In addition to historical information, this section contains "forward-looking"
statements, including statements regarding the growth of product lines, optimism
regarding the business, expanding sales and other statements. Words such as
expects, anticipates, intends, plans, believes, sees, estimates and variations
of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks and uncertainties that are difficult to
predict. Actual results could vary materially from the description contained
herein due to many factors including continued market acceptance of our
products. In addition, actual results could vary materially based on changes or
slower growth in the oral care and cosmetic dentistry products market; the
potential inability to realize expected benefits and synergies; domestic and
international business and economic conditions; changes in the dental industry;
unexpected difficulties in penetrating the oral care and cosmetic dentistry
products market; changes in customer demand or ordering patterns; changes in the
competitive environment including pricing pressures or technological changes;
technological advances; shortages of manufacturing capacity; future production
variables impacting excess inventory and other risk factors listed in the
section of this Annual Report entitled "Risk Factors" and from time to time in
our Securities and Exchange Commission filings under "risk factors" and
elsewhere.
Each forward-looking statement should be read in context with, and with an
understanding of, the various disclosures concerning our business made elsewhere
in this Annual Report, as well as other public reports filed by us with the
Securities and Exchange Commission. Readers should not place undue reliance on
any forward-looking statement as a prediction of actual results of developments.
Except as required by applicable law or regulation, we undertake no obligation
to update or revise any forward-looking statement contained in this Annual
Report. This section should be read in conjunction with our consolidated
financial statements.
Overview
We design, develop, manufacture and distribute cosmetic dentistry
products. Leveraging our knowledge of regulatory requirements regarding dental
products and management's experience in the needs of the professional dental
community, we have developed a line of professional veneers as well as a family
of teeth whitening products for both professional and "Over-The-Counter" ("OTC")
use, that are distributed in Europe, Asia, Middle East and the United States. We
manufacture many of our products in Ghent, China and France. We distribute our
products using both our own internal sales force and through the use of third
party distributors. We have established dealers in 20 countries encompassing,
North America, Europe, Asia, Latin America, the Pacific Rim and the Middle East.
22
Recent Developments
In December 2019, a strain of novel coronavirus (now commonly known as COVID-19)
was reported to have surfaced in Wuhan, China. COVID-19 has since spread rapidly
throughout many countries, and, on March 12, 2020, the World Health Organization
declared COVID-19 to be a pandemic. In an effort to contain and mitigate the
spread of COVID-19, many countries, including the United States, Canada, Europe
and China, have imposed unprecedented restrictions, mandating business and
school closures, and restricting travel. As a result there have been substantial
reductions in economic activity in countries that have had significant outbreaks
of COVID-19. These mandated business closures have included dental office
closures in Europe, China and the United States for all but emergency
procedures. Our sales people have been unable to call on dental customers during
these closures. It is currently not possible to predict how long the pandemic
will last or the time that it will take for economic activity to return to prior
levels. The COVID-19 pandemic has resulted in significant financial market
volatility and uncertainty in recent weeks. A continuation or worsening of the
levels of market disruption and volatility seen in the recent past could have an
adverse effect on our ability to access capital, on our business, results of
operations and financial condition, and on the market price of our common
shares.
On March 29, 2019, the Company acquired 26.09% of the issued and outstanding
shares of Metrics in Balance N.V., a Belgium corporation. Metrics in Balance
N.V. was founded to allow healthcare and dental professionals to determine the
relationship between malocclusion and posture problems thereby enabling therapy
to improve quality of life in cooperation with the SmileWise concept which is
intended to support and increase organic growth of existing dental .
On January 1, 2017, the Company invested in the start-up of Newco Condor North
America, LLC, a Nevada corporation. Condor North America, LLC. was founded to
market, distribute and sell the Condor intra-oral 3D scanner for the Territory
of North America and Canada.
On January 30, 2014, we sold a total of 2,500,000 ordinary shares of our
investment in Glamsmile Dental Technology Ltd. for an aggregate consideration of
$3,000,000 to Glamsmile Dental Technology Ltd. As a result of the Sale of
Shares, the equity ownership of Glamsmile Dental, on an as converted basis, was
before the Sales of shares as follows: 31.4% by the Investors, 39.2 % by
Gallant, and 29.4% by the Company, and after the sale as follows : 34.9% by the
Investors, 43,6% by Gallant, and 21,51% 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.
