where there are
opportunities for growth; and
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- Continue to reduce costs and manage working capital,
and improve operating efficiencies, customer service
and product quality.
(e) Marketing Strategies
As our restructuring plan is implemented, there will be a corresponding
adjustment to our current marketing strategy. As we will no longer be marketing
our Remedent Toothbrush, our focus will shift to our dental equipment and PEO
business. Within the dental equipment market, we will market our technology
through dental distributors, sharing the marketing efforts with these
distributors through attendance at dental conferences and a combination of
direct mail solicitations, professional publications and website-based
advertising.
We have retained a business advisory group to assist us with our
planned acquisitions within the PEO industry and locating an organization to
assist us in formulating a full advertising and marketing campaign.
As we develop additional products within the oral hygiene market, we
will follow prior marketing strategies, including the focus on package design,
direct contact with dental professionals and employment of marketing
specialists.
Currently, we market our product directly to dental professionals and
through retail outlets. Establishing a presence within retail outlets requires
broker representation. In March 1996, we entered into a sales broker agreement
with B & R Marketing Company, which expired in February 1999. As sales over the
three-year period were remaining constant, management felt it was necessary at
that time to engage another firm that could better meet our marketing needs.
Therefore, on March 10, 1999 we entered into an exclusive marketing
representation agreement with Double Eagle Market Development Company. The
agreement contemplated a six month term with automatic renewal, unless
terminated by either party no later than sixty days prior to the end of any
specific six month period. An initial consultant fee of $10,000 was paid upon
signing of the contract, and each month thereafter Double Eagle was to receive a
minimum guarantee of $4,000, which was offset partially or entirely by a 6% fee
commission earned on net invoiced wholesale orders placed with the Company by
Double Eagle.
Double Eagle hired outside brokers to solicit and serve the customers
in the territory in a manner that maximizes our sales. Those outside brokers are
compensated with an additional and separate 5% fee commission for all net
invoiced sales generated directly by their firm.
At the suggestion of Double Eagle, we re-designed the package in an
effort to present the toothbrush in an attractive, eye catching manner and
hopefully provide increased visibility of the toothbrush over other toothbrush
packages on the shelf. A tube-type package was re-developed, including
tamper-proof features. Both the old blister pack and the new tube package, which
also serves as a travel tube, are currently sold in US stores, with the blister
pack slowly being phased-out.
In July 2000, the agreement was cancelled by both parties. We had
incurred $84,000 in services since the commencement of the agreement, and
maintain an accrued balance payable of $61,000 as of March 31, 2001. Despite the
primary agreement being cancelled, we continue to maintain relationships with
certain of the outside brokers hired by Double Eagle and continue to generate
revenue from these sources.
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In connection with our entry into the high-technology dental equipment
market, we have opened an office within Belgium, to allow for direct penetration
into the European market.
Previously, we had not actively approached the international market.
However, several interested international distributors have approached us for
the purpose of purchasing and distributing the Remedent toothbrush in their
markets. The blister-packed brushes are currently selling primarily in four
foreign countries, with Japan as the largest selling country. The other
countries in which we currently have negotiated distribution agreements are:
Israel and Thailand. The percentage of revenue for foreign customers represented
approximately % and 9% of the total revenue for the fiscal year ended March 31,
2001 and 2000, respectively. The following chart shows the revenue from each
country and the respective percentage of our international sales.
INTERNATIONAL SALES FOR FISCAL YEAR END 2001
[Download Table]
(in thousands) Gross
Revenue Percentage
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Israel $210,034 82%
UK 30,540 12%
Thailand 9,028 4%
Japan 7,524 3%
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TOTAL $257,126 100%
We plan an aggressive international marketing effort in the near future, with
the largest anticipated increases in England and Israel.
(f) Distribution Methods
Currently, our oral hygiene products are sold to retailers (consisting
primarily of grocery stores, club stores, and super drug discount stores),
wholesalers, dental professionals, distributors, multi-level marketers and
private individuals.
All toothbrushes are shipped from Hong Kong to Long Beach, California
and then directly on to the "bonded" warehouse of Charles Schayer Company in
Phoenix, Arizona, where they are held until being officially released by US
Customs. Once the product clears Customs in Phoenix, the import tax is paid, and
Schayer may warehouse the product for a nominal fee until needed by the Company
or release it directly to our warehouse in Phoenix.
Prior to January 2000, we leased approximately 1,500 square feet of
office and warehouse space in Scottsdale, Arizona, at which point we relocated
and entered into a three year lease on a new facility in Phoenix, Arizona from
DEK Enterprises, comprising 3,330 square feet of office and warehouse space with
a base rent of $2,065 per month. In February 2001, we relocated again to the
home of one of our officers, Robert Hegemann, also in Phoenix, Arizona. The
Company pays no rent for the use of the space. This facility is currently used
as the fulfillment center for all Remedent products dispatching, eliminating the
need for warehousing fees at Schayer Company, which is currently only used as
our customs clearing broker.
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In accordance with our restructuring plan, if we are successful in
completing the license agreement with the oral care distributing company, our
distribution of these products will cease, as they will assume all marketing and
distribution for these products.
In connection with our entrance into the dental products market, we
continue to analyze the most cost-effective manufacturing and distribution
methods. The projected method will entail turn-key manufacturing with major
suppliers and distribution through third-party fulfillment centers. This will
provide highly predictable and controllable cost of sales and essentially
eliminate all indirect manufacturing overhead costs.
(g) Principal Suppliers
We do not have the capability to manufacture, nor do we anticipate
establishing the capacity to manufacture our products. While we currently
purchase equipment and inventory from multiple vendors, which we believe will
enable us to meet our current and anticipated operational requirements, we can
provide no assurance that such availability will continue or that the terms will
remain commercially reasonable.
Our existing production facilities are located at the Shummi-Asia
production plant in Shen Zhen, China. Existing production tooling is capable of
processing and packaging 35,000 Remedent Toothbrushes per day or 1,000,000 units
per month, with the ability to double that capacity with a 3-month advance
notice. This production plant acts as our major subcontractor. There are
approximately 15 additional subcontractors throughout the world that have the
same production capacity as the current vendor. We are working to establish
contingency manufacturing capacity in the event that a problem arises with the
current vendor. Our tooling can be moved on very short notice to another
subcontractor, assuring that any break in production needs would be minimal.
All raw materials for our product are of USA origin. Shummi-Asia orders
all raw materials directly from Eastman Chemical Company for the plastic
injection process of the handles. The bristles are made of Dupont Tynex and
ordered directly from Dupont. All product delivered from China is packaged and
store ready. All shipping and display units are purchased from Tharco in
Phoenix, AZ. All raw materials are readily available and we do not anticipate
any significant setbacks in the event that Dupont, Eastman, or Tharco, are
unable to provide the raw materials.
We have contracted with Oral 2000, Ltd., a Hong Kong organization, for
quality control services, as well as all shipping functions, at a rate of
$0.0315 per unit.
(h) Major Customers
Three customers represented approximately 58% of our sales for the
fiscal year ended March 31, 2001. For the year ended March 31, 2000, a separate
set of three customers represented 55% of our sales. As we implement our
restructuring plan and grow our operations, the dependency on major customers
will decrease. Prior to the full implementation of our plan, the loss of any of
these major customers would have a materially adverse effect on our cash flow
and ability to continue as a going concern. In the interim, the importance of
advertising and supporting our primary customers with in-store flyers, coupons
and a variety of promotional programs is crucial to maintaining these customers
and attracting additional
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significant customers. Only our success in raising capital can generate these
types of promotional programs with regularity to create consumer awareness and
increase sales.
(i) Intellectual Property
Our ability to compete effectively within the toothbrush and oral
hygiene market depends, to a large degree, upon the proprietary nature of our
product designs. We rely upon a combination of patents, proprietary technology,
trademarks, trade secrets, and other contractual covenants to establish and
protect our technology and other intellectual property rights. We can provide no
assurance the steps taken to protect intellectual property will be adequate to
prevent misappropriation of that intellectual property, or that our competitors
will not independently develop products substantially equivalent or superior to
our products. We believe our business as currently conducted does not infringe
upon the valid proprietary rights of others, but we can provide no assurance
third parties will not assert infringement claims against us. Defending such
claims can be both expensive and time-consuming, and there can be no assurance
that we will be able to successfully defend against or similarly prosecute an
infringement claim. The loss of such rights (or our failure to obtain similar
licenses or agreements) would have a materially adverse effect on our business,
financial condition, and results of operations.
Eight United States Patents have been issued for the Remedent
Toothbrush (collectively, the "Patents"). In addition, we have been granted
design registrations in Japan and Korea, which expire in 2013 and 2007,
respectively. Our patents relate to manual toothbrushes. Patent #5,758,380
relates to a toothbrush having brushes on both ends of the handle. Patent
#5,934,762 relates to a method of manufacturing our toothbrush. The patents
remaining are design patents covering a number of different variations of our
toothbrush concept.
These patents were assigned to us from Mr. Vrignaud pursuant to the
terms of a Marketing Agreement. Pursuant to a Royalty Agreement, we are
obligated to pay to Mr. Vrignaud a royalty equal to 4 1/2% of our sales based
upon the wholesale price, limited to a maximum of $2,000,000. The assignment of
the patents has been filed with the United States Patent and Trademark Office.
We have also filed trademark applications for the names "Remedent" and "Remedent
Jr." (collectively, the "Trademarks"). On November 1, 1999, Trademarks were also
applied for "The only toothbrush officially endorsed by the tooth fairy" and
"Three heads are definitely better than one."
