NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
1.
|
DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION
|
The Company is a manufacturer and distributor of cosmetic dentistry products, including a full line of professional dental
tooth whitening products which are distributed in Europe, Asia and the United States. The Company manufactures many of its products in Ghent, Belgium as well as outsourced manufacturing in its facility in Beijing, China. The Company distributes its products using both its own internal sales force and through the use of third party distributors.
In these notes, the terms “Remedent”, “Company”, “we”, “us” or “our” mean Remedent, Inc. and all of its subsidiaries, whose operations are included in these consolidated financial statements.
The Company’s financial statements have been prepared on an accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.
As of December 31, 2013 the Company had working capital deficit of $
2,317,601
and an accumulated deficit of $
21,451,921
. In the second half of the financial year ending March 31, 2013 management of the Company has taken measures to reduce general expenses and to increase sales prices which should have a positive impact on the results, the cash flow and the liquidity of the Company.
Management is also convinced that, in case of necessity, important cash flows can be generated by the sale of investments of the Company. However, additional funding may be required in order to support the Company’s operations and the execution of its business plan. These risks, among others, are also discussed in ITEM 1A – Risk Factors in the Company’s annual report on Form 10-K filed on July 15, 2013 with the SEC. Despite these matters of emphasis, the financial statements have been prepared on a going concern basis.
The Company has conducted a subsequent events review through the date the financial statements were issued, and has concluded that there were no subsequent events requiring adjustments or additional disclosures to the Company's financial statements at December 31, 2013.
|
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The accounting policies of the Company, as applied in the interim consolidated financial statements presented herein are substantially the same as presented in the Company’s Form 10-K for the year ended March 31, 2013, except as may be indicated below:
Organization and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of: Remedent N.V. (incorporated in Belgium) located in Ghent , Belgium, Remedent Professional, Inc. and Remedent Professional Holdings, Inc. (both incorporated in California and inactive), Glamtech-USA, Inc. (a Delaware corporation acquired effective August 24, 2008), Remedent N.V.’s
51
% owned subsidiary, GlamSmile Deutschland GmbH, a German private company located in Munich and Remedent N.V.’s
80
% owned subsidiary, GlamSmile Rome, an Italian private company located in Rome.
Remedent N.V.’s
29.4
% investment in Glamsmile Dental Technology Ltd., a Cayman Islands company (“Glamsmile Dental”) and its subsidiaries:
Glamsmile (Asia) Limited, a company organized and existing under the laws of Hong Kong and a substantially
100
% owned subsidiary of Glamsmile Dental;
Beijing Glamsmile Technology Development Ltd., a
100
% owned subsidiary of GlamSmile Asia; its
80
% owned subsidiary Beijing Glamsmile Trading Co., Ltd.; and its
98
% owned subsidiary Beijing Glamsmile Dental Clinic Co., Ltd., including its
100
% owned Shanghai Glamsmile Dental Clinic Co., Ltd., and its
50
% owned Whenzhou GlamSmile Dental Clinic Ltd.;
which are accounted for using the equity method after January 31, 2012 (see Note 3 – Long-term Investment)
Remedent, Inc. is a holding company with headquarters in Ghent, Belgium. Remedent Professional, Inc. and Remedent Professional Holdings, Inc. have been dormant since inception.
For all periods presented, all significant inter-company accounts and transactions have been eliminated in the consolidated financial statements and corporate administrative costs are not allocated to subsidiaries.
Interim Financial Information
The interim consolidated financial statements of Remedent, Inc. and Subsidiaries (the “Company”) are condensed and do not include some of the information necessary to obtain a complete understanding of the financial data. Management believes that all adjustments necessary for a fair presentation of results have been included in the unaudited consolidated financial statements for the interim periods presented. Operating results for the nine months ended December 31, 2013, are not necessarily indicative of the results that may be expected for the year ended March 31, 2014. Accordingly, your attention is directed to footnote disclosures found in the Annual Report on Form 10-K for the year ending March 31, 2013, and particularly to Note 2, which includes a summary of significant accounting policies.
Warranties
The Company typically warrants its products against defects in material and workmanship for a period of 24 months from shipment.
A tabular reconciliation of the Company’s aggregate product warranty liability for the reporting periods is as follows:
|
|
|
Nine months
ended
December 31,
2013
|
|
Year ended
March 31, 2013
|
|
|
Product warranty liability:
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
19,301
|
|
$
|
20,019
|
|
|
Accruals for product warranties issued in the period
|
|
|
—
|
|
|
(973)
|
|
|
Adjustments to liabilities for pre-existing warranties
|
|
|
1,294
|
|
|
255
|
|
|
Ending liability
|
|
$
|
20,595
|
|
$
|
19,301
|
|
Based upon historical trends and warranties provided by the Company’s suppliers and sub-contractors, the Company has made a provision for warranty costs of $
20,595
and $
19,301
as of December 31, 2013 and March 31, 2013, respectively.
Computation of Earnings (Loss) per Share
Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income (loss) per common share attributable to common stockholders assuming dilution is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued.
On April 1, 2009, the Company adopted changes issued by the FASB to the calculation of earnings per share. These changes state that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method for all periods presented. The adoption of this change had no impact on the Company’s basic or diluted net loss per share because the Company has never issued any share-based awards that contain non-forfeitable rights.
At each of December 31, 2013 and March 31, 2013, the Company had
19,995,969
, shares of common stock issued and outstanding. At December 31, 2013 and March 31, 2013, the Company had Nil and
3,848,379
warrants outstanding respectively and
1,795,000
and
1,795,000
options outstanding respectively. As of December 31, 2012, all outstanding warrants and options were excluded from the computation of earnings per share because their effect would have been anti-dilutive.
Further, pursuant to ASC 260-10-50-1(c), if a fully diluted share calculation was computed for the three
and nine month periods ended December 31, 2013 and December 31, 2012 respectively, it would have excluded all warrants and all options respectively since the Company’s average share trading price during the three month and nine month periods ended December 31, 2013 and December 31, 2012 were less than the exercise price of all other warrants and options.