On January 16, 2014, the Company invested in the start-up capital of Biotech
Dental Benelux N.V., a Belgium corporation in exchange for 50% of its Shares.
Biotech Dental Benelux has been founded to market and sell dental implants for
the Territory of Belgium, The Netherlands and Luxemburg. Our investment has
enabled us to enlarge our product range and increase our sales in the year ended
March 31, 2019. 100% of Biotech Dental Benelux revenues are generated outside of
the USA and are invoiced in Euros. In comparing our results in Euros, total
sales increased by 2.84% to €433,756 for the fiscal year ended March 31, 2020,
as compared to € 421,789 for the year ended March 31, 2019.
On January 28, 2012, we entered into a Preference A Shares and Preference A-1
Shares Purchase Agreement ("Share Purchase Agreement") with Glamsmile Dental
Technology Ltd., a Cayman Islands company and a subsidiary of Company
("Glamsmile Dental"), Glamsmile (Asia) Limited, a company organized and existing
under the laws of Hong Kong and a substantially owned subsidiary of Glamsmile
Dental, Beijing Glamsmile Technology Development Ltd., Beijing Glamsmile Trading
Co., Ltd., Beijing Glamsmile Dental Clinic Co., Ltd., and Shanghai Glamsmile
Dental Clinic Co., Ltd., Gallant Network Limited, a shareholder of Glamsmile
Dental ("Gallant"), and IDG-Accel China Growth Fund III L.P. ("IDG Growth"),
IDG-Accel China III Investors L.P.("IDG Investors") and Crown Link Group Limited
("Crown")("IDG Growth, IDG Investors and Crown collectively referred to as the
"Investors"), pursuant to which the Investors agreed to (i) purchase from the
Company an aggregate of 2,857,143 shares of Preference A-1 Shares of Glamsmile
Dental, which represents all of the issued and outstanding Preference A-1 Shares
of Glamsmile Dental, for an aggregate purchase price of $2,000,000, and (ii)
purchase from Glamsmile Dental an aggregate of 5,000,000 shares of Preference A
Shares for an aggregate purchase price of $5,000,000.
On February 10, 2012, the sale of the Preference A-1 Shares and the Preference A
Shares was completed. As a result of the closing, the equity ownership of
Glamsmile Dental, on an as converted basis, is as follows: 31.4% by the
Investors, 39.2 % by Gallant, and 29.4% by the Company. Mr. De Vreese, our
chairman, will remain as a director of Glamsmile Dental along with Mr. David
Lok, who is the Chief Executive Officer and director of Glamsmile Dental and
principal of Gallant. In addition, at the closing, the Investors have a right to
appoint one director of Glamsmile Dental, and as such it is contemplated that
after the closing the Board of Directors of Glamsmile Dental will consists of
Mr. De Vreese, Mr. Lok and a director appointed by the Investors.
23
Under the terms of the Share Purchase Agreement, we agreed to transfer 500,000
shares of Glamsmile Dental owned by the Company to the Investors in the event of
breach of certain covenants by the Company. In connection with the Share
Purchase Agreement, we also entered into an Investor's Rights Agreement, Right
of First Refusal and Co-Sale Agreement, and Voting Agreement with the parties.
In addition, in connection with the contemplated transactions in the Share
Purchase Agreement on January 20, 2012, we entered into a Distribution, License
and Manufacturing Agreement with Glamsmile Dental pursuant to which we appointed
Glamsmile Dental as the exclusive distributor and licensee of Glamsmile Veneer
Products bearing the "Glamsmile" name and mark in the B2C Market in the People's
Republic of China (including Hong Kong and Macau) and Republic of China (Taiwan)
and granted related manufacturing rights and licenses in exchange for the
original issuance of 2,857,143 shares of Preference A-1 Shares of Glamsmile
Dental and $250,000 (the receipt of which was acknowledged as an off set to
payment of certain invoices of Glamsmile (Asia) Limited).