Within the dental products market, we are developing products which we
believe do not infringe upon any valid existing proprietary rights of third
parties. We will seek patent protection for all technology developed for
distribution within this market.
(j) Governmental Approval
There are no governmental approval requirements for toothbrushes,
however, the FDA requires that we file a registration of exemption for each
product marketed. We are registered as an Initial Distribution and Specification
Developer under the registration number 2030888. The FDA has also assigned to
the Company an Owner/Operator number 9028776. We are required to file an
exemption from FDA review solely based upon the fact that our toothbrushes are
imported. The reference number notes the exemption and facilitates clearance at
customs and simplifies the FDA's process. The registration for exemption expires
December 31, 2001
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and is renewable at no charge by completing a simple form that is automatically
generated by the FDA. We do not anticipate any further requirements or any
future governmental regulations concerning our product.
Upon entrance into the dental products market, we will be marketing products
which are legally defined to be medical devices, therefore, we will be
considered to be a medical device manufacturer and as such is subject to the
regulations of, among other governmental entities, the United States Food and
Drug Administration and the corresponding agencies of the states and foreign
countries in which a Company sells its products. These regulations govern the
introduction of new medical devices, the observance of certain standards with
respect to the manufacture and labeling of medical devices, the maintenance of
certain records and the reporting of potential product problems and other
matters. A failure to comply with such regulations could have material adverse
effects on a Company.
The Federal Food, Drug and Cosmetic Act ("FDC Act") regulates medical
devices in the United States by classifying them into one of three classes based
on the extent of regulation believed necessary to ensure safety and
effectiveness. Class I devices are those devices for which safety and
effectiveness can reasonably be ensured through general controls, such as device
listing, adequate labeling, premarket notification and adherence to the Quality
System Regulation ("QSR") as well as medical device reporting ("MDR"), labeling
and other regulatory requirements. Some Class I medical devices are exempt from
the requirement of pre-market approval or clearance. Class II devices are those
devices for which safety and effectiveness can reasonably be ensured through the
use of special controls, such as performance standards, post-market surveillance
and patient registries, as well as adherence to the general controls provisions
applicable to Class I devices. Class III devices are devices that generally must
receive premarket approval by the FDA pursuant to a premarket approval ("PMA")
application to ensure their safety and effectiveness. Generally, Class III
devices are limited to life sustaining, life supporting or implantable devices;
however, this classification can also apply to novel technology or new intended
uses or applications for existing devices.
Before they can be marketed, most medical devices introduced to the United
States market are required by the FDA to secure either clearance of a pre-market
notification pursuant to Section 510(k) of the FDC Act (a "510(k) Clearance") or
approval of a PMA. Obtaining approval of a PMA application can take several
years. In contrast, the process of obtaining 510(k) Clearance generally requires
a submission of substantially less data and generally involves a shorter review
period. Most Class I and Class II devices enter the market via the 510(k)
Clearance procedure, while new Class III devices ordinarily enter the market via
the more rigorous PMA procedure. In general, approval of a 510(k) Clearance may
be obtained if a manufacturer or seller of medical devices can establish that a
new device is "substantially equivalent" to a predicate device other than one
that has an approved PMA. The claim for substantial equivalence may have to be
supported by various types of information, including clinical data, indicating
that the device is as safe and effective for its intended use as its legally
marketed equivalent device. The 510(k) Clearance is required to be filed and
cleared by the FDA prior to introducing a device into commercial distribution.
Market clearance for a 510(k) Notification submission may take 3 to 12 months or
longer. If the FDA finds that the device is not substantially equivalent to a
predicate device, the device is deemed a Class III device, and a manufacturer or
seller is required to file a PMA application. Approval of a PMA application for
a new medical device usually requires, among other things, extensive clinical
data on the safety and effectiveness of the device. PMA applications may take
years to be approved after they are
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filed. In addition to requiring clearance or approval for new medical devices,
FDA rules also require a new 510(k) filing and review period, prior to marketing
a changed or modified version of an existing legally marketed device, if such
changes or modifications could significantly affect the safety or effectiveness
of that device. FDA prohibits the advertisement or promotion of any approved or
cleared device for uses other than those that are stated in the device's
approved or cleared application.
Generally, if the Company is in compliance with FDA and California
regulations, it may market its medical devices throughout the United States.
International sales of medical devices are also subject to the regulatory
requirements of each country. In Europe, the regulations of the European Union
require that a device have a CE mark before it can be sold in that market. The
regulatory international review process varies from country to country. The
Company, in general, will rely upon its distributors and sales representatives
in the foreign countries in which it markets its products to ensure that the
Company compiles with the regulatory laws of such countries. Failure to comply
with the laws of such country could have a material adverse effect on the
Company's operations and, at the very least, could prevent the Company from
continuing to sell products in such countries. Exports of most medical devices
are also subject to certain limited FDA regulatory controls.
We will ensure all regulations are complied with, all registrations are
performed and all required clearances are received.
(k) Costs and Effects of Compliance with Environmental Laws and
Regulations
We are not involved in a business which involves the use of materials
in a manufacturing stage where such materials are likely to result in the
violation of any existing environmental rules and/or regulations. Further, we do
not own any real property which would lead to liability as a landowner.
Therefore, we do not anticipate that there will be any costs associated with the
compliance of environmental laws and regulations.
(l) Employees
We currently retain 17 personnel worldwide, nine in the United States
and eight in Belgium, which include the 11 which were hired in connection with
our entrance into the dental equipment market. The Company hires independent
contractors on an "as needed" basis only. The Company has no collective
bargaining agreements with its employees. The Company believes that its employee
relationships are satisfactory. Long term, the Company will attempt to hire
additional employees as needed based on its growth rate.
(m) Research and Development
Research and Development (R&D) costs have been minimal. For the fiscal
year ended March 31, 2001, we incurred $80,495 for R&D compared to $60,586 for
the fiscal year ended March 31, 2000. The dramatic increase for fiscal year 2000
reflects expenses for design and development of the new tube-style packaging and
the intensified efforts to develop new products. Because the patented design of
the Remedent Toothbrush was developed under the direction of Mr. Vrignaud, we
have not incurred substantial research and development costs for the Remedent
Toothbrush. Therefore, any research and development costs which have been passed
on to the customers have been minimal. We have, however, established a research
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and development team that will work along with outside consultants to develop
and adopt new products, whereupon we anticipate allocating 3% of our gross
revenues to research and development in the next five years.
ITEM 2 - PROPERTIES
We currently lease three facilities for our operations. Two of these
commitments represent verbal, month-to-month, agreements. In Escondido,
California, we lease approximately 1,000 square feet of office space within the
primary residence of Rebecca Inzunza, an officer and shareholder, for $655 per
month. In Lake Forest, California, we lease approximately 2,400 square feet of
office and warehouse space from an unrelated third party for $2,380 per month.
In Encino, California, we lease two offices within an executive suites office,
on a three-month lease, commencing June 4, 2001, for $1,400 per month.
Additionally, in Phoenix, Arizona, we utilize approximately 300 square
feet within the primary residence of Robert E. Hegemann, an officer and
shareholder, with no required rental payments.
ITEM 3 - LEGAL PROCEEDINGS
To the best knowledge of management, there are no legal proceedings
pending or threatened against the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
Our common stock is quoted on the over-the-counter Pink Sheet under the
trading symbol REMM. The table below shows the high and low bid prices of our
common stock by quarter for the last two years. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
[Enlarge/Download Table]
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Bid Prices
High Low
---------------------------------------------------------------------------------------------
Quarter ended June 30, 1999 1.375 0.750
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Quarter ended September 30, 1999 2.313 0.813
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Quarter ended December 31, 1999 1.500 0.563
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Quarter ended March 31, 2000 0.490 0.090
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Quarter ended June 30, 2000 0.375 0.125
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Quarter ended September 30, 2000 0.490 0.090
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Quarter ended December 31, 2000 0.220 0.060
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Quarter ended March 31, 2001 0.250 0.060
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(b) STOCKHOLDERS
As of June 25, 2001, there were approximately 391 holders of record of
the Company's common stock and 246 beneficial owners whose shares are held by
banks, brokers and other nominees.
(c) DIVIDENDS
The Company has not paid cash dividends on its Common Stock in the past
and does not anticipate doing so in the foreseeable future. The Company intends
to retain future earnings, if any, to fund the development and growth of its
business.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and financial statements contained herein are for the
fiscal years ended March 31, 2001 and 2000. The following discussion regarding
the financial statements of the Company should be read in conjunction with the
financial statements of the Company included herewith.
OVERVIEW
The Company develops, markets and distributes toothbrushes and oral
hygiene products.
11
RESULTS OF OPERATIONS
Comparative details of results of operations for the years ending March
31, 2001 and 2000.