Comprehensive income (loss) includes all changes in equity except those resulting from investments by owners and distributions to owners, including accumulated foreign currency translation, and unrealized gains or losses on marketable securities.
The Company’s only component of other comprehensive income is the accumulated foreign currency translation consisting of (loss) and gains of $
24,078
and $
79,005
for the nine months ended December 31, 2013 and 2012, respectively. These amounts have been recorded as a separate component of stockholders’ equity (deficit).
New Accounting Pronouncements
Recently Adopted
The below described accounting guidance has all been adopted by the Company effective April 1, 2013 and has not had a material impact upon the Company’s financial condition or results of operations.
In September 2011, the FASB issued new accounting guidance on testing goodwill for impairment. The primary objective of this accounting guidance is to reduce complexity and costs by allowing an entity to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. If, after assessing qualitative factors, an entity determines that it is not more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, then the two-step goodwill impairment test is unnecessary.
In December 2011, the FASB issued new accounting guidance on disclosures about offsetting assets and liabilities. The requirements for offsetting are different under U.S. GAAP and IFRS. Therefore, the objective of this accounting guidance is to facilitate comparison between financial statements prepared under U.S. GAAP and IFRS by enhancing disclosures of the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain assets and liabilities.
In July 2012, the FASB issued guidance that simplifies how entities test indefinite-lived intangible assets for impairment, which improves consistency in impairment testing requirements among long-lived asset categories. ASU 2012-02 permits an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, ASU 2012-02 eliminates the requirement to perform quantitative impairment testing as outlined in the previously issued standards.
In February 2013, the FASB issued guidance that requires reporting of the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about these amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in the financial statements.
In January 2013, the FASB issued ASU No. 2013-01,
Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs
Not yet adopted
In April 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-07,
Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.
Under the new standard, an organization will be required to prepare its financial statements using the liquidation basis of accounting when liquidation is “imminent.” Liquidation is considered imminent when the likelihood is remote that the organization will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). In addition, the new standard provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation method of accounting. The new standard is effective for entities that determine liquidation is imminent during annual periods beginning after December 15, 2013, and interim reporting periods therein. Entities are to apply the requirements prospectively from the day that liquidation becomes imminent, and early adoption is permitted. We are currently unable to determine the impact on our financial statements of the new standard should we be required to adopt it in the future.
3
.
LONG-TERM INVESTMENTS
REMEDENT OTC BV
In connection with the restructuring of the Company’s OTC business in December 2008, the Company controlled Remedent OTC BV until December 31, 2011 through its board representations. As agreed upon in the Voting Agreement, after December 31, 2011, the Company had one board representation and consequently no longer controlled its investment in Remedent OTC BV. As such, the financials of Remedent OTC BV are no longer included in the consolidated Financial Statements but accounted for through the equity method. No gain or loss was recorded on the deconsolidation. After December 31, 2011, the Company still owned
50
% of Remedent OTC BV.
Effective July 13, 2012, and as amended February 7, 2013 the Company sold
100
% of its interest in the share capital of Remedent OTC B.V., to an arm’s length party for the total sales price of €
950,000
( $
667,300
(€
500,000
), (received during July 2012) and $
600,570
(€
450,000
) was received in February 2013.
For the year ended March 31, 2013, the Company recorded an equity Loss of $(
149,064
) in “Other (expenses) income” for its portion of the net loss recorded by Remedent OTC B.V.
Acquisition
Effective January 1, 2010 the Company acquired
50.98
% of the issued and outstanding shares of Glamsmile Asia Ltd. (“Glamsmile Asia” or “Glamsmile”), a private Hong Kong company, with subsidiaries in Hong Kong and Mainland China, in exchange for the following consideration:
|
|
1.
|
325,000
Euro (US$
466,725
). As of March 31, 2011 the full amount was paid.
|
|
|
2.
|
250,000
shares of common stock to be issued during the fiscal year ended March 31, 2011 ($
97,500
was recorded as an obligation to issue shares as at March 31, 2010). The parties have agreed that the shares will be issued during fiscal year ended March 31, 2014.
|
|
|
3.
|
100,000
options on closing (issued);
|
|
|
4.
|
100,000
options per opened store at closing (issued);
|
|
|
5.
|
100,000
options for each additional store opened before the end of 2011 at the price of the opening date of the store;
|
|
|
6.
|
Assumption of Glamsmile’s January 1, 2010 deficit of $
73,302
.; and
|
|
|
7.
|
Repayment of the founding shareholder’s original advances in the amount of $
196,599
. The balance of $
196,599
, recorded as due to related parties at March 31, 2010, is unsecured, non-interest bearing and has no specific terms of repayment other than it will be paid out of revenues from Glamsmile, as working capital allows. During the year ended March 31, 2011 a total of $
101,245
was paid to the founding shareholder, leaving a balance due of $
95,354
on June 27, 2011. As at March 31, 2012 the full amount was paid.
|
All options reside under the Company’s option plan and are five year options.
Also pursuant to the agreement, the Company granted irrevocable right to Glamsmile Asia to use the Glamsmile trademark in Greater China.
The Company acquired a
50.98
% interest in GlamSmile Asia Ltd. (“GlamSmile Asia”) in order to obtain a platform in the Chinese Market to expand and introduce our GlamSmile Asia concept into the Chinese Market. In order to sell into the Chinese Market, an approval by Chinese Authorities is required, in the form of licenses. As GlamSmile Asia was already the owner of such licenses prior to the acquisition, this was an important advantage. We obtained control of GlamSmile Asia through the acquisition of the
50.98
% interest and the appointment of our CEO as a Board member of GlamSmile Asia.