On June 3, 2011, the Company obtained a loan in the principal amount of
$1,000,000 (the "Loan") from an unrelated private company, Excelsior Medical
(HK) ("EM"). In connection with the Loan, the Company issued a promissory note,
with a simple interest rate of 5% per annum, secured by certain assets of the
Company (the "Note"). The maturity date of the Loan is June 3, 2014. Interest of
$50,000 per annum is payable in cash on an annual basis. In September 2010, we
entered into a license agreement with EM (the "EM license agreement"). Under the
EM license agreement, we granted EM an exclusive license to certain Asian
territories in exchange for $500,000 which was received during the year ended
March 31, 2011. The Company received a further $500,000 from EM as an advance
payment for veneers. The $500,000 advance, less taxes withheld, was recorded as
deferred revenue of $475,250 as of March 31, 2011. Effective as of January 11,
2012, the Company entered into a Rescission Agreement with EM and Asia Best
Healthcare Co., Ltd. Under the Rescission Agreement, the Company agreed to repay
a total of $1,000,000 received under the Distribution Agreement, plus a simple
interest rate of 5%, beginning on June 30, 2012, according to the following
payment schedule: (i) $250,000 to be paid no later than June 30, 2012, (ii)
$250,000 plus interest on June 30, 2012, (iii) $250,000 plus interest on
December 31, 2012, and (iv) $250,000 plus interest on June 30, 2013. The Company
also agreed to secure such obligations owed to EM with certain collateral of the
Company. During the period ended December 31, 2012 a partial payment of $20,000
in interest has been made. Final settlement agreements were re-negotiated with
EM and Asia Best Healthcare Co, Ltd. during January 2017. The Company agreed to
pay a total amount of $500,000 to EM as final settlement and simultaneously
agreed to pay a total amount of $500,000 to Asia Best Healthcare co., Ltd as
final settlement of the loan agreement. Both payments were executed on March 6,
2017 as final settlement.
Financial Results and Trends
Revenue decreased by approximately 33.6% to $1,064,419 in the year ended March
31, 2020 as compared to $1,603,741 in the year ended March 31, 2019. The
decrease in sales is primarily due to the operational change in our GlamSmile
division. We are now receiving a royalty payment from our Belgium customers
based on quarterly production, rather than invoicing on a finished goods basis,
thereby providing our customers with more flexibility and ensuring we are paid
on a timely basis for each veneer produced. The decrease in sales is also
partially due to the reduced sales of our Condor 3D Scanner in the North
American market. In anticipation of our new and improved 3D scanner, which will
be an easy-to-use scanner with none to minimum additional user training required
and that is planned to be available by year-end, we reduced our active approach
in the US market. Additionally, the impact of the coronavirus (now commonly
known as COVID-19) created a substantial decrease in sales during the past
quarter, ending March 31, 2020.
Our net (loss) attributable to our stockholders was $(858,222) for fiscal 2020
versus income of $2,128,796 for fiscal 2019. During the year ended March 31,
2020 we recognized losses from equity investments of $(353,625) versus
$2,851,529 in equity income in the year ended March 31, 2019. Additionally, due
to the mandatory closings by several governments of dental practices due to
COVID-19 resulted in decreased sales and as a consequence decreased margins,
resulting in a loss for the quarter ending March 31, 2020 of $(358.960).
Critical Accounting Estimates
Basis for Presentation
Our financial statements have been prepared on an accrual basis of accounting,
in conformity with accounting principles generally accepted in the United States
of America.
Pervasiveness of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, the Company evaluates estimates and
judgments, including those related to revenue, bad debts, inventories, fixed
assets, intangible assets, stock based compensation, income taxes, and
contingencies. Estimates are based on historical experience and on various other
assumptions that the Company believes reasonable in the circumstances. The
results form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
could differ from those estimates.
24
Revenue Recognition
The Company recognizes revenue from product sales when persuasive evidence of a
sale exists: that is, a product is shipped under an agreement with a customer;
risk of loss and title has passed to the customer; the fee is fixed or
determinable; and collection of the resulting receivable is reasonably assured.
Sales allowances are estimated based upon historical experience of sales
returns.
Revenues from product sales are recognized when the product is shipped and title
and risk of loss has passed to the customer, typically upon delivery and when
the quantity and price is fixed and determinable, and when collectability is
reasonable assured.
Upfront fees are recognized upon the date of the agreement (i.e. point of sale)
because they relate solely to the sale of territories (that are sold in
perpetuity), are non-refundable, and are not contingent upon additional
deliverables.
We have evaluated all deliverables in our contracts (per ASC 605-25-5) ((a)
territory & (b) manufacturing/marketing training & development fees) and
determined that they are separate, as follows:
· Both (a) & (b) have value to our customers on a standalone basis and can
be sold by our customers separately.
· Delivery or performance of the undelivered item or items is considered
probable and substantially in our control.