[Download Table]
YEAR ENDING YEAR ENDING
MARCH 31, 2001 MARCH 31, 2000
---------------- -------------------
NET SALES $ 436,448 $ 448,459
COST OF SALES 154,848 161,375
---------- -----------
GROSS PROFIT 281,600 287,084
OPERATING EXPENSES
Research and Development 80,495 60,586
Sales and Marketing 438,873 322,454
General and Administrative 320,038 769,232
Depreciation and Amortization 13,253 13,314
---------- ----------
TOTAL OPERATING EXPENSES 852,659 1,165,586
(LOSS) FROM OPERATIONS (571,059) (878,502)
OTHER INCOME (EXPENSE)
Interest Income 169 343
Interest Expense (200,114) (23,438)
---------- ----------
TOTAL OTHER INCOME (EXPENSES) (199,945) (23,095)
(LOSS) BEFORE INCOME TAXES (771,004) (901,597)
Income Tax Benefit (Expense) 850 (1,100)
---------- ----------
NET (LOSS) $(771,854) $(902,697)
========== ==========
For the fiscal year ending March 31, 2001, net sales decreased by
$12,011 from $448,459 in 2000 to $436,448 in 2001. This represents a 3% decrease
over the comparable period ending March 31, 2000. We anticipate sales will
continue to decrease in both domestic and international markets due to cash flow
shortages preventing the production of inventory, until the implementation of
our restructuring plan.
Cost of goods sold decreased by $6,527 or 4% for the year ending March
31, 2001 over the comparable period ended March 31, 2000.
Gross profit for the year ended on March 31, 2001 remained consistent
at 64% with the comparable period ended March 31, 2000.
Research and development expenses as of March 31, 2001 increased by
$19,909 over the prior fiscal year, due primarily to the increase in salary for
Kenneth Hegeman, an employee within engineering. We expect we will continue to
invest in research and development. We plan to allocate 3% of sales to the R & D
budget, and are currently working on the development of eight additional
products.
12
Sales and marketing costs as of March 31, 2001 and 2000 were $438,873
and $322,454 respectively, which represents an increase of $116,419 or 36%. This
is the result of increased promotional discounts provided to customers to
continue to increase product awareness and market saturation.
General and administrative costs for 2001 and 2000 were $320,038 and
$769,232 respectively, a decrease of $449,194 or 58%. The decrease was the
result of significant reductions in personnel and related payroll and benefit
expenses, and advertising as our cash flow shortages forced us to downsize our
operations. Additionally, rent and the related utilities expenses were reduced
as we relocated into smaller facilities.
Net interest expense increased by $176,676 during the year ended March
31, 2001 over the comparable period ending March 31, 2000. The increase in
interest expense was largely due to the conversion feature of the convertible
debentures entered into with shareholders during the year.
Inflation has not had a material effect on our revenue and income from
continuing operations in the past three years. We do not expect inflation to
have a material future effect.
Because our contract with Shummi and others have been contemplated in
US dollars, the cost of products will not be affected by exchange rate
fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2001, our current liabilities exceeded our current assets
by $976,945. Our business operations will require substantial capital financing
on a continuing basis. The availability of that financing will be essential to
our continued operation and expansion. In addition, cash flow and liquidity is
contingent upon the success of our restructuring plan. The inability to complete
the proposed PEO acquisitions or develop and market high-technology dental
equipment will force us to raise additional capital to support operations by
selling equity securities or incurring additional debt.
Since our inception in 1996, we have sustained net losses and negative
cash flow, due largely to start-up costs, general and administration expenses,
inventory, marketing and other expenses related to market development and new
product launch. As a result, we have financed our working capital requirements
principally through loans and the private placement of our common stock.
In January 1999, Ms. Inzunza loaned the Company $50,000 at 7% interest
which was paid throughout the year and as of March 31, 2001 the principal
balance was paid in full. On December 11, 1998, Remedent received a $50,000 line
of credit from Union Bank of Arizona. We have drawn upon the full amount. The
interest rate was 10.250% with a maturity date of December 31, 1999. On April
26, 2000, the loan balance of $49,970.55 was converted to a five-year loan with
an interest rate of 11.50%, monthly payments of $1,099, and a maturity date of
April 26, 2005. Monthly payments include payments towards both principal and
interest.
13
During the fiscal year ended March 31, 2001, the Company borrowed
$149,002 from shareholders and a director in the form of convertible debentures.
These debentures are unsecured, due on demand and bear interest at 10% per
annum. In addition, at the sole discretion of the holder, can be converted to
stock at 37.5% of the average trading price 30 days prior to maturity.
During the year ended March 31, 2000 we have borrowed from Kenneth
Yanika, a shareholder, a total of $15,000 as a working capital loan. This loan
is unsecured, due on demand without a maturity date and bears no interest.
Kenneth J. Hegemann, an officer, operates CRA Labs, Inc., a related
business that advanced $11,500 during the fiscal year ended March 31, 2001. We
repaid $4,000 of these advances during the fiscal year ended March 31, 2001,
leaving a balance of $15,063 at March 31, 2001. Similar to the other working
capital loans, this is an unsecured debt and bears interest at 10% per annum.
We expect to continue to experience negative cash flow through at least
fiscal 2001, and may continue to do so thereafter while we implement our
restructuring plan. Unless we are able to generate sufficient revenue or acquire
additional debt or equity financing to cover our present and ongoing operation
costs and liabilities, we may not be able to continue as a going concern. Our
auditors note that we have sustained substantial net losses since our inception
in September 1996. In addition, as of March 31, 2001, we had a working capital
deficit totaling $976,945 and a shareholders deficit of $925,301.
For the year ending March 31, 2001, liabilities totaled $1,092,220 and
$774,256 for the year ending March 31, 2000, which represents an increase of
$317,964. This was largely due to the draw of additional debentures shareholders
and the non-payment of existing payables due to working capital deficiencies.
Frequently we have been unable to make timely payments to our trade and
service vendors. As of March 31, 2001, we had past due payables in the amount of
$413,184, representing a 4% increase from the prior fiscal year. Deferred
payment terms have been negotiated with most of the vendors, which has allowed
us to continue to make shipments on time and no orders have been cancelled to
date. Notes payable increased by $136,968 due to additional working capital
loans from shareholders. Details for these loans are included in the footnotes
of the financial statements. Accrued liabilities increased by $174,921. This
amount represents accrued salaries for officers and employees.
For the years ending March 31, 2001 and 2000, net cash used for
operating activities was $161,230 and $67,780, respectively. As of March 31,
2001 we had a working capital deficiency of $976,945, as compared to a working
capital deficiency of $554,067 at March 31, 2000. Our business operations will
require substantial capital financing on a continuing basis.
We have taken several actions, which we believe will improve our
short-term and long-term liquidity and cash flow. For the short term, we have
improved liquidity and cash flow by obtaining short term loans, reducing
expenses, reducing employee compensation, eliminating warehousing fees and
reducing insurance expenses. For the
14
long term, we have developed and begun implementation on a complete business
restructuring plan.
Our business operations will require substantial capital financing on a
continuing basis. Based upon our cash flow projections, significant capital
infusion is necessary to fully implement our restructuring plan and pay existing
delinquent payables. We plan to finance such through loans, equity investments
and other transactions. We reasonably believe that the net proceeds from our
efforts, assuming the maximum amount is raised and loans are obtained, plus
revenues generated from operations, will be sufficient to fund our operations.
However, there can be no assurance that we will be able secure the necessary
financing. In the event that we are unsuccessful in completing financing
arrangements, we would have difficulty meeting our operation expenses,
satisfying our existing or future debt obligations, or succeeding in
implementing our restructuring plan. Without sufficient cash flow we are unable
to satisfy our debt obligations, our ongoing growth and operations are, and will
continue to be, restricted and there is substantial doubt as to our ability to
continue as a going concern. If this were to happen our contingency plan would
be to work with existing oral care companies who do not have a premium
toothbrush. We would attempt to secure an agreement with them to be their
premium toothbrush provider.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This filing contains statements that constitute forward-looking statements
within the meaning of Section 21E of the Exchange Act of 1934 and Section 27A of
the Securities Act of 1933. The words "expect," "estimate," "anticipate,"
"predict," "believe" and similar expressions and variations thereof are intended
to identify forward-looking statements. Such statements appear in a number of
places in this filing and include statements regarding our intent, belief or
current expectations regarding our strategies, plans and objectives, our product
release schedules, our ability to design, develop, manufacture and market
products, our intentions with respect to strategic acquisitions, the ability of
our products to achieve or maintain commercial acceptance and our ability to
obtain financing for our obligations. Any forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those projected in this filing, for the
reasons, among others, described within the various sections. You should read
the filing carefully, and should not place undue reliance on any forward-looking
statements, which speak only as of the date of this filing. We undertake no
obligation to release publicly any updated information about forward-looking
statements to reflect events or circumstances occurring after the date of this
filing or to reflect the occurrence of unanticipated events.
PART II - OTHER INFORMATION
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements that constitute Item 7 are included at the end
of this report beginning on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
15
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the current
directors and executive officers of the Company, the principal offices and
positions with the Company held by each person and the date such person became a
director or executive officer of the Company. The executive officers of the
Company are elected annually by the Board of Directors. Each year the
stockholders elect the board of directors. The executive officers serve terms of
one year or until their death, resignation or removal by the Board of Directors.
There was no arrangement or understanding between any executive officer and any
other person pursuant to which any person was elected as an executive officer.
The directors and executive officers of the Company are shown in the
table below. Ms. Rebecca M. Inzunza is married to Mr. Kenneth J. Hegemann and
Mr. Robert E. Hegemann and Mr. Jay W. Hegemann are the sons of Mr. Kenneth J.
Hegemann.