Deconsolidation
On January 28, 2012, the Company entered into a Preference A Shares and Preference A-1 Shares Purchase Agreement (“Share Purchase Agreement”) with Glamsmile Dental Technology Ltd., a Cayman Islands company and a subsidiary of the Company (“Glamsmile Dental”), Glamsmile (Asia) Limited, a company organized and existing under the laws of Hong Kong and a substantially owned subsidiary of Glamsmile Dental, Beijing Glamsmile Technology Development Ltd., Beijing Glamsmile Trading Co., Ltd., Beijing Glamsmile Dental Clinic Co., Ltd., and Shanghai Glamsmile Dental Clinic Co., Ltd., Gallant Network Limited, a shareholder of Glamsmile Dental (“Gallant”), and IDG-Accel China Growth Fund III L.P. (“IDG Growth”), IDG-Accel China III Investors L.P.(“IDG Investors”) and Crown Link Group Limited (“Crown”)(“IDG Growth, IDG Investors and Crown collectively referred to as the “Investors”), pursuant to which the Investors agreed to (i) purchase from the Company an aggregate of
2,857,143
shares of Preference A-1 Shares of Glamsmile Dental, which represents all of the issued and outstanding Preference A-1 Shares of Glamsmile Dental, for an aggregate purchase price of $
2,000,000
, and (ii) purchase from Glamsmile Dental an aggregate of
5,000,000
shares of Preference A Shares for an aggregate purchase price of $
5,000,000
.
Under the terms of the Share Purchase Agreement, the Company agreed (a) to indemnify the Investors and their respective affiliates for losses arising out of a breach, or inaccuracy or misrepresentation in any representation or warranty made by the Company or a breach or violation of a covenant or agreement made by the Company for up to $
1,500,000
, and (b) to transfer
500,000
shares of Glamsmile Dental owned by the Company to the Investors in the event of breach of certain covenants by the Company. In connection with the Share Purchase Agreement, the Company also agreed to enter into an Investor’s Rights Agreement, Right of First Refusal and Co-Sale Agreement, and Voting Agreement with the parties.
In addition, in connection with the contemplated transactions in the Share Purchase Agreement on January 20, 2012, the Company entered into a Distribution, License and Manufacturing Agreement with Glamsmile Dental pursuant to which the Company appointed Glamsmile Dental as the exclusive distributor and licensee of Glamsmile Veneer Products bearing the “Glamsmile” name and mark in the B2C Market in the People’s Republic of China (including Hong Kong and Macau) and Republic of China (Taiwan) and granted related manufacturing rights and licenses in exchange for the original issuance of
2,857,143
shares of Preference A-1 Shares of Glamsmile Dental and $
250,000
(the receipt of which was acknowledged as an offset to payment of certain invoices of Glamsmile (Asia) Limited).
On February 10, 2012, the sale of the Preference A-1 Shares and the Preference A Shares was completed. As a result of the closing, the equity ownership of Glamsmile Dental, on an as converted basis, is as follows:
31.4
% by the Investors,
39.2
% by Gallant, and
29.4
% by the Company. Mr. De Vreese, our chairman, will remain as a director of Glamsmile Dental along with Mr. David Lok, who is the Chief Executive Officer and director of Glamsmile Dental and principal of Gallant. The Investors have a right to appoint one director of Glamsmile Dental, and accordingly the Board of Directors of Glamsmile Dental will consist of Mr. De Vreese, Mr. Lok and a director appointed by the Investors.
In conjunction with the transaction and resulting deconsolidation of Glamsmile Dental, the Company recorded a gain of $
1,470,776
, calculated as follows:
|
Consideration received
|
|
$
|
2,000,000
|
|
|
Fair value of 29.4% interest
|
|
|
2,055,884
|
|
|
Carrying value of non-controlling interest
|
|
|
1,117,938
|
|
|
Less: carrying value of former subsidiary’s net assets
|
|
|
(2,002,329)
|
|
|
Goodwill
|
|
|
(699,635)
|
|
|
Investment China & Hong Kong
|
|
|
(1,082)
|
|
|
Rescission agreement Excelsior (Note 11)
|
|
|
(1,000,000)
|
|
|
|
|
$
|
1,470,776
|
|
For the nine month periods ended December 31, 2013 and December 31, 2012 the Company recorded equity income of $
261,522
and $
268,440
respectively as “Other (expenses) income” for its portion of the net income recorded by GlamSmile Dental Technology Ltd.
MEDICAL FRANCHISES & INVESTMENTS
Effective March 31, 2013, the Company acquired
6.12
% of the issued and outstanding shares of Medical Franchises & Investments N.V., a Belgium corporation ("MFI NV") in exchange for a cash prepayment of $
314,778
that was made during the fiscal year ended March 31, 2012. The Company’s investment in
70,334
shares of MFI NV has been recorded at the fair value of $
787,339
which is the quoted market price of approximately USD $
11.19
(€
8.70
) per share. Because the investment is being recognized as an available-for-sale investment, an unrecognized gain of $
472,561
has been recorded in accumulated other comprehensive income. Future unrealized gains and losses on the investment in MFI will also be recognized in other comprehensive income until realized.
Per ASC-320-10-25-1, investments in debt and equity securities that have readily determinable fair values and are not classified as trading or held-to-maturity securities, are classified as available-for-sale securities.
MFI
NV
has been founded to market an advance in dental technology which has the potential to replace the process of making mechanical impressions of teeth and bite structures with a digital/optical scan.
Effective December 3, 2012, the Company entered into a Loan Agreement (the “Loan Agreement”) with BNP Paribas Fortis Bank, a Belgian Bank, pursuant to which the Company borrowed $
132,820
(€
100.000
). The loan bears interest of
3.68
% per annum and is
repayable in 24 equal monthly installments
of €
4,331
($
5,573
at the closing rate of March 31, 2013). No additional guaranties (see note 13 - secured debt agreements (2)) were required.
As of December 31, 2013 the Company has recorded $
17,238
as a current liability and the balance of $
49,378
as long term (March 31, 2013, $
63,728
and $
49,378
respectively).
Financial Instruments — Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade accounts receivable.