Our development fees/milestone payments are recognized in accordance with the
Milestone Method pursuant to FASB ASC 605. Revenues from milestones related to
an arrangement under which we have continuing performance obligations i.e.
specifically scheduled training and development activities, if deemed
substantive, are recognized as revenue upon achievement of the milestone.
Milestones are considered substantive if all of the following conditions are
met: (a) the milestone is non-refundable; (b) achievement of the milestone was
not reasonably assured at the inception of the arrangement; (c) substantive
effort is involved to achieve the milestone; and (d) the amount of the milestone
appears reasonable in relation to the effort expended. If any of these
conditions is not met, the milestone payment is deferred and recognized as
revenue as we complete our performance obligations.
We receive royalty revenues under license agreements with third parties that
sell products based on technology developed by us or to which we have rights.
The license agreements provide for the payment of royalties to us based on sales
of the licensed product. We record these revenues as earned monthly, based on
reports from our licensees.
Business Combinations
On April 1, 2010, the Company adopted the new accounting guidance for business
combinations according to FASB Codification ASC 805, Business Combinations. This
guidance establishes principles and requirements for the reporting entity in a
business combination, including recognition and measurement in the financial
statements of the identifiable assets acquired, the liabilities assumed,
goodwill, and any non-controlling interest in the acquire, as well as disclosure
requirements to enable financial statement users to evaluate the nature and
financial effects of the business combination. Additionally, it provides
guidance for identifying a business combination, measuring the acquisition date,
and defining the measurement period for adjusting provisional amounts recorded.
The implementation of this standard did not have an impact on the Company's
consolidated financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash or cash equivalents.
Non-Controlling Interest
The Company adopted ASC Topic 810 Non-controlling Interests in Consolidated
Financial Statements - an Amendment of Accounting Research Bulletin No. 51 as of
April 1, 2009. SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
non-controlling interest, changes in a parent's ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. ASC Topic 810 also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interest of the parent and the interests of the non-controlling owner. The
adoption of ASC Topic 810 impacted the presentation of our consolidated
financial position, results of operations and cash flows.
25
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, equity investments, accounts payable, and accrued
liabilities. The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximate their
respective fair values because of the short maturities of those instruments. The
Company's investment in Condor Technologies (formerly MFI) is accounted for as a
financial instrument with a readily determinable fair value and is initially
measured at fair value with all subsequent gains and losses recorded in income.
Accounts Receivable and Allowance for Doubtful Accounts
The Company sells professional dental equipment to various companies, primarily
to distributors located in Western Europe, the Middle East and China. The terms
of sales vary by customer, however, generally are 2% 10 days, net 30 days.
Accounts receivable is reported at net realizable value and net of allowance for
doubtful accounts. The Company uses the allowance method to account for
uncollectible accounts receivable. The Company's estimate is based on historical
collection experience and a review of the current status of trade accounts
receivable.
Inventories
The Company purchases certain of its products in components that require
assembly prior to shipment to customers.
The Company writes down inventories for estimated obsolescence to estimated
market value based upon assumptions about future demand and market conditions.
If actual market conditions are less favorable than those projected, then
additional inventory write-downs may be required. Inventory reserves for
obsolescence totaled $573,104 at March 31, 2020 and $597,433 at March 31, 2019.
Prepaid Expense
The Company's prepaid expense consists of prepayments to suppliers for inventory
purchases. Prepaid expenses also include VAT payments made for goods and
services in excess of VAT payments received from the sale of products as well as
amounts for other prepaid operating expenses.
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements are
charged to the asset accounts while replacements, maintenance and repairs, which
do not improve or extend the lives of the respective assets, are expensed. At
the time property and equipment are retired or otherwise disposed of, the asset
and related accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or charged to
income.
The Company depreciates its property and equipment for financial reporting
purposes using the straight-line method based upon the following useful lives of
the assets:
Tooling 3 Years
Furniture and fixtures 4 Years
Machinery and Equipment 4 Years
Patents
Patents consist of the costs incurred to purchase patent rights and are reported
net of accumulated amortization. Patents are amortized using the straight-line
method over a period based on their contractual lives.
Research and Development Costs
The Company expenses research and development costs as incurred.
26
Advertising
Costs incurred for producing and communicating advertising are expensed when
incurred and included in sales and marketing and general and administrative
expenses. For the years ended March 31, 2020 and March 31, 2019, advertising
expense was $38,155 and $138,747 respectively.