[Enlarge/Download Table]
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PERSON AGE POSITION
-------------------------------------------------------------------------------------------
Kenneth J. Hegemann 53 Senior Vice President, Research & Development
-------------------------------------------------------------------------------------------
Rebecca M. Inzunza 45 President, CEO, CFO and Director
-------------------------------------------------------------------------------------------
Robert E. Hegemann 33 Senior Vice President, Treasurer and Director
-------------------------------------------------------------------------------------------
Jay W. Hegemann 30 Secretary
-------------------------------------------------------------------------------------------
Earl Moore, DDS, M.S.D.,
F.A.C.D., F.I.C.D. 65 Director
---------------------------- ------------- ------------------------------------------------
Edward E. Quincy, DDS 53 Director
---------------------------- ------------- ------------------------------------------------
KENNETH J. HEGEMANN, SENIOR VICE PRESIDENT - RESEARCH & DEVELOPMENT -
Mr. Hegemann has developed numerous products, which have been in use since 1971,
and holds more than 20 US and foreign patents for products ranging from
irrigation systems, hand tools, and personal care products. He is a hands-on
inventor and product developer. With the aid of his two sons Rob and Jay, they
have personally built prototypes for all of their patents. All of the Hegemann
patents have become commercialized products and many are selling all over the
world. A number of the Hegemann patents relate to better ways of brushing teeth
and gums. For the past 15 years, he has been consumed in a relentless pursuit to
find a cure for gum disease. His latest patent is for a robotic toothbrush that
will change the way people care for their teeth and gums in the near future.
More can be learned about the concept by visiting oralbot.com. Mr. Hegemann
graduated from Lier Siegler with a degree in Engineering Technology.
REBECCA M. INZUNZA, PRESIDENT, CEO, CFO AND DIRECTOR - Ms. Inzunza
co-founded Remedent USA, Inc. in September 1996. She serves as President, Chief
Financial Officer and Chief Executive Officer. Before launching this endeavor,
Ms. Inzunza was President and CEO of Curvex Corporation from 1990 to 1996. In a
position prior to Curvex, she served as a department manager with Sears Savings
Bank where
16
she oversaw departmental computer system requirements and compatibility bank
wide. Ms. Inzunza graduated from Mira Costa College with honors.
ROBERT E. HEGEMANN, SENIOR VICE PRESIDENT, TREASURER, DIRECTOR - Mr.
Hegemann co-founded the Company along with Ms. Inzunza and Mr. Vrignaud in
September 1996. Prior to joining the Company, Mr. Hegemann gained management
experience as director of operations at Pro Care Laboratories and Curvex
Corporation from 1986 to 1996. He was also instrumental in development of the
Brushrite Automatic Toothbrush and other oral care products during his tenure
with Pro Care Laboratories and Curvex Corporation. Mr. Hegemann studied
Advertising at Northern Arizona University and Organizational Communication at
University of Nebraska. Mr. Hegemann did not receive a degree from these
institutions.
JAY W. HEGEMANN, SECRETARY - Mr. Hegemann is an accomplished product
developer. He is proficient in all aspects of product development including
design using the three-dimensional software Solid Works. He also operates the
company's Research and Development facility located in Escondido CA. with a
complete line of digitally controlled machining tools. Mr. Hegemann graduated
from Spartan School of Aeronautics and is a hobby pilot and airplane builder.
EDWARD E. QUINCY DDS, DIRECTOR - Dr. Quincy is currently President of
Tri-State Dental, P.C., a company that he founded in 1985, which has twenty-six
dental offices in three states. He also owns Dental Rental, LLC, a business that
manages the rental of fourteen dental-related buildings. Dr. Quincy previously
served as President for Quality Kare Dental, Crofton Dental Partnership, and
Henderson Family Dentistry and owned a successful dental practice in Nebraska.
Dr. Quincy graduated from Kearny State College in 1970 with a BS Degree, as well
as from the University of Nebraska College of Dentistry in 1976 with a Doctor of
Dental Surgery Degree.
EARL MOORE, DDS, M.S.D., F.A.C.D., F.I.C.D., DIRECTOR - Dr. Moore
founded and has maintained a successful private dental practice since 1959 to
date, specializing in Periodontology. Dr. Moore is a member of the American
Academy of Periodontology and the Southwest Society of Periodontology. He is a
member and has served as President of the Southwest Society of Dental Medicine.
Dr Moore is also a member and past President of the Dallas County Dental
Society. He is an active member of the Texas Dental Association and the American
Dental Association.
(b) COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during its 2001 fiscal year, all such filing requirements applicable to its
officers, directors, and greater than 10% beneficial owners were complied with.
17
ITEM 10-EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION
The following table and attached notes sets forth the compensation of
the Company's executive officers and directors during each of the last three
fiscal years. The remuneration described in the table does not include the cost
to the Company of benefits furnished to the named executive officers, including
premiums for health insurance, reimbursement of expense, and other benefits
provided to such individual that are extended in connection with the ordinary
conduct of the Company's business. The value of such benefits cannot be
precisely determined, but the executive officers named below did not receive
other compensation in excess of the lesser of $25,000 or 10% of such officer's
cash compensation:
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
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ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS PAYOUTS
Name and Year Salary ($) Bonus Other Restricted Securities LTIP All other
Principal ($) Annual stock Underlying pay-outs compensation ($)
Position compensation award(s) ($) Options/ ($)
($) SARs (#)
Rebecca Inzunza, 2001 $80,400 $-0- $-0- $-0- -0- $-0- $-0-
President, CEO, 2000 $80,400 $-0- $-0- $-0- -0- $-0- $-0-
CFO 1999 $79,060 $-0- $-0- $-0- -0- $-0- $-0-
Robert E. 2001 $40,872 $-0- $-0- $-0- -0- $-0- $-0-
Hegemann, Sr. 2000 $40,872 $-0- $-0- $-0- -0- $-0- $-0-
V.P., Treasurer 1999 $36,086 $-0- $-0- $-0- -0- $-0- $-0-
Jay W. Hegemann, 2001 $0 $-0- $-0- $-0- -0- $-0- $-0-
Secretary 2000 $0 $-0- $-0- $-0- -0- $-0- $-0-
1999 $0 $-0- $-0- $-0- -0- $-0- $-0-
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(b) EMPLOYMENT AGREEMENTS
While we do not currently have any employment agreements, we anticipate
having employment contracts with executive officers and key personnel as
necessary, in the future.
(c) COMPENSATION OF DIRECTORS
Directors of the Company do not receive any cash compensation, but are
entitled to reimbursement of their reasonable expenses incurred in attending
directors' meetings.
18
(d) STOCK OPTION PLAN
On May 4, 2001, the Board of Directors adopted an Incentive and
Nonstatutory Stock Option Plan (the "Plan"), reserving 5,000,000 shares
underlying options for issuance under this plan. There is a restriction than no
more than 1,000,000 options may be granted to any one individual or entity in
any one calendar year under the Plan. To date, no options have been granted
pursuant to the Plan.
ITEM 11- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the shareholdings of those persons who:
(i) own more than five percent of our common stock as of the date hereof with
the number of outstanding shares at 13,002,118; (ii) are officers or directors
of the Company; and (iii) all officers and directors as a group:
[Enlarge/Download Table]
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TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF PERCENT OF CLASS
BENEFICIAL OWNER
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Common (Restricted) Kenneth J. Hegemann -0- -0-%
(Vice President, Research & Development)
1220 Birch Way
Escondido, CA 92097
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Common (Restricted) Rebecca M. Inzunza 2,679,495 20.6%
(President/CEO/CFO, Director)
1220 Birch Way
Escondido, CA 92097
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Common (Restricted) Robert E. Hegemann 991,900 7.6%
(SVP, Treasurer, Director)
6522 East Sharon Road
Scottsdale, AZ 85254
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Common (Restricted) Jay W. Hegemann (Secretary) 743,925 5.7%
748 Vinewood, Suite C&D
Escondido, CA 92029
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Common (Restricted) Edward E. Quincy, DDS (Director) 693,280 5.3%
314 N. 14th - Box 87
Newman Grove, NE 68758
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Common (Restricted) Earl Moore (Director) 5,460 *
8140 Walnut Hill Lane, #201
Dallas, TX 75231
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All Officers and Directors as a group 6,106,797 47.0%
(6 persons)
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Common (Restricted) Jean Louis Vrignaud 910,000 7.0%
108 Rue De Cherche Midi
Paris, France 75006
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* Less than 1%
19
ITEM 12-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RELATED PARTY TRANSACTIONS
Remedent leases 1,000 square feet of office space at 1220 Birch Way,
Escondido, California. This dwelling belongs to Ms. Inzunza and acts as our
headquarters. Since January 1998, Remedent has paid $300 per month directly to
Ms. Inzunza for this office space. As of January 1, 2000, the lease amount was
increased to $655. We also utilize warehouse space located within the home of
one of our officers, Robert Hegemann, in Phoenix, Arizona. The Company pays no
rent for the use of the space. These arrangements are open ended, and we believe
that with funding in place, we will be able to move offices to a more
appropriate business center.
In 1999, Ms. Inzunza loaned a total of $50,000 to the Company. As of
March 31, 2001, the entire balance was paid in full including interest.
As of March 31, 2001 and 2000, we maintained a receivable of $0 and
$4,749, respectively, from Famcare, Inc., a Company owned 100% by Kenneth
Hegemann, an officer. Additionally, for the fiscal years ended March 31, 2001
and 2000, we made advances of $10,895 and $12,170, respectively, to Ms. Inzunza.
As of March 31, 2001, these advances were applied to the accrued salaries due to
this individual.
On October 5, 1996, we entered into a royalty agreement with Jean Louis
Vrignaud, a holder of more than 5% of outstanding stock, under which Mr.