Concentrations of credit risk with respect to trade receivables are normally limited due to the number of customers comprising the Company’s customer base and their dispersion across different geographic areas. At December 31, 2013, five customers accounted for
53.22
% of the Company’s trade accounts receivables, and one customer accounted for
39.33
%. The Company performs ongoing credit evaluations of its customers and normally does not require collateral to support accounts receivable.
Purchases — The Company has diversified its sources for product components and finished goods and, as a result, the loss of a supplier would not have a material impact on the Company’s operations. For the nine months ended December 31, 2013 the Company had five suppliers who accounted for
20.61
% of
gross purchases. For the nine months ended December 31, 2012 the Company had five suppliers who accounted for
20.66
% of gross purchases.
Revenues — For the nine months ended December 31, 2013 the Company had five customers that accounted for
74.38
% of total revenues. For the nine months ended December 31, 2012 the Company had five customers that accounted for
68.44
% of total revenues.
Foreign customers accounted for
100
% of the Company’s sales for the nine month period ended December 31, 2013 (2012 -
100
%).
|
6.
|
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
The Company’s accounts receivable at period end were as follows:
|
|
|
December 31,
2013
|
|
March 31, 2013
|
|
|
Accounts receivable, gross
|
|
$
|
888,566
|
|
$
|
952,804
|
|
|
Less: allowance for doubtful accounts
|
|
|
(5,157)
|
|
|
(4,833)
|
|
|
Accounts receivable, net
|
|
$
|
883,409
|
|
$
|
947,971
|
|
Inventories at period end are stated at the lower of cost (first-in, first-out) or net realizable value and consisted of the following:
|
|
|
December 31,
2013
|
|
March 31, 2013
|
|
|
Raw materials
|
|
$
|
30,018
|
|
$
|
38,452
|
|
|
Components
|
|
|
200,904
|
|
|
214,723
|
|
|
Finished goods
|
|
|
838,271
|
|
|
827,356
|
|
|
|
|
|
1,069,193
|
|
|
1,080,531
|
|
|
Less: reserve for obsolescence
|
|
|
(94,675)
|
|
|
(88,724)
|
|
|
Net inventory
|
|
$
|
974,518
|
|
$
|
991,807
|
|
Prepaid expenses are summarized as follows:
|
|
|
December 31,
2013
|
|
March 31, 2013
|
|
|
Prepaid materials and components
|
|
$
|
45,321
|
|
$
|
196,876
|
|
|
Prepaid Consulting
|
|
|
—
|
|
|
73,854
|
|
|
VAT payments in excess of VAT receipts
|
|
|
16,427
|
|
|
41,241
|
|
|
Prepaid trade show expenses
|
|
|
—
|
|
|
4,632
|
|
|
Prepaid rent
|
|
|
128,375
|
|
|
129,957
|
|
|
Other
|
|
|
24,784
|
|
|
119,940
|
|
|
|
|
$
|
214,907
|
|
$
|
566,500
|
|
|
|
9.
|
PROPERTY AND EQUIPMENT
|
Property and equipment are summarized as follows:
|
|
|
December 31,
2013
|
|
March 31, 2013
|
|
|
Furniture and Fixtures
|
|
$
|
599,950
|
|
$
|
596,471
|
|
|
Machinery and Equipment
|
|
|
1,679,149
|
|
|
1,619,770
|
|
|
|
|
|
2,279,099
|
|
|
2,216,241
|
|
|
Accumulated depreciation
|
|
|
(1,679,694)
|
|
|
(1,521,157)
|
|
|
Property & equipment, net
|
|
$
|
599,405
|
|
$
|
695,084
|
|
The Company has a mixed-use line of credit facility with BNP Paribas Fortis Bank, a Belgian bank (the “Facility”). The Facility is secured by a first lien on the assets of Remedent N.V. and by personal guarantee of the Company’s CEO.
Effective September 3, 2013 we have agreed to repay our line of credit of € 495.000 (US $
679,635
) in 10 installments of € 49.500 (US $
67,964
) + an interest of 3,6 % per year commencing
November 1, 2013
, with the last payment due on
August 1, 2014
.
11.
LONG TERM DEBT
Capital Lease Agreements:
On January 15, 2010, the Company entered into a capital lease agreement over a
5
year period for veneer manufacturing equipment totaling €
251,903
(US $
345,863
).
The lease requires a monthly payment of principal and interest at
9.72
% and provide for a buyout at the conclusion of the lease terms of
4
% of the original value of the contract.
The net book value as of December 31, 2013 and March 31, 2013 of the equipment subject to the foregoing lease was $
101,798
and $
160,056
respectively.
The following is a schedule by years of future minimum lease payments under capital lease together with the present value of the net minimum lease payments as of March 31, 2013:
|
Year ending March 31:
|
|
$
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
20,708
|
|
|
2015
|
|
|
83,509
|
|
|
2016
|
|
|
—
|
|
|
Later years
|
|
|
—
|
|
|
Total minimum lease payments
|
|
|
104,217
|
|
|
Less: Amount representing estimated executory costs (such as taxes, maintenance, and insurance), including profit thereon, included in total minimum lease payments
|
|
|
—
|
|
|
Net minimum lease payments
|
|
|
104,217
|
|
|
Less: Amount representing interest (*)
|
|
|
2,419
|
|
|
Present value of minimum lease payments (**)
|
|
$
|
101,798
|
|
* Amount necessary to reduce net minimum lease payments to present value calculated at the Company’s incremental borrowing rate at the inception of the leases.
** Reflected in the balance sheet as current and non-current obligations under capital leases of $
19,812
and $
81,986
respectively.
Secured Debt Agreements (1)
On June 3, 2011, the Company obtained a loan in the principal amount of $
1,000,000
(the “Loan”) from an unrelated private company, Excelsior Medical (HK) (“EM”). In connection with the Loan, the Company issued a promissory note, with a simple interest rate of
5
% per annum, secured by certain assets of the Company (the “Note”). The maturity date of the Loan is
June 3, 2014
. Interest of $
50,000
per annum is payable in cash on an annual basis.