Income taxes
Income taxes are accounted for under the asset and liability method as
stipulated by Accounting Standards Codification ("ASC") 740 formerly Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the year in which those temporary differences are expected to be
recovered or settled. Under ASC 740, the effect on deferred tax assets and
liabilities or a change in tax rate is recognized in income in the period that
includes the enactment date. Deferred tax assets are reduced to estimated
amounts to be realized by the use of a valuation allowance. A valuation
allowance is applied when in management's view it is more likely than not (50%)
that such deferred tax will not be utilized.
Effective February 1, 2008, the Company adopted certain provisions under ASC
Topic 740, Income Taxes, ("ASC 740"), which provide interpretative guidance for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Effective with the Company's adoption of
these provisions, interest related to the unrecognized tax benefits is
recognized in the financial statements as a component of income taxes. The
adoption of ASC 740 did not have an impact on the Company's financial position
and results of operations.
In the event that an uncertain tax position exists in which the Company could
incur income taxes, the Company would evaluate whether there is a probability
that the uncertain tax position taken would be sustained upon examination by the
taxing authorities. Reserves for uncertain tax position would then be recorded
if the Company determined it is probable that a position would not be sustained
upon examination or if a payment would have to be made to a taxing authority and
the amount is reasonably estimable.
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 period is as follows:
Year ended Year ended
March 31, 2020 March 31, 2019
Product warranty liability:
Opening balance $ 5,619 $ 6,164
Accruals for product warranties issued in the period - -
Adjustments to liabilities for pre-existing warranties (123 ) (545 )
Ending liability $ 5,496 $ 5,619
Based upon historical sales trends and warranties provided by the Company's
suppliers and sub-contractors, the Company has made a provision for warranty
costs of $5,496 and $5,619 as of March 31, 2020 and March 31, 2019,
respectively.
Segment Reporting
"Disclosure About Segments of an Enterprise and Related Information" requires
use of the "management approach" model for segment reporting. The management
approach model is based on the way a company's management organizes segments
within the company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal
structure, management structure, or any other manner in which management
disaggregates a company. The Company's management considers its business to
comprise one segment for reporting purposes.
27
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.
As at each of March 31, 2020 and 2019, the Company had 19,995,969, shares of
common stock issued and outstanding. As at March 31, 2020 and March 31, 2019 all
of the Company's previously outstanding options and warrants had expired
unexercised.
Pursuant to ASC 260-10-50-1(c), if a fully diluted share calculation was
computed for the year ended March 31, 2018, it would have excluded all options
since the Company's average share trading price during the last the year ended
March 31, 2018 was less than the exercise price of all options. For the years
ended March 31, 2020 and March 31, 2019 a fully diluted share calculation was
not computed since the Company had no outstanding options or warrants
outstanding.
Conversion of Foreign Currencies
The reporting and functional currency for the consolidated financial statements
of the Company is the U.S. dollar. The home currency for the Company's European
subsidiaries, Remedent N.V., Biotech Dental Benelux N.V., GlamSmile Rome and
GlamSmile Deutschland GmbH, is the Euro, for Glamsmile Asia Ltd., and its
subsidiaries, the Hong Kong dollar and the Chinese Renmimbi ("RMB") for Mainland
China. The assets and liabilities of companies whose functional currency is
other that the U.S. dollar are included in the consolidation by translating the
assets and liabilities at the exchange rates applicable at the end of the
reporting period. The statements of income of such companies are translated at
the average exchange rates during the applicable period. Translation gains or
losses are accumulated as a separate component of stockholders' equity.
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in equity except those
resulting from investments by owners and distributions to owners, including
accumulated foreign currency translation, and unrealized gains or losses on
marketable securities.
The Company's other comprehensive income for the year ended March 31, 2020
consisted of a foreign currency translation gain of $12,731. The Company's other
comprehensive income for the year ended March 31, 2019 consisted of a foreign
currency translation gain of $31,922. Because of the adoption of ASU 2016-01 we
recognized a transition date adjustment at April 1, 2018 and reclassified the
unrecognized gain of $178,361 from other comprehensive income to deficit.
Stock Based Compensation
The Company has a stock-based compensation plan. The Company measures the
compensation cost of stock options and other stock-based awards to employees and
directors at fair value at the grant date and recognizes compensation expense
over the requisite service period for awards expected to vest.