Vrignaud is to receive a 4.5% royalty of the net sales with a cap of $2 million
as compensation for the assignment of all Remedent patents. No royalties have
been paid and the balance owed has been accruing in a general ledger and as of
March 31, 2001 the total due is $50,394.
TRANSACTIONS WITH PROMOTERS
We entered into a six month contract with In-Touch Communications, 2990
Quebec Street, Suite 305, Vancouver, Canada V5T 4P7 on June 7, 1999. Under the
terms of the contract, In-Touch was to provide increased visibility and investor
awareness through cost effective methods. In-Touch arranged print advertising to
a financial publication to develop exposure for the Company to potential new
investors. In-Touch also provided follow-up to leads from the advertising,
calling and informing the interested potential investors. They also mailed
informational packages to them. In-Touch informed current shareholders of our
developments and answered shareholder inquiries over the phone. They also mailed
out an Information Request Form (Business Reply Mail) and updated the database
of the current shareholders once the Information Request Forms were sent back by
the shareholders. In-Touch provided news dissemination via fax, mail, and
e-mail. In exchange, we would pay expenses up to $500 per month and issue 60,000
shares of restricted common stock, valued at $71,200, to In-Touch. As of March
31, 2000, a total of $929.12 was been paid in expenses. Beginning July 1, 1999
through December 1, 1999, 10,000 restricted common shares were issued per month.
The contract with In-Touch Communications expired December 7, 1999.
20
On August 9, 1999, we entered into an agreement with Rubicon Capital
Partners Inc, 4275 Executive Square, Suite 1100, La Jolla, CA 92037 to provide
consulting services relating to our business reorganization, re-capitalization,
and mergers and acquisition programs. This contract was to be for a period of
twenty-four months, but was mutually cancelled as of December 31, 1999. We paid
$8,000 upon signing of the contract. We satisfied the outstanding balance of
$68,479 with the issuance of 148,050 of our restricted shares of common stock in
2001. The number of shares was calculated on the closing price of the day the
invoices were dated.
On February 15, 2000, the Company entered into a contract with
Merryvale Group International, 1620 Tiburon Ave, Tiburon, CA. 94920, under the
terms of which Merryvale is to provide a plan for raising $3 million in working
capital, search out and introduce Remedent to potential strategic partners for
either a possible merger or acquisition, effect a contact network base in the
US, Canada, Great Britain and Asia, draft corporate resolutions, board minutes
and shareholders minutes, coordinate shareholder meetings and oversee relations
with contacts on our behalf, in addition to performing promotional services as
directed. In exchange, Merryvale received 16,666 Remedent shares from Lee
Grothe, a Remedent shareholder who, in turn, requested and received 25,000
restricted common shares. Upon funding, we agreed that we would pay an
additional cash fee of 10% on the funds raised. In addition, we have agreed to
pay Merryvale an additional 100 shares for every $1,000 raised. The duration of
this agreement was until June 15, 2000; however, we have remained in contact
with Merryvale. To date, Merryvale has made a few introductions to potential
investors, however, no investments have been made to date.
On February 24, 2000 we entered into a contract with Charterbridge
Financial Group, 350 West Ash Street, Suite 1002, San Diego, CA 92101.
Charterbridge was to produce a shareholder Communications/Investor Relations
brochure to be distributed bi-monthly; distribute company news through many
different vehicles such as newsletters, email, radio interviews; present
Remedent USA, Inc. to various media and periodical sources; introduce Remedent
to potential strategic partners for either merger or acquisition; and make
introductions to potential investors, lenders, borrowers, trust, corporations,
merger/acquisition candidates and unincorporated business entities. In exchange,
Charterbridge received 90,000 common shares, valued at $61,830, from Remedent
shareholders Edward Quincy and Lee Dahl who in turn requested, and received
94,500 and 40,500 restricted common shares respectively. On the first of each
following quarter, Charterbridge was to receive an additional 150,000 common
shares. The term of this agreement was one year ending on February 23, 2001,
however, this agreement was mutually terminated on March 1, 2000 and no
additional compensation has been paid above the initial 90,000 shares.
Charterbridge did not perform any of the services contemplated by the agreement.
On March 10, 2000, we entered into a contract with First Canadian
Capital, 1118 Homer Street #210, Vancouver, B.C. Canada V68 6L5 to provide
assistance in identifying merger and acquisition candidates, assist in any due
diligence process, recommend transaction terms, give advice and assistance
during negotiations, and introduce Remedent USA, Inc. to numerous broker/dealers
and investment professionals. The contract is a quarterly agreement for one year
and can be cancelled 15 days prior to the end of each quarter. The agreement was
to expire January 31, 2001. First Canadian failed to provide services and their
contract was cancelled on
21
March 15, 2000, with accrued balance of $7,500 to be paid with 11,433 shares of
common stock in 2001.
The services that were to be provided by Merryvale, Charterbridge and
First Canadian were substantially similar. The agreements overlap and duplicate.
Each was to introduce us to potential strategic partners for either merger or
acquisition of our company, and to make introductions to potential investment
partners. These groups are not brokers and as such they could only make
introductions to us, whereupon all presentations and negotiations are conducted
exclusively by us.
22
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
2.1* Stock Exchange Agreement with Resort World Enterprises, Inc.
3.1* Articles of Incorporation of Jofran Confectioners International, Inc.,
a Nevada corporation, dated July 31, 1986
3.2 Amendment to Articles of Incorporation changing name from Jofran
Confectioners International, Inc., a Nevada corporation, to Cliff
Typographers, Inc., a Nevada corporation, dated July 31, 1986
3.3 Amendment to Articles of Incorporation changing name from Cliff
Typographers, Inc., a Nevada corporation, to Cliff Graphics
International, Inc., a Nevada corporation, dated January 9, 1987
3.4 Amendment to Articles of Incorporation changing name from Cliff
Graphics International, Inc., a Nevada corporation, to Global Golf
Holdings, Inc., a Nevada corporation, dated March 8, 1995
3.5 Amendment to Articles of Incorporation changing name from Global Golf
Holdings, Inc., a Nevada corporation, to Dino Minichiello Fashions,
Inc., a Nevada corporation, dated November 20, 1997
3.6 Amendment to Articles of Incorporation changing name from Dino
Minichiello Fashions, Inc., a Nevada corporation, to Resort World
Enterprises, Inc., a Nevada corporation, dated August 18, 1998
3.7 Amendment to Articles of Incorporation changing name from Resort World
Enterprises, Inc., a Nevada corporation, to Remedent USA, Inc., dated
October 5, 1998
3.8* By-laws
10.1* Marketing Agreement with Jean Louis Vrignaud
10.2* Addendum to Marketing Agreement with Jean Louis Vrignaud
10.3* Sales and Marketing Agreement with Double Eagle
10.4* Option Agreement with Rubicon Capital Partners
10.5* Convertible Debenture with Dr. Edward Quincy
10.6* Client Service Agreement with Continental Capital & Equity Corporation
10.7* Agent Agreement with Continental Capital
10.8* Agreement with the Merryvale Group International
10.9* Contract with In-Touch Communications
10.10* Agreement with First Canadian Capital
10.11* Investment Banking Rider with Charterbridge
10.12* Agreement for Financial Public Support/Retail Support with
Charterbridge
10.13* Consulting Agreement and Finders Fee Agreement with Rubicon Capital
Partners
10.14* Shummi Manufacturing Contract
10.15 Incentive and Nonstatutory Stock Option Plan, dated May 4, 2001
10.16 Lease for Encino, California office, dated June 4, 2001
10.17 Debenture Agreement
21.1 Subsidiaries
99.2* List of Patents
99.3* List of Trademarks
---------------------------
*Incorporated by reference from Registration Statement on Form 10-SB filed by
the Company on June 30, 2000.
23
(b) REPORTS ON FORM 8-K: None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
REMEDENT USA, INC.
Dated: June 28, 2001 /s/ Rebecca M. Inzunza
------------------------------------
By: Rebecca M. Inzunza
Its: Chief Executive Officer, President
and Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Kenneth J. Hegemann Chairman June 28, 2001
---------------------------
Kenneth J. Hegemann
/s/ Rebecca M. Inzunza Chief Executive Officer,
--------------------------- President, Chief Financial
Rebecca M. Inzunza Officer and Director June 28, 2001
/s/ Robert E. Hegemann Senior Vice President, Treasurer,
--------------------------- and Director June 28, 2001
Robert E. Hegemann
24
INDEX TO FINANCIAL STATEMENTS
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PAGE
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Independent Auditors' Report F-1
Financial Statements:
Balance Sheet as of March 31, 2001 and 2000 F-2
Statements of Operations for the years ended March 31, 2001 and 2000 F-3
Statements of Changes in Stockholders' Deficit for the
years ended March 31, 2001 and 2000 F-4
Statements of Cash Flows for the years ended March 31, 2001 and 2000 F-5
Notes to Financial Statements F-6 - F-16
Remedent USA, Inc.
Financial Statements
March 31, 2001 and March 31, 2000
(Audited)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
REMEDENT USA, INC.
We have audited the accompanying balance sheets of Remedent USA, Inc. as of
March 31, 2001 and 2000, and the related statements of operations, changes in
stockholders' equity (deficit) and cash flows for the years ended March 31, 2001
and 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Remedent USA, Inc. as of March
31, 2001 and March 31 2000, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note J to the financial
statements, the Company has suffered recurring losses from operations, has a net
working capital deficiency, and its total liabilities exceed its total assets,
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note J. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Siegel-Smith LLP
/s/ Siegel-Smith LLP
----------------------------
Solana Beach, California
June 11, 2001
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-1
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REMEDENT USA, INC.
