Forward Looking Statements
The discussion contained herein is for the three months ended June 30, 2020 and
June 30, 2019. The following discussion should be read in conjunction with the
Company's consolidated financial statements and the notes to the consolidated
financial statements included elsewhere in this Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2020. 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 June 29, 2020 with the Securities
and Exchange Commission. Except as required by applicable law or regulation, the
Company undertakes no obligation to revise or update any forward-looking
statements contained in this Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2020. The information contained in this Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2020 is not a complete
description of the Company's business or the risks associated with an investment
in the Company's common stock. Each reader should carefully review and consider
the various disclosures made by the Company in this Quarterly Report on Form
10-Q and in the Company's other filings with the Securities and Exchange
Commission.
Overview
We specialize in the research, development, and manufacturing of oral care and
cosmetic dentistry products. We are one of the leading manufacturers of cosmetic
dentistry products in Europe. Leveraging our knowledge of regulatory
requirements regarding dental products and management's experience in the needs
of the professional dental community, we design, develop, manufacture and
distribute our cosmetic dentistry products, including a full line of
professional dental products that are distributed in Europe, Asia and the United
States. We distribute our products using both our own internal sales force and
through the use of third party distributors.
Result of Operations
Comparative detail of results as a percentage of sales, is as follows:
For the three months ended
June 30,
2020 2019
(unaudited)
NET SALES 100.00 % 100.00 %
COST OF SALES 30.36 % 24.84 %
GROSS PROFIT 69.64 % 75.16 %
OPERATING EXPENSES
Sales and marketing 5.04 % 34.44 %
General and administrative 54.93 % 55.15 %
Depreciation and amortization 4.87 % 7.24 %
TOTAL OPERATING EXPENSES 64.85 % 96.83 %
INCOME (LOSS) FROM OPERATIONS 4.79 % (21.67 )%
Other income (expenses) (1.48 )% (31.82 )%
NET INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST 3.32 % (53.49 )%
NON-CONTROLLING INTEREST (2.80 )% (8.18 )%
NET INCOME 0.51 % (61.67 )%
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Net Sales
Net sales decreased by $90,835 or approximately 29.3% to $219,129 for the three
months ended June 30, 2020 as compared to $309,964 for the three months ended
June 30, 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.
Cost of Sales
Cost of sales decreased approximately 13.6% to $66,528 for the three months
ended June 30, 2020 as compared to $77,007 for the three months ended June 30,
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.
Gross Profit
Our gross profit decreased by $80,356 or 34.5% to $152,601 for the three months
ended June 30, 2020 as compared to $232,957 for the three months ended June 30,
2019 due to the reduced sales described above. Our gross profit as a percentage
of sales decreased to 69.64% in the three months ended June 30, 2020 as compared
to 75.16% for the three months ended June 30, 2019, primarily because of the
reduced sales described above.
Operating Expenses
Sales and marketing costs. Our sales and marketing costs for the three months
ended June 30, 2020 and 2019 were $11,055 and $106,738 respectively,
representing a decrease of $95,683 or 89.6%. 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.
General and administrative costs. Our general and administrative costs for the
three months ended June 30, 2020 and 2019 were $120,366 and $170,956
respectively, representing a decrease of $50,590 or 29.6%. 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
$11,759 or 52.4% to $10,676 for the three months ended June 30, 2020 as compared
to $22,435 for the three months ended June 30, 2019. The decrease is primarily
because our investments in equipment have declined relative to prior years.
Other income (expense). Our other income / (expense) was $(3,239) for the three
months ended June 30, 2020 as compared to $(98,629) for the three months ended
June 30, 2019, a decrease in expense of $95,390. The decrease in other expense
was primarily as a result of decreased equity loss from our investments.
Internal and External Sources of Liquidity
As of June 30, 2020, we had current assets of $657,254 compared to $681,064 at
March 31, 2020. This decrease of $23,810 was primarily due to a decrease in cash
of $18,560 and decrease in prepaid expenses of $21,062, offset by an increase in
accounts receivable of $6,907 and increase in inventories of $8,905.
As of June 30, 2020, we had cash and cash equivalents of $96,074. 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.
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Cash and Cash equivalents
Our balance sheet at June 30, 2020 reflects cash and cash equivalents of $96,074
as compared to $114,634 as of March 31, 2020, a decrease of $18,560.
Operations
Net cash provided by operations was $20,843 for the three months ended June 30,
2020 as compared to net cash provided by operations of $24,595 for the three
months ended June 30, 2019. The decrease in net cash provided by operations for
the three months ended June 30, 2020 as compared to the three months ended June
30, 2019 is primarily as a result of a $173,066 decrease in net loss offset by
non-cash adjustments to net loss and a net use of cash by operating assets and
liabilities totaling $(176,818).
Financing activities
Net cash provided by financing activities totaled $nil for the three months
ended June 30, 2020, as compared to $nil for the three months ended June 30,
2019.
During the three months ended June 30, 2020 and June 30, 2019, we recognized an
increase / (decrease) in cash and cash equivalents of $(39,403) and $(11,598),
respectively, from the effect of exchange rates between the Euro and the US
Dollar.
Off-Balance Sheet Arrangements
At June 30, 2020, we did not have any transactions, obligations or relationships
that could be considered off-balance sheet arrangements.
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