Effective as of January 11, 2012, the Company entered into a Rescission Agreement with EM and Asia Best Healthcare Co., Ltd. Under the Rescission Agreement, the Company agreed to repay a total of $
1,000,000
received under the Distribution Agreement, plus a simple interest rate of
5
%, beginning on June 30, 2012, according to the following payment schedule:
(i) $250,000 to be paid no later than June 30 , 2012, (ii) $250,000 plus interest on June 30, 2012, (iii) $250,000 plus interest on December 31, 2012, and (iv) $250,000 plus interest on June 30, 2013
. The Company also agreed to secure such obligations owed to EM with certain collateral of the Company. During the period ended December 31, 2012 a partial payment of $
20,000
in interest has been made. The Company is currently in the process of re-negotiating the terms of repayment.
Secured Debt Agreements (2)
On December 3, 2012, the Company obtained a loan in the principal amount of €
100,000
(the “Loan”) from BNP Paribas Fortis bank, to be repaid over the next
24 months
. The loan is secured by a lien on the assets of Remedent N.V. as already granted for the use of our existing Credit Line Facility. The maturity date of the Loan is
January 2, 2015
at an interest rate of
3.68
% to be repaid in monthly installments of €
4,331
($
5,946
).
|
12.
|
DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS
|
Transactions with related parties not disclosed elsewhere in these financial statements consisted of the following:
Compensation:
During the nine month periods ended December 31, 2013 and 2012 respectively, the Company incurred $
172,764
and $
407,708
respectively, as compensation for all directors and officers.
All related party transactions involving provision of services or tangible assets were recorded at the exchange amount, which is the value established and agreed to by the related parties and in management’s opinion reflects arms’ length consideration payable for similar services or transfers.
Accrued liabilities are summarized as follows:
|
|
|
December 31,
2013
|
|
March 31, 2013
|
|
|
Accrued employee benefit taxes and payroll
|
|
$
|
316,246
|
|
$
|
397,666
|
|
|
Accrued travel
|
|
|
6,865
|
|
|
9,650
|
|
|
Accrued audit and tax preparation fees
|
|
|
15,186
|
|
|
14,264
|
|
|
Reserve for warranty costs
|
|
|
20,595
|
|
|
19,301
|
|
|
Advances received on account
|
|
|
—
|
|
|
11,823
|
|
|
Accrued advertising
|
|
|
7,438
|
|
|
9,864
|
|
|
Accrued interest
|
|
|
3,433
|
|
|
12,578
|
|
|
Accrued consulting fees
|
|
|
1,500
|
|
|
2,500
|
|
|
Other accrued expenses
|
|
|
72,039
|
|
|
259,418
|
|
|
|
|
$
|
443,302
|
|
$
|
737,064
|
|
|
|
14.
|
EQUITY COMPENSATION PLANS
|
As of December 31, 2013, the Company had three equity compensation plans approved by its stockholders (1) the 2001 Incentive and Non-statutory Stock Option Plan (the “2001 Plan”), (2) the 2004 Incentive and Non-statutory Stock Option Plan (the “2004 Plan”); and (3) the 2007 Equity Incentive Plan (the “2007 Plan”). The Company’s stockholders approved the 2001 Plan reserving
250,000
shares of common stock of the Company pursuant to an Information Statement on Schedule 14C filed with the Commission on August 15, 2001. In addition, the Company’s stockholders approved the 2004 Plan reserving
800,000
shares of common stock of the Company pursuant to an Information Statement on Schedule 14C filed with the Commission on May 9, 2005. Finally, the Company’s stockholders approved the 2007 Plan reserving
1,000,000
shares of common stock of the Company pursuant to a Definitive Proxy Statement on Schedule 14A filed with the Commission on October 2, 2007.
In addition to the equity compensation plans approved by the Company’s stockholders, the Company has issued options and warrants to individuals pursuant to individual compensation plans not approved by our stockholders. These options and warrants have been issued in exchange for services or goods received by the Company.
The following table provides aggregate information as of December 31, 2013 with respect to all compensation plans (including individual compensation arrangements) under which equity securities are authorized for issuance.
|
|
|
2001 Plan
|
|
2004 Plan
|
|
2007 Plan
|
|
Other
|
|
|
|
|
Outstanding
Options
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
Options
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
Options
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
Options
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, March 31, 2013
|
|
|
12,500
|
|
|
2.00
|
|
|
432,500
|
|
|
0.96
|
|
|
1,000,000
|
|
|
1.21
|
|
|
350,000
|
|
|
0.97
|
|
|
Options outstanding and exercisable December 31, 2013
|
|
|
12,500
|
|
|
2.00
|
|
|
432,500
|
|
|
0.96
|
|
|
1,000,000
|
|
|
1.21
|
|
|
350,000
|
|
|
0.97
|
|
|
Exercise price range
|
|
$
|
2.00
|
|
|
|
|
|
$0.50 - $2.46
|
|
|
|
|
|
$0.50 - $1.75
|
|
|
|
|
|
$0.39 - 1.75
|
|
|
|
|
|
Weighted average remaining life
|
|
|
0.27 years
|
|
|
|
|
|
4.65 years
|
|
|
|
|
|
4.37 years
|
|
|
|
|
|
2.8 years
|
|
|
|
|
A summary of the Company’s equity compensation plans approved and not approved by shareholders is as follows:
|
Plan Category
|
|
Number of
securities to
be
issued upon
exercise of
of
outstanding
options,
warrants
and rights
|
|
Weighted-average
exercise price of
outstanding
options
warrants and
rights
|
|
Number of
securities
remaining
available for
future
issuance
under
equity
compensation
plans
(excluding
securities
reflected
in column (a))
|
|
|
Equity Compensation Plans approved by security holders
|
|
|
1,445,000
|
|
$
|
1.17
|
|
|
605,000
|
|
|
Equity Compensation Plans not approved by security holders
|
|
|
820,000
|
|
$
|
.97
|
|
|
NA
|
|
|
Total
|
|
|
2,265,000
|
|
$
|
1.10
|
|
|
605,000
|
|
For the nine month periods ended December 31, 2013 and December 31, 2012 the Company recognized $Nil (2012 — $Nil) in stock based compensation expense in the consolidated statement of operations. No stock options were granted or cancelled/expired in the nine month periods ended December 31, 2013 and December 31, 2012.