BALANCE SHEET
ASSETS March 31, 2001 March 31, 2000
-------------- --------------
CURRENT ASSETS
Cash and cash equivalents $ 7,686 $ 8,125
Accounts receivable, net 21,262 40,897
Due from related party - 16,919
Inventories, net 82,905 153,712
Prepaid expense 3,422 536
----- ----
TOTAL CURRENT ASSETS 115,275 220,189
Property & equipment, net 21,488 31,795
Patents, net of accumulated amortization 25,969 28,274
Other assets 4,187 4,782
----- -----
TOTAL ASSETS $166,919 $285,040
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $412,756 $396,208
Due to related parties 102,291 37,096
Accrued liabilities 443,173 280,431
Customer deposits - 8,892
Current portion capital lease - 1,629
Note payable 134,000 50,000
------- ------
TOTAL CURRENT LIABILITIES 1,092,220 774,256
--------- -------
Commitments and contingencies
SHAREHOLDERS' DEFICIT
Common stock 13,187 12,685
Additional paid in capital 1,768,302 1,446,018
Prepaid services for stock 0 (12,983)
Accumulated deficit (2,706,790) (1,934,936)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (925,301) (489,216)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $166,919 $285,040
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-2
REMEDENT USA, INC.
STATEMENTS OF OPERATIONS
[Download Table]
For the year ended
March 31, 2001 March 31, 2000
-------------- --------------
NET SALES $436,448 $448,459
COST OF SALES 154,848 161,375
--------- --------
GROSS PROFIT 281,600 287,084
OPERATING EXPENSES
Research and development 80,495 60,586
Sales and marketing 438,873 322,454
General and administrative 320,038 769,232
Depreciation and amortization 13,253 13,314
--------- --------
TOTAL OPERATING EXPENSES 852,659 1,165,586
--------- ----------
LOSS FROM OPERATIONS (571,059) (878,502)
OTHER INCOME (EXPENSES)
Interest income 169 343
Interest expense (200,114) (23,438)
--------- --------
TOTAL OTHER INCOME (EXPENSES) (199,945) (23,095)
--------- --------
LOSS BEFORE INCOME TAXES (771,004) (901,597)
Income tax benefit (expense) (850) (1,100)
--------- --------
NET (LOSS) $(771,854) $(902,697)
========== ==========
LOSS PER SHARE ($0.06) ($0.07)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 12,966,167 12,487,573
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-3
REMEDENT USA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
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Additional
Common Stock
------------ Paid-in Accumulated Accounts
Shares Amounts Capital Deficit Receivable Total
-------- ---------- --------- --------- ------------ ------
Balance, March 31, 1999 12,433,780 $12,434 $1,187,332 $(1,032,239) $ 0 $167,527
========== ======= ========== ============ ====== ========
July 13, 1999 - - 10,000 - - 10,000
Debenture Conversion
April 1999 - March 2000 251,523 251 248,686 - (12,983) $235,954
March 31, 2000 Net loss - - - (902,697) - (902,697)
---------- -------- ----------- ------------- --------- -----------
Balance, March 31, 2000 12,685,303 $12,685 $1,446,018 $(1,934,936) $(12,983) $(489,216)
========== ======= ========== ============ ========= ==========
April 2000 - March 2001 29,882 30 9,470 - - 9,500
Shares for services
April 2000 - March 2001 - - 149,002 - - 149,002
Debenture Conversion
April 2000 - March 2001 472,131 472 163,812 - - 164,284
Shares for debt
April 2000 - March 2001 - - - - 12,983 12,983
Prepaid services for prior
year shares
March 31, 2001 Net loss - - - (771,854) - (771,854)
---------- -------- ----------- ------------- --------- -----------
Balance, March 31, 2001 13,187,316 $13,187 $1,768,302 $(2,706,790) $0 $(925,301)
========== ======= ========== ============ == ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-4
REMEDENT USA, INC.
STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
For the year ended
March 31, 2001 March 31, 2000
---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(771,854) $(902,697)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 13,253 13,314
Stock for services 159,065 245,954
Changes in operating assets and liabilities:
Accounts receivable 19,636 (5,523)
Inventories 70,807 17,424
Prepaid expenses (2,886) 102
Accounts payable 136,894 338,704
Accrued liabilities 189,694 219,652
Deposits (8,892) 5,290
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (194,283) (67,780)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (640) (16,551)
Notes to related parties 104,844 (10,975)
-------- --------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES 104,204 (27,526)
CASH FLOWS FROM FINANCING ACTIVITIES
Lease payments (1,354) (1,646)
Proceeds from notes and debentures 109,073 52,697
Officer loans (repayments) - (22,202)
Note payments (18,079) (14,800)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 89,640 14,049
-------- --------
NET (DECREASE) IN CASH (439) (81,257)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,125 89,382
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $7,686 $8,125
======== ========
Supplemental Non Cash Investing and Financing Activities:
During the year ended March 31,2001 the Company issued stock, valued at
$322,785, for consulting, marketing, personnel services and debenture conversion
benefits.
During the year ended March 31,2001 the Company realized consulting services,
valued at $12,983, for stock issued during the year ended March 31, 2000.
During the year ended March 31,2000 the Company incurred expenses for
consulting, marketing, personnel services and debenture conversion benefit for
stock valued at $248,936.
Supplemental Information:
Interest paid $20,152 $14,550
Taxes paid $ - $ 50
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-5
REMEDENT USA, INC.
NOTES TO FINANCIAL STATEMENTS
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND NATURE OF OPERATIONS
Remedent USA, Inc. (the "Company") is engaged in the distribution of a product
that combines a toothbrush, gum brush and tongue cleaner on one handle. Credit
sales are made to the Company's customers, primarily retail store chains,
located throughout the United States, as well as customers within the
international market. The Company was originally incorporated on September 30,
1996 in the state of Arizona, and has offices in Escondido, California and
Scottsdale, Arizona.
On October 2, 1998 Remedent USA ("Remedent") merged with Resort World
Enterprises, Inc., a Nevada corporation ("RWE"). The surviving Company was RWE
and immediately changed the name of the Corporation to Remedent USA, Inc. The
exchange was a "reverse merger" and accounted for as a recapitalization of
Remedent. As a result of the merger, RWE obtained all of the issued and
outstanding stock of Remedent for approximately 79% of the new Remedent USA,
Inc. stock. Financial statements for the pre-merger periods are the historical
financial statements of Remedent.
BASIS OF ACCOUNTING
The Company's financial statements have been prepared on an accrual basis of
accounting, in conformity with generally accepted accounting principles as a
going concern. These principles contemplate the realization of assets and
liquidation of liabilities in the normal course of business. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
(Note J)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less to be cash or cash equivalents.
ACCOUNTS RECEIVABLE
The Company sells premium toothbrushes to various companies, primarily to retail
chains located throughout the United States. The terms of sales are 2% 10 days,
net 30 days. Accounts receivable is reported at net realizable value and net of
allowance for doubtful accounts. As of March 31, 2001 and 2000 the allowance for
doubtful accounts was $1,000
F-6
and $3,000, respectively. During the years ended March 31, 2001 and 2000, the
Company had written off a nominal amount of uncollectable accounts.
The Company uses the allowance method to account for uncollectable accounts
receivable. The Company's estimate is based on historical collection experience
and a review of the current status of trade accounts receivable. It is
reasonably possible that the Company's estimate of the allowance for doubtful
accounts will change.
INVENTORIES
Inventories are stated at the lower of cost (weighted average) or market.
Inventory costs include material, labor and manufacturing overhead. Individual
components of inventory are listed below:
[Download Table]
2001 2000
---- ----
Inventory-Supplies $23,593 $34,751
Displays and Raw Materials 45,436 61,970
Finished Goods 13,876 56,991
------ ------
$82,905 $153,712
======= ========
PATENTS
Patent costs are amortized using the straight-line method over 15 years. Patent
values and accumulated amortization at March 31, 2001 and 2000 are as follows:
[Download Table]
2001 2000
---- ----
Patent $34,199 $34,199
Accumulated amortization 8,230 5,925
----- ------
Patents, net $25,969 $28,274
======= =======
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
accelerated methods over the estimated useful lives of five to seven years for
equipment and furniture and shorter of lease term or life of improvements.
ADVERTISING
Advertising costs are expensed in the year incurred. Advertising cost for the
year ended March 31, 2001 and 2000 were $127,342, and totaled $123,010,
respectively.
RESEARCH AND DEVELOPMENT
Research and development costs, consisting principally of design and development
costs devoted to creating new products or improving existing products, are
expensed as incurred.
F-7
For the fiscal year ended March 31, 2001 and 2000, total research and
development costs were $80,495 and $60,586, respectively.
INCOME TAXES
Income taxes, are provided in accordance with Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Deferred taxes are
recognized for temporary differences in the basis of assets and liabilities for
financial statement and income tax reporting as well as for operating losses and
credit carry forwards. A provision has been made for income taxes due on taxable
income and for the deferred taxes on the temporary differences. The components
of the deferred tax asset and liability are individually classified as current
and non-current based on their characteristics.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
EARNINGS PER SHARE
Earnings per share are provided in accordance with Statement of Financial
Accounting Standard No. 128 (FAS No. 128) "Earnings Per Share". Basic earnings
per share are computed by dividing earnings (loss) available to common
stockholders by the weighted average number of common shares outstanding during
the period.