Except for transactions with employees and directors, all transactions in which
goods or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable. Additionally, the Company has determined that the dates
used to value the transaction are either:
(1) The date at which a commitment for performance by the counter party to earn
the equity instruments is established;
or
(2) The date at which the counter party's performance is complete.
28
Recently Issued Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board
("FASB") in the form of accounting standards updates ("ASUs") to the FASB's
Accounting Standards Codification ("ASC").
The Company considers the applicability and impact of all ASUs. ASUs not listed
below were assessed and determined not to be applicable or are expected to have
minimal impact on the Company's consolidated financial position and results of
operations.
Adopted Accounting Pronouncements
In February 2016, the FASB established ASU Topic 842 - Leases, by issuing ASU
Topic No. 2016-02 ("Topic 842"), which requires lessees to recognize lease
on-balance sheet and disclose key information about leasing arrangements. Topic
842 was subsequently amended by ASU Topic 2018-11 - Targeted Improvements. The
new standard establishes a right-of-use model ("ROU") that requires a lessee to
recognize a ROU asset and a lease liability for all leases with a term longer
than 12 months. Leases will be classified as finance or operating, with
classification affecting the pattern and classification of expense recognition
in the statement of operations.
The Company adopted Topic 842 in the first quarter of 2019 utilizing the
modified retrospective transition method and a cumulative effect adjustment at
the beginning of the first quarter of 2019. The Company has elected the package
of practical expedients, which allows the Company not to reassess (1) whether
any expired or existing contracts as of the adoption date are or contain a
lease, (2) lease classification for any expired or existing leases as of the
adoption date, and (3) initial direct costs for any existing leases as of the
adoption date. The Company did not elect to apply the hindsight practical
expedient when determining lease term and assessing impairment of the
right-to-use assets. The adoption of Topic 842 resulted in the recognition of
right-of use assets of approximately $180,926 and lease liabilities for
operating leases of approximately $180,926 and no cumulative effect adjustment
on retained earnings on its unaudited Consolidated Balance Sheets or material
impact to its unaudited Consolidated Statements of Operations and Comprehensive
Loss in the period of adoption. Right-of-use assets are included in Prepaid and
other assets, and lease liabilities are included in Accrued liabilities in the
consolidated balance sheet.
29
RESULTS OF OPERATIONS
For the Fiscal Years Ending March 31, 2020 and 2019
Comparative details of results of operations for the years ended March 31, 2020
and 2019 as a percentage of sales are as follows:
2020 2019
NET SALES 100.00 % 100.00 %
COST OF SALES 30.27 % 30.34 %
GROSS PROFIT 69.73 % 69.66 %
OPERATING EXPENSES
Research and development 0.00 % 0.01 %
Sales and marketing 37.74 % 45.39 %
General and administrative 70.35 % 62.90 %
Depreciation and amortization 6.69 % 6.10 %
TOTAL OPERATING EXPENSES 114.78 % 114.39 %
(LOSS) INCOME FROM OPERATIONS (45.06 )% (44.73 )%
Other (expense) income (34.98 )% 176.92 %
INCOME (LOSS) BEFORE INCOME TAXES & NON-CONTROLLING INTEREST (80.04 )% 132.19 %
Income tax expense
(0.22 )% (0.05 )%
NET (LOSS) INCOME BEFORE NON-CONTROLLING INTEREST (80.26 )% 132.14 %
NON-CONTROLLING INTEREST (0.37 % 0.60 %
NET (LOSS) INCOME (80.63 )% 132.74 %
Net Sales
Net sales decreased by approximately 33.6% to $1,064,419 in the year ended March
31, 2020 as compared to $1,603,741 in the year ended March 31, 2019. The
decrease in sales is primarily due to the operational change in our GlamSmile
division. We are now receiving a royalty payment from our Belgium customers
based on Quarterly production, rather than invoicing on a finished goods basis,
thereby providing our customers with more flexibility and ensuring we are paid
on a timely basis for each veneer produced. The decrease in sales is also
partially due to the reduced sales of our Condor 3D Scanner in the North
American market. In anticipation of our new and improved 3D scanner, which will
be an easy-to-use scanner with none to minimum additional user training required
and that is planned to be available by year-end 2020, we reduced our active
approach in the US market. Additionally, the impact of the coronavirus (now
commonly known as COVID-19) created a substantial decrease in sales during the
past quarter, ending March 31, 2020.