|
|
15.
|
COMMON STOCK WARRANTS AND OTHER OPTIONS
|
As of December 31, 2013 and March 31, 2013, the Company had warrants to purchase the Company’s common stock outstanding that were not granted under shareholder approved equity compensation plans as follows:
|
|
|
Outstanding
Warrants
|
|
Weighted
Average
Exercise
Price
|
|
|
Warrants outstanding and exercisable March 31, 2013
|
|
|
3,738,379
|
|
$
|
1.40
|
|
|
Expired in the period
|
|
|
(3,738,379)
|
|
|
|
|
|
Warrants outstanding and exercisable December 31, 2013
|
|
|
—
|
|
|
|
|
The Company’s only operating segment consists of dental products and oral hygiene products sold by Remedent Inc., Remedent N.V., GlamSmile Deutschland GmbH and GlamSmile Rome SRL in Europe.
Real Estate Lease:
The Company leases an office facility of
5,187
square feet in Gent, Belgium from an unrelated party pursuant to a nine year lease commencing September 1, 2008 at a base rent of
€
5,713
per month for the total location ($
7,844
per month at December 31, 2013).
Additionally, the Company leases an office facility of
635
square feet in Brussels, Belgium from an unrelated party pursuant to a nine year lease commencing July 1, 2012 at a base rent of
€
969
per month for the total location ($
1,330
per month at December 31, 2013).
Finally, the Company leases an office facility of
1,991
square feet in Rome, Italy to support the sales and marketing division of our veneer business, from an unrelated party pursuant to a six year lease commencing July 1, 2011, at a base rent of €
6,500
per month for the total location ($
8,925
per month at December 31, 2013).
Real Estate Lease and All Other Leased Equipment:
Minimum monthly lease payments for real estate, and all other leased equipment are as follows based upon the conversion rate for the (Euro) at December 31, 2013:
|
March 31, 2014
|
|
|
108,826
|
|
|
March 31, 2015
|
|
|
387,423
|
|
|
March 31, 2016
|
|
|
291,542
|
|
|
March 31, 2017
|
|
|
251,160
|
|
|
After five years
|
|
|
144,237
|
|
|
Total:
|
|
$
|
1,183,188
|
|
|
18.
|
FINANCIAL INSTRUMENTS
|
The FASB ASC topic 820 on fair value measurement and disclosures establishes three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), observable inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2), and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).
The carrying values and fair values of our financial instruments are as follows:
|
|
|
|
|
|
December 31, 2013
|
|
March 31, 2013
|
|
|
|
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
|
|
Level
|
|
Value
|
|
Value
|
|
value
|
|
value
|
|
|
Cash
|
|
|
1
|
|
$
|
99,392
|
|
$
|
99,392
|
|
$
|
64,504
|
|
$
|
64,504
|
|
|
Accounts receivable
|
|
|
2
|
|
$
|
883,409
|
|
$
|
883,409
|
|
$
|
947,971
|
|
$
|
947,971
|
|
|
Long Term investment and advance - GlamSmile Dental Technology Asia
|
|
|
2
|
|
$
|
2,703,094
|
|
$
|
2,703,094
|
|
$
|
2,441,572
|
|
$
|
2,441,572
|
|
|
Long term investments and advances MFI
|
|
|
2
|
|
$
|
787,339
|
|
$
|
787,339
|
|
$
|
787,339
|
|
$
|
787,339
|
|
|
Line of credit
|
|
|
2
|
|
$
|
543,708
|
|
$
|
543,708
|
|
$
|
836,355
|
|
$
|
836,355
|
|
|
Short term debt
|
|
|
2
|
|
$
|
2,147,190
|
|
$
|
2,147,190
|
|
$
|
1,214,266
|
|
$
|
1,214,266
|
|
|
Deferred revenue
|
|
|
2
|
|
$
|
98,238
|
|
$
|
98,238
|
|
$
|
149,129
|
|
$
|
149,129
|
|
|
Accounts payable
|
|
|
2
|
|
$
|
1,112,201
|
|
$
|
1,112,201
|
|
$
|
971,813
|
|
$
|
971,813
|
|
|
Accrued liabilities
|
|
|
2
|
|
$
|
443,302
|
|
$
|
443,302
|
|
$
|
737,064
|
|
$
|
737,064
|
|
|
Long term debt
|
|
|
2
|
|
$
|
131,364
|
|
$
|
131,364
|
|
$
|
1,131,364
|
|
$
|
1,131,364
|
|
The following method was used to estimate the fair values of our financial instruments:
The carrying amount of level 1 and level 2 financial instruments approximates fair value because of the short maturity of the instruments.
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. Level 3 financial assets also include certain investment securities for which there is limited market activity such that the determination of fair value requires significant judgment or estimation.