REVENUE RECOGNITION
Sales are recorded when products are shipped to customers. Provisions for
discounts and rebates to customers, estimated returns and allowances, and other
adjustments are provided for in the same period that related sales are recorded.
The Company is currently evaluating the impact of the Staff Accounting Bulletin
("SAB") 101 regarding revenue recognition. However, management does not believe
that SAB 101 will have a material effect on the Company's past or present
financial results.
In an effort to provide additional exposure of the Company's unique product, the
Company does provide, to certain first time buyers, all dental professional
customers, and all international customers, an opportunity to acquire the
product with certain special marketing discounts. The Company views these
discounts not as sales discounts but as a method of marketing its products to
customer that may not otherwise purchase the product. For the fiscal Year ending
March 31, 2001, international promotional discounts totaled $151,363 all other
discounts totaled $59,481 compared to fiscal year ending March 31, 2000 where
international discounts totaled $35,158 and all other discounts totaled $21,455.
These discounts should be deducted from sales to evaluate the exact sales
number. Beginning April 1, 2001, the accounting procedure for posting sales will
reflect the actual sales price and not the Company's standard blanket cost to
all buyers. It is understood that all promotional discounts for international
sales, dental and other will need
F-8
to be subtracted from revenue and sales and marketing for all comparable periods
after April 1, 2001.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are cash and cash equivalents, accounts
receivable, accounts payable, and notes payable. The recorded values of cash and
cash equivalents, accounts receivable, and accounts payable approximate their
fair values based on their short-term nature. The recorded value of notes
payable approximate their fair values, as interest is tied to or approximates
market rates and their short-term nature.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets consist primarily of property and equipment and patents. The
recoverability of long-lived assets is evaluated by an analysis of operating
results and consideration of other significant events or changes in the business
environment. If impairment exists, the carrying amount of the long-lived assets
is reduced to its estimated fair value, less any costs associated with the final
settlement. As of March 31, 2001, management believes there was no impairment of
the Company's long-lived assets.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
Issue 00-14 (Coupons and Others Sales Incentives) addresses the accounting for
sales incentives offered voluntarily by a vendor without charge to customers.
This issue addresses both the recognition and income statement classification of
sales incentives. Generally, the cost of the incentive should be recognized at
the date of sale. If the sales incentive results in a loss, the loss should be
recognized at the date of sale. However, the Task Force noted the sales
incentive might indicate that prior to the sale there has been an impairment of
existing inventory. Companies should now apply the guidance in Issue 00-14 no
later than in annual or interim financial statements for periods beginning after
December 15, 2001.
The Company adopted SFAS 130 (Reporting Comprehensive Income) which establishes
standards for reporting comprehensive loss and its components in the financial
statements. To date, the Company's comprehensive loss equals its net loss.
SFAS No. 131 establishes standards for reporting information about operating
segments in annual financial statements issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Company's
financial reporting as well as the chief operating decision-maker, does not
currently provide or review information by segments. All financial information
is currently analyzed in the aggregate. The Company is currently evaluating
various methods of segment reporting for the method which they believe will be
most useful to management.
In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 133 (Accounting for Derivative Instruments and Hedging Activities), which
establishes accounting
F-9
and reporting standards for derivative instruments. This Statement requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
June 1999, the FASB issued SFAS No. 137 (Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133)
which postponed the adoption date of SFAS No. 133. The Company will adopt the
new Statement beginning the first quarter of the fiscal year ending March 31,
2002.
B. PROPERTY AND EQUIPMENT:
Property and equipment at March 31, 2001 and 2000 are summarized as follows:
[Download Table]
2001 2000
---- ----
Machinery and equipment $50,436 $50,436
Furniture and fixtures 8,236 7,595
Leasehold improvements 779 779
--- ---
Less accumulated depreciation (37,963) (27,015)
-------- --------
Property and equipment, net $21,488 $31,795
======= =======
C. ACCRUED LIABILITIES
Accrued liabilities at March 31, 2001 and 2000 are summarized as follows:
[Download Table]
2001 2000
---- ----
Accrued salaries and payroll taxes to officers $309,192 $178,314
Accrued royalties 50,395 40,754
Accrued interest 21,124 6,988
Accrued audit fees 41,533 35,000
Accrued consulting fees 18,000 19,375
Accrued other 2,929 -
----- -
$443,173 $280,431
======== ========
D. NOTES PAYABLE:
On December 11, 1998, the Company entered into a one-year Promissory Note for
$50,000 with a bank, bearing interest at 10.25% annually. On April 26, 2000,
the Company refinanced the debt by converting the original note into a
five-year variable Promissory Note, payable on demand. The Note is secured by
all of the Company's assets. The Note does not contain any restrictive
financial covenants.
Since the commencement of operations, the Company has borrowed various
amounts from shareholders to provide working capital and fund operations.
These borrowings are in the
F-10
form of unsecured convertible debentures, due on demand and bearing an
interest rate of 10%. In addition, at the sole discretion of the holder, the
debenture is convertible into common stock at a percentage between 30% and
37.5% of the average trading price for the stock for the 30 day period
immediately prior to the maturity date. $90,000 was borrowed from
shareholders during the fiscal year ended March 31, 2001, resulting in a
charge to interest expense in the same amount for the beneficial conversion
feature ("BCF") of the debentures. The BCF is calculated as the shares
issuable upon conversion, as of the date of the debenture, multiplied by the
conversion benefit, representing the variance between the share price and
conversion price as of the date of the debenture. The BCF is limited to the
proceeds of the debenture, and as a result of charge to interest expense of
$90,000 was recorded during the fiscal year ending March 31, 2001. The BCF
was calculated based upon the 30 day period prior to the date of the notes,
and is subject to change based on the 30 day period prior to the maturity
dates. As of March 31, 2001, $2,489 was accrued for unpaid interest.
Notes payable consists of the following as of March 31:
[Enlarge/Download Table]
2001 2000
---- ----
Promissory Note at 11.50% (Prime + 2.5%), due on demand $ - $50,000
Promissory Note at 11.50% (Prime + 2.5%), due on demand, principal and
interest payable in monthly installments of $1,099 ($8,956 principal
due in fiscal 2002), final
maturity April 2005 44,000 -
Convertible debentures at 10%, due on demand 90,000 -
------ -
$134,000 $50,000
======== =======
F-11
E. RELATED PARTY TRANSACTIONS:
Due to related parties at March 31, 2001 and 2000 are summarized as follows:
[Download Table]
2001 2000
------- --------
Advances from Rebecca Inzunza, an officer,
through the use of a personal credit card for
business expenses. 18,226 $4,533
Advances from a company operated by
Kenneth Hegemann, an officer, of $11,500 and
$21,563 for the fiscal year ended March 31, 2001
and 2000, respectively. Repayments of $4,000 and
$14,000 were made during the fiscal year ended
March 31, 2001 and 2000, respectively. As of
March 31, 2001, $1,237 is accrued for
unpaid interest. 15,063 7,563
Borrowings from a director in the form of
convertible debentures. 69,002 10,000
Borrowings from a shareholder in the form
of a working capital loan. On March 31,
2001, the Company issued 148,050 shares
of common stock included the
repayment of the loan. - 15,000
- ------
Due to related parties $102,291 $37,096
======== =======
The convertible debentures issued to the director are due on demand, bearing
interest at 10% per annum, and convertible into common stock at the sole
discretion of the holder. The debentures are convertible into common stock at
percentages between 30% and 37.5% of the average trading price for the stock for
the 30 day period immediately prior to the maturity date. In connection with
this conversion feature, the Company recorded a charge of $59,002 and $10,000 to
interest expense during the fiscal years ended March 31, 2001 and 2000,
respectively. These amounts were calculated on the 30 day period prior to the
dates of the notes, and are subject to change based on the 30 day period prior
to the maturity dates. As of March 31, 2001, $6,607 was accrued for unpaid
interest.
The Company leases approximately 1,000 square feet of office space, which serves
as the Company's corporate headquarters, within Rebecca M. Inzunza's primary
residence. The rental agreement with Ms. Inzunza, an officer and shareholder, is
a month to month agreement, with monthly payments of $650. Rent expense totaled
$7,800 and $4,665 for the years ended March 31, 2001 and 2000, respectively. The
Company also utilizes approximately 300 square feet of office and warehouse
space, within Robert E. Hegemann's
F-12
primary residence. There is no rental agreement with Mr. Hegemann, an officer
and shareholder.
The Company has a royalty agreement with Jean Louis Vrignaud which provides 4.5%
royalty of the net sales with a cap of $2 million dollars on royalties for the
assignment of all patents to the Company. Mr. Vrignaud was an officer and
director during the fiscal year ending March 31, 1999, and occupied no position
with the Company for the fiscal years 2001 or 2000. Mr. Vrignaud was owed
$50,395 and $40,754 as of March 31, 2001 and 2000, respectively. Total royalty
expenses incurred under this agreement totaled $9,640 and $16,962 for the years
ended March 31, 2001 and 2000, respectively.