Cost of Sales
Cost of sales decreased approximately 33.8% to $322,248 in the year ended March
31, 2020 as compared to $486,495 in the year ended March 31, 2019. The decrease
in cost of sales is primarily due to the operational change in our GlamSmile
division as we changed our profit model for the Belgium customers to royalty
income, resulting in decreased cost of sales. Also, the reduced sales of our
Condor 3D Scanner has also decreased our cost of sales.
The cost of sales as a percentage of sales decreased to 30.27% for the year
ended March 31, 2020 as compared to 30.34% for the year ended March 31, 2019 due
to decreased sales.
Gross Profit
Our gross profit decreased by $375,075 to $742,171 for the fiscal year ended
March 31, 2020 as compared to $1,117,246 for the year ended March 31, 2019
primarily because of the reduced sales described above.
Operating Expenses
Research and Development. Our research and development expenses for the year
ended March 31, 2020 decreased $nil versus $120 for the year ended March 31,
2019 reflecting our current focus on sales and marketing efforts combined with
cost cutting efforts, including our active actions taken due to COVID-19
circumstances.
Sales and marketing costs. Our sales and marketing costs decreased $326,228 to
$401,669 for the year ended March 31, 2020 as compared to $727,897 for the year
ended March 31, 2019. Costs decreased because of decreased attendance at trade
shows and reduced travelling due to our reduced active approach in the US market
and in general due to the COVID-19 mandatory restrictions.
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General and administrative costs. Our general and administrative costs for the
years ended March 31, 2020 and 2019 were $748,858 and $1,008,806 respectively,
representing a decrease of $259,948 or 25.8%. Our general and administrative
costs have decreased because of an increased synergy between our internal
divisions as a result of an ongoing internal reorganization.
Depreciation and amortization. Our depreciation and amortization decreased
$26,519 or 27.1%, to $71,251 for the year ended March 31, 2020 as compared to
$97,770 for the year ended March 31, 2019. The decrease is primarily because our
investments in equipment have declined relative to prior years.
Net interest expense. Our net interest expense was $14,086 for the year ended
March 31, 2020 as compared to $10,643 for the year ended March 31, 2019, an
increase of $3,443 or 32.3%. Interest expense has increased primarily because of
increased debt.
Liquidity and Capital Resources
Cash and Cash Equivalents
Our balance sheet at March 31, 2020 reflects cash and cash equivalents of
$114,634 as compared to $66,539 as of March 31, 2019, an increase of $48,095.
Investing Activities
Net cash (used by)/provided by investing activities was $Nil for the years ended
March 31, 2020 and March 31, 2020.
Financing Activities
During the years ended March 31, 2020 and March 31, 2019, we recognized a
(decrease) in cash and cash equivalents of $(53,453) and $(593,954)
respectively, from the effect of exchange rates between the Euro and the US
Dollar.
Internal and External Sources of Liquidity
As of March 31, 2020, we had current assets of $681,064 compared to $655,933 at
March 31, 2019. The increase in current assets of $25,131 was because of an
increase in cash of $48,095 and an increase in accounts receivable of $95,432
offset by a decrease in inventories of $20,121 and a decrease in prepaid
expenses of $98,274.
Current liabilities at March 31, 2020 of $2,882,219 were $448,925 greater than
current liabilities at March 31, 2019 of $2,433,204. The increase was primarily
a result of an increase in accounts payable of $375,790, an increase in accrued
liabilities of $36,416 and an increase in deferred revenue of $36,719.
Our cash and cash equivalents of $114,734 as of March 31, 2020 is not sufficient
to support our operations through our current fiscal year and we may need
additional financing. During the year ended March 31, 2020, we have been able to
generate cash flows sufficient to support our operations. The continuation of
the Company is dependent upon the Company's ability to continue to generate
profitable operations. We may remain dependent on outside sources of funding
until our results of operations provide consistent positive cash flows.
We have supported current operations by raising additional operating cash
through loans and strategic partnerships and through the sale of non-core
divisions of our business. During the year ended March 31, 2014 we sold 7.9% of
our investment in GlamSmile Asia for $3,000,000 and were fully paid by the end
of March 31, 2017 in cash. Proceeds of the sale were used to repay our existing
bank facility and repay our long-term debt.
At this time, the Company does not currently expect a significant change in the
number of its employees over the next 12 months.
Off-Balance Sheet Arrangements
At March 31, 2020, we were not a party to any transactions, obligations or
relationships that could be considered off-balance sheet arrangements.
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