The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no significant transfers between Level 1, Level 2, or Level 3 during the nine month periods ended December 31, 2013 or December 31, 2012. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. The following table provides a reconciliation of the beginning and ending balances of the item measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3):
|
|
|
Nine month period ended
December 31,
2013
|
|
|
Long term investments and advances:
|
|
|
|
|
|
Beginning balance
|
|
$
|
2,441,572
|
|
|
Gains (losses) included in net loss
|
|
|
261,522
|
|
|
Transfers in (out of level 3)
|
|
|
—
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,703,094
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The discussion contained herein is for the three and nine months ended December 31, 2013 and December 31, 2012. The following discussion should be read in conjunction with the Company’s consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2013. In addition to historical information, this section contains “forward-looking” statements, including statements regarding the growth of product lines, optimism regarding the business, expanding sales and other statements. Words such as expects, anticipates, intends, plans, believes, sees, estimates and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Actual results could vary materially from the description contained herein due to many factors including continued market acceptance of our products. In addition, actual results could vary materially based on changes or slower growth in the oral care and cosmetic dentistry products market; the potential inability to realize expected benefits and synergies; domestic and international business and economic conditions; changes in the dental industry; unexpected difficulties in penetrating the oral care and cosmetic dentistry products market; changes in customer demand or ordering patterns; changes in the competitive environment including pricing pressures or technological changes; technological advances; shortages of manufacturing capacity; future production variables impacting excess inventory and other risk factors. Factors that could cause or contribute to any differences are discussed in “Risk Factors” and elsewhere in the Company’s annual report on Form 10-K filed on July 15, 2013 with the Securities and Exchange Commission. Except as required by applicable law or regulation, the Company undertakes no obligation to revise or update any forward-looking statements contained in this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2013. The information contained in this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2013 is not a complete description of the Company’s business or the risks associated with an investment in the Company’s common stock. Each reader should carefully review and consider the various disclosures made by the Company in this Quarterly Report on Form 10-Q and in the Company’s other filings with the Securities and Exchange Commission.
Overview
We specialize in the research, development, and manufacturing of oral care and cosmetic dentistry products. We are one of the leading manufacturers of cosmetic dentistry products in Europe. Leveraging our knowledge of regulatory requirements regarding dental products and management’s experience in the needs of the professional dental community, we design, develop, manufacture and distribute our cosmetic dentistry products, including a full line of professional dental products that are distributed in Europe, Asia and the United States. We distribute our products using both our own internal sales force and through the use of third party distributors.
Result of Operations
Comparative detail of results as a percentage of sales, is as follows:
|
|
|
For the three months ended
December 31,
|
|
|
For the nine months ended
December 31,
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
COST OF SALES
|
|
|
26.67
|
%
|
|
|
49.22
|
%
|
|
|
32.08
|
%
|
|
|
55.38
|
%
|
|
|
GROSS PROFIT
|
|
|
73.33
|
%
|
|
|
50.78
|
%
|
|
|
67.92
|
%
|
|
|
44.62
|
%
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2.72
|
%
|
|
|
2.00
|
%
|
|
|
2.57
|
%
|
|
|
2.79
|
%
|
|
|
Sales and marketing
|
|
|
20.09
|
%
|
|
|
30.88
|
%
|
|
|
22.30
|
%
|
|
|
36.24
|
%
|
|
|
General and administrative
|
|
|
44.02
|
%
|
|
|
78.94
|
%
|
|
|
40.14
|
%
|
|
|
110.86
|
%
|
|
|
Depreciation and amortization
|
|
|
6.97
|
%
|
|
|
10.13
|
%
|
|
|
7.71
|
%
|
|
|
15.67
|
%
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
73.80
|
%
|
|
|
121.95
|
%
|
|
|
72.71
|
%
|
|
|
165.57
|
%
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
(0.46)
|
%
|
|
|
(71.18)
|
%
|
|
|
(4.79)
|
%
|
|
|
(120.95)
|
%
|
|
|
Other income (expense)
|
|
|
13.28
|
%
|
|
|
11.04
|
%
|
|
|
11.33
|
%
|
|
|
31.64
|
%
|
|
|
NET INCOME (LOSS) BEFORE TAXES
|
|
|
12.81
|
%
|
|
|
(60.14)
|
%
|
|
|
6.55
|
%
|
|
|
(89.31)
|
%
|
|
|
INCOME TAXES
|
|
|
(0.00)
|
%
|
|
|
(0.02)
|
%
|
|
|
(0.00)
|
%
|
|
|
(0.01)
|
%
|
|
|
NET INCOME (LOSS)
|
|
|
12.81
|
%
|
|
|
(60.16)
|
%
|
|
|
6.55
|
%
|
|
|
(89.32)
|
%
|
|
Net Sales
We experienced a sales increase for the three months ended December 31, 2013 of $141,945 or 19.6% to $865,897 as compared to $723,952 for the three months ended December 31, 2012.
Net sales increased by approximately 48.3% to $2,332,007 for the nine months ended December 31, 2013 as compared to $1,572,511 for the nine months ended December 31, 2012. The increase in sales is primarily due
increased sales of veneers, veneer related (“Smile Me Mirror”) and our River 8 related products.
Cost of Sales
Our cost of sales decreased for the three months ended December 31, 2013 by $125,442 or 35.2% to $230,914 as compared to $356,356 for the three months ended December 31, 2012. Cost of sales, as a percentage of net sales, has decreased to 26.67% in the quarter ended December 31, 2013 as compared to 49.22% in the quarter ended December 31, 2012.
Cost of sales decreased by $122,736, approximately 14.1%, to $748,065 for the nine months ended December 31, 2013 as compared to $870,801 for the nine months ended December 31, 2012.
The decrease in cost of sales and cost of sales as a percentage of sales is primarily because of new production strategies which have enabled us to reduce our production costs.
Gross Profit
Our gross profit increased by $267,387 or 72.7%, to $634,983 for the three month period ended December 31, 2013 as compared to $367,596 for the three month period ended December 31, 2012. Our gross profit as a percentage of sales increased to 73.33% in the three months ended December 31, 2013 as compared to 50.78% for the three months ended December 31, 2012.
Our gross profit has increased because of increased sales, improved pricing of our veneers, and improved production processes.
Our gross profit increased by $882,232 or 125.7%, to $1,583,942 for the nine months ended December 31, 2013 as compared to $701,710 for the nine months ended December 31, 2012. Our gross profit as a percentage of sales increased to 67.92% in the nine months ended December 31, 2013 as compared to 44.62% for the nine months ended December 31, 2012
primarily because of increased sales of our existing and new launched products and increased pricing of our veneers.