In March 1999, the Company entered into an agreement with Double Eagle for Sales
and Marketing Services. The services Double Eagle provided were valued at 11%
(6% management fee and a 5% brokerage commission) of net invoiced amounts for
all products delivered to customers. A guaranteed minimum monthly management fee
of $4,000, was payable and available for offset of the 6% management fee. The
Company incurred $84,000 in services since the commencement of the agreement,
with an accrued balance payable of $61,000 as of March 31, 2001. The agreement
was canceled in July of 2000.
The Company has a separate agreement with Double Eagle, for the services of
Steve Grassbaugh as the Company's former Chief Financial Officer. Services
provided by Mr. Grassbaugh were valued at $60,000 per annum, payable in cash and
shares. The Company incurred $75,000 in services and has an accrued balance of
$18,000 as of March 31, 2001. This agreement was also canceled in July of 2000.
As of March 31, 2001 and 2000, the Company maintained a receivable of $0 and
$4,749, respectively, from Famcare, Inc., a Company owned 100% by Kenneth
Hegemann, an officer. Additionally, for the fiscal years ended March 31, 2001
and 2000, the Company made advances of $10,895 and $12,170, respectively, to
Rebecca Inzunza, an officer. As of March 31, 2001, these advances were applied
to the accrued expenses due to this individual.
F. INCOME TAXES:
A reconciliation of the provision (benefit) for income taxes with amounts
determined by applying the statutory U.S. federal income tax rate to income
before income taxes is as follows:
[Download Table]
2001 2000
---- ----
Computed tax at the federal statutory rate of 34% $(162,220) $(309,200)
Valuation allowance $ 161,370 $ 308,100
--------- ---------
Provision (benefit) for income taxes $850 $1,100
===== =======
Change in Valuation Allowance $(146,730) $ 107,913
F-13
For the period ended March 31, 2001 the Company had available approximately
$1,174,370 of unused net operating loss carry-forwards for federal tax and
Arizona state tax purposes and approximately $587,185 for the State of
California. These loss carry-forwards begin to expire in the year 2011 if not
previously utilized. In addition, the Company has an unused research credit
for the year ended March 31, 2001 of approximately $16,000.
G. SHAREHOLDERS' DEFICIT:
The Company has 50,000,000 shares of $0.001 par value common stock authorized.
At March 31, 2001 and 2000, there were 13,187,316 shares and 12,685,303 shares
issued and outstanding respectively.
For the year ended March 31, 2001, for the conservation of working capital, the
Company issued common stock as payment for services and existing accounts
payable. A total of 502,013 shares were issued for the payment of $9,500 in
services, $15,000 in pre-existing debt and $149,284 is existing accounts
payable.
For the year ended March 31, 2000, for the conservation of working capital, the
Company issued common stock as payment for services and existing accounts
payable. A total of 251,523 shares were issued for the payment of $248,686 in
services.
H. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company places its cash and cash equivalents with high quality
financial institutions and limits the amount of credit exposure with any one
institution. The Company controls credit risk to accounts receivable through
credit approvals, credit limits, and monitoring procedures.
For the year ended March 31, 2001 one customer accounted for 48% of sales, while
no others accounted for more than 10%, individually. For the same period ended
March 31, 2000 a separate customer accounted for approximately 42% of the
Company's sales.
At March 31, 2001, three customers, each of who accounted for more than 10% of
the Company's accounts receivable, accounted for 66% of accounts receivable in
aggregate. At March 31, 2000, three customers, each of who accounted for more
than 10% of the Company's accounts receivable, accounted for 67% of accounts
receivable in aggregate.
I. COMMITMENTS AND CONTINGENCIES
FACILITY LEASES
The Company leases three facilities for its operations. Three of these
commitments represent verbal, month-to-month, agreements. In Escondido,
California, the Company leases approximately 1,000 square feet of office space
within the primary residence of Rebecca Inzunza, an officer and shareholder, for
$655 per month. In Lake Forest, California, the Company leases approximately
2,400 square feet of office and warehouse space from an
F-14
unrelated third party for $2,380 per month. In Encino, California, the Company
leases two offices within an executive suites office, on a three-month lease,
commencing June 4, 2001, for $1,400 per month.
SERVICES CONTRACTS
On June 7, 1999, the Company entered into an agreement with In Touch
Communications, (`In Touch"), a financial consulting firm. The agreement expired
on December 7, 1999 and was not renewed due to an inability to provide the
agreed upon services. In accordance with the terms of the agreement, the Company
issued 60,000 shares of common stock to In Touch throughout the course of the
agreement, valued at $71,220, calculated as of the dates of service.
On February 15, 2000, the Company entered into an agreement with Merryvale Group
International ("MGI"), and on March 10, 2000, entered into an agreement with
First Canadian Capital, ("FCC"), both financial consulting firm, for the
purposes of raising capital. Due to the inability to provide the agreed upon
services, the agreements were cancelled on June 15, 2000 and March 15, 2000,
respectively. In accordance with the agreements, theses firms were to receive a
percentage of any capital raised. Throughout the terms of the agreements, no
capital was raised by either of these firms. The Company issued 11,433 shares of
common stock in March 2001, as payment for $7,500 of indebtedness to FCC. MGI
received 31,666 shares for $20,773 in services.
On February 24, 2000, the Company entered into an agreement with Charterbridge
Financial Group, ("CFG"), a financial consulting firm, to enhance Company
visibility and market value. The agreement was canceled on May 24, 2000 due to
an inability to provide the agreed upon services. Upon signing the agreement,
the Company issued to CFG 90,000 shares of common stock, valued at $61,830,
calculated as of the date of issuance.
J. GOING CONCERN
The Company has incurred substantial net losses since inception, and as of March
31, 2001 maintained a working capital and shareholders' deficit of ($976,945)
and ($925,301), respectively, raising substantial doubt about the Company's
ability to continue as a going concern. The Company has reassessed its
operations and business structure and has implemented a complete corporate
reorganization plan.
The plan includes the ceasing of direct sales and marketing of the Remedent
Toothbrush, and acquisition of and expansion into diversified business ventures.
To reduce overhead and operating costs, the Company will cease the direct sales
and marketing of its Remedent Toothbrush, and license the product and related
technology to a third party marketer and distributor. This would eliminate all
cash requirements for this product as the licensor would support the
requisitioning, marketing and distribution. The Company is currently in
negotiations with a well-established oral care distributing company, and are
attempting to finalize an agreement prior to the beginning of the second quarter
of 2002.
F-15
The Company will continue to develop additional products for distribution within
the oral hygiene market, and will analyze whether to license the related
technology or manufacture and distribute in-house, on a case-by-case basis.
Additionally, the Company is in negotiations for the acquisition of a
Professional Employer Organization ("PEO") and are also attempting to finalize
prior to the beginning of the second quarter of 2002. PEO firms manage payroll
and human resource functions as well as provide health, unemployment and workers
compensation insurance for small and mid-size businesses. These firms allow
these smaller businesses to shift legal risk, lower administrative costs, and
obtain lower insurance rates as part of the firm's group of customers.
The Company plans to complete additional PEO acquisitions within the next twelve
months, and attempt to improve on industry operating results through the
introduction of additional products and services, and efficient consolidation
and integration of these entities.
The Company's first target is a family owned and operated firm with growing
revenues and current-year profitable operations. The proposed acquisition will
be entirely for stock and will require minimal capital investment as current
management will remain intact.
On July 1, 2001 the Company will also begin developing, manufacturing, marketing
and distributing high-technology dental equipment. The Company has retained 14
additional personnel, 7 engineers and 7 operations and finance, with strong
backgrounds in the business of high-technology dental equipment, and will market
dental curing and whitening lamps, interoral cameras and hand-held penlights.
The Company plans to introduce these products during the second quarter of 2002.
Management believes that if the Company can complete its restructuring plan that
the Company can generate sufficient revenues and cash flows to sustain
operations. There can be no assurance that the Company will be successful in its
efforts and if unsuccessful in its efforts, may be necessary to undertake other
actions to preserve asset value. The financial statements do not include
adjustments that might result from the outcome of this uncertainty.
K. FOREIGN OPERATION DISCLOSURES
During the fiscal year ended 2001, the Company had sales to foreign
customers totaling $257,126. The following table reflects sales by country and
customer.
[Download Table]
Customer Revenue Percentage
Received of Revenue
-------- ----------
Israel Wienstein $210,034 82%
UK Murray 30,540 12%
Thailand KWH Int'l 9,028 4%
Japan Feed Corp. 7,524 3%
-------- ------
TOTAL $257,126 100%
======== ======
F-16
L. SUBSEQUENT EVENTS
The Company has reassessed its operations and business structure and has
implemented a complete corporate reorganization plan. The plan includes the
ceasing of direct sales and marketing of the Remedent Toothbrush, and
acquisition of and expansion into diversified business ventures. One business
ventures entails the development and marketing of high-technology dental
equipment. In connection with this entrance into the dental products market, the
Company formed three wholly-owned subsidiaries in June of 2001, Remedent
Professional Holdings, Inc. ("RPH"), Remedent Professional, Inc. ("Remedent
Professional") and Remedent NV. RPH will act as the holding company, owning 100%
of Remedent Professional, marketing and distributing domestically, and Remedent
NV, marketing and distributing internationally. In May and June 2000, Remedent
Professional entered into two leases for office and warehouse space in Lake
Forest, California and Encino, California, respectively.
In May 2001, the Company sold an aggregate of 1,000,000 shares of common stock
to a single entity at a price of $0.25, for gross proceeds of $250,000.
In April 2001, the Company adopted a Stock Option Plan.
F-17
Dates Referenced Herein and Documents Incorporated by Reference
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