Operating Expenses
Research and Development
. Our research and development costs increased by $9,026 or 62.2% to $23,535 for the three months ended December 31, 2013 as compared to $14,509 for the three months ended December 31, 2012.
The decrease in our research and development costs was primarily because of nonrecurring costs with respect to the “Smile Me Mirror” concept which is in its final phase before being launched.
Our research and development expenses increased $15,872 to $59,820 for the nine months ended December 31, 2013 as compared to $43,948 for the nine months ended December 31, 2012, an increase of 36.1%. Research and development expenses have increased primarily
because of increased efforts in the final phase before launching the “Smile Me Mirror”.
Sales and marketing costs
. Our sales and marketing costs decreased by $49,643 or 22.2% to $173,927 for the three months ended December 31, 2013 as compared to $223,570 for the three months ended December 31, 2012.
The decrease is largely due to our internal reorganization which took place at the year-end of 2012.
Our sales and marketing costs decreased by $49,939 or 8.8% to $519,930 for the nine months ended December 31, 2013 as compared to $569,869 for the nine months ended December 31, 2012.
The decrease in sales and marketing costs as compared to the nine months ended December 31, 2012 is a result of our internal reorganization which took place at the year-end of 2012.
General and administrative costs
. Our general and administrative costs for the three months ended December 31, 2013 and 2012 were $381,160 and $571,464 respectively, representing a decrease of $190,304 or 33.3%. Our general and administrative costs for the nine months ended December 31, 2013 and 2012 were $936,167 and $1,743,363 respectively, representing a decrease of $807,196 or 46.3%.
The decrease in general and administrative costs as compared to the nine months ended December 31, 2012 is a result of the reorganization and downsizing of our European Divisions by optimizing our processes thereby allowing us to reduce overall costs.
Depreciation and amortization
. Our depreciation and amortization expense decreased by $12,952 or 17.7% to $60,382 for the three months ended December 31, 2013 as compared to $73,334 for the three months ended December 31, 2012. Our depreciation and amortization decreased $66,766 or 27.1%, to $179,685 for the nine months ended December 31, 2013 as compared to $246,451 for the nine months ended December 31, 2012.
The decrease is because previous investments in machinery and equipment are now fully amortized.
Other income (expense).
Our other income (expense) was $114,966 for the three months ended December 31, 2013 as compared to $79,920 for the three months ended December 31, 2012, an increase of $35,046 or 43.9%.
The increase in other income was primarily because of an exceptional and non recurring recharge to a third party for services that were performed by the company.
Our other income was $264,310 for the nine months ended December 31, 2013 as compared to $497,513 for the nine months ended December 31, 2012, a decrease in other income of $233,203.
The decrease in other income was primarily because of the one-time gain on the sale of our OTC division in the 2012 comparative period.
Internal and External Sources of Liquidity
As of December 31, 2013, we had current assets of $2,172,226 compared to $2,570,782 at March 31, 2013. This decrease of $398,556 was primarily due to an increase in cash of $34,888 offset by a decrease in accounts receivable of $64,562, a decrease in prepaid expenses of $351,593 and a decrease of $17,289 in inventories.
As of December 31, 2013, we had cash and cash equivalents of $99,392.
We anticipate that we will need to raise additional funds to satisfy our working capital requirements and implement our business strategy to expand our direct to consumer business model. We intend to continue to look for opportunities to expand the number of GlamSmile Studios in Europe. We will continue to review our expected cash requirements, make all efforts to collect any aged receivables, and take appropriate cost reduction measures to ensure that we have sufficient working capital to fund our operations. In the event additional needs for cash arise, we may seek to raise additional funds from a combination of sources including issuance of debt or equity securities. Additional financing may not be available on terms favorable to us, or at all. Any additional financing activity could be dilutive to our current stockholders. If adequate funds are not available or are not available on acceptable terms, our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited.
Cash and Cash equivalents
Our balance sheet at December 31, 2013 reflects cash of $99,392 as compared to $64,504 as of March 31, 2013, a decrease of $34,888.
Operations
Net cash
provided by (used by) operations was $$448,021 for the nine months ended December 31, 2013 as compared to net cash used by operations of $(1,036,909) for the nine months ended December 31, 2012.
The increase of $1,484,930 in net cash provided by operations for the nine months ended December 31, 2013 as compared to the nine months ended December 31, 2012 is primarily because we recognized net income of $152,650 as opposed to a net loss of $(1,404,561).
Investing activities
Net cash (used by) provided by investing activities totaled $(65,295) for the nine months ended December 31, 2013 as compared to $523,611 in the nine months ended December 31, 2012.
Cash used in the nine months ended December 31, 2013 and 2012 was primarily for investing in equipment.
We received a total of $667,300 in the comparative period as proceeds from the sale of our OTC division.
Financing activities
Net cash (used by) provided by financing activities totaled $(359,723) for the nine months ended December 31, 2013, as compared to $434,612 for the nine months ended December 31, 2012.
The decrease in the net cash provided by financing activities in the nine month period ended December 31, 2013 of $794,335 was primarily as a result of our decrease in our line of credit.
During the nine months ended December 31, 2013 and December 31, 2012, we recognized an increase/ (decrease) in cash and cash equivalents of $11,885 and $(111,908), respectively, from the effect of exchange rates between the Euro and the US Dollar.
Off-Balance Sheet Arrangements
At December 31, 2013, we did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the required time periods and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objective, and management is required to exercise its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Management conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2013. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2013.
Changes in Internal Control Over Financial Reporting
There have been no material changes in our internal controls over financial reporting identified in connection with the evaluation of disclosure controls and procedures discussed above that occurred during the quarter ended December 31, 2013 or subsequent to that date that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best knowledge of management, there are no material legal proceedings pending against the Company.
Item 1A. Risk Factors
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. [Removed and Reserved]
Item 5. Other Information
None.
Item 6. Exhibits