UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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þ
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QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2007
or
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o
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TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Commission File Number 001-15975
REMEDENT,
INC.
(Exact name of small business issuer as specified in its charter)
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NEVADA
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86-0837251
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification Number)
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XAVIER DE COCKLAAN 42, 9831 DEURLE, BELGIUM
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N/A
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(Address of principal executive offices)
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(Zip code)
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011 32 9 321 70 80
(Issuers telephone number)
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
þ
Number of shares of issuers common stock outstanding as of February 12, 2008: 18,606,245
Transitional Small Business Disclosure Format (check one). Yes
o
No
þ
Documents incorporated by reference: None.
REMEDENT, INC.
TABLE OF CONTENTS
FORM 10-QSB REPORT
December 31, 2007
2
PART I FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements
REMEDENT, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
(unaudited)
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31, 2007
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March 31, 2007
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(unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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2,016,538
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$
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126,966
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Accounts receivable, net of allowance for doubtful accounts of $73,940 at December
31, 2007 and $79,996 at March 31, 2007
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1,583,946
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1,724,121
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Inventories, net
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1,128,898
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1,132,941
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Prepaid expense
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1,023,930
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668,421
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Total current assets
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5,753,312
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3,652,449
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PROPERTY AND EQUIPMENT, NET
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727,522
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589,623
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OTHER ASSETS
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Long-term investments and advances
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675,000
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Patents, net
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123,974
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135,894
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TOTAL ASSETS
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$
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7,279,808
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$
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4,377,966
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES:
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Current portion, long term debt
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$
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14,443
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$
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43,499
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Line of Credit
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813,344
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1,530,276
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Notes payable
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11,282
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Accounts payable
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1,644,577
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1,441,502
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Accrued liabilities
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377,182
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412,435
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Due to related parties
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50,536
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50,536
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Taxes payable
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81,859
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Total current liabilities
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2,981,941
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3,489,530
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LONG TERM DEBT
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149,715
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152,343
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STOCKHOLDERS EQUITY:
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Preferred Stock $0.001 par value (10,000,000 shares authorized, none issued and
outstanding)
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Common stock, $0.001 par value; (50,000,000 shares authorized, 18,606,245 shares
issued and outstanding at December 31, 2007 and 12,996,245 shares issued and
outstanding at March 31, 2007)
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18,606
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12,996
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Additional paid-in capital
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17,792,553
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11,904,000
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Accumulated deficit
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(13,640,049
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)
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(11,147,600
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)
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Accumulated other comprehensive income (loss) (foreign currency translation adjustment)
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(22,958
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)
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(33,303
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)
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Total stockholders equity
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4,148,152
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736,093
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
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$
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7,279,808
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$
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4,377,966
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COMMITMENTS (Note 18)
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The accompanying notes are an integral part of these consolidated financial statements.
3
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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For the three months ended
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For the nine months ended
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December 31,
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December 31,
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2007
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2006
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2007
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2006
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Net sales
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$
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2,132,950
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$
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1,159,408
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$
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4,453,899
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$
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4,870,161
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Cost of sales
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1,271,430
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672,050
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2,623,506
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2,627,724
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Gross profit
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861,520
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487,358
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1,830,393
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2,242,437
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Operating Expenses
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Research and development
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172,108
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63,394
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247,665
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303,894
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Sales and marketing
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611,144
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119,756
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996,937
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743,170
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General and administrative
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1,087,313
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872,042
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2,891,165
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2,543,154
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Depreciation and amortization
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80,157
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59,896
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215,941
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147,590
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TOTAL OPERATING EXPENSES
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1,950,722
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1,115,088
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4,351,708
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3,737,808
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INCOME (LOSS) FROM OPERATIONS
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(1,089,202
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)
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(627,730
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)
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(2,521,315
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)
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(1,495,371
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)
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OTHER INCOME (EXPENSES)
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Interest expense
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(16,588
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(24,849
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(71,802
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(122,318
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Interest income
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9,040
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100,665
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Other income
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5,016
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32,538
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TOTAL OTHER INCOME (EXPENSES)
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(7,548
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(19,833
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28,863
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(89,780
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NET LOSS
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$
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(1,096,750
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$
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(647,563
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$
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(2,492,452
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$
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(1,585,151
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LOSS PER SHARE
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Basic and fully diluted
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$
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(0.06
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$
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(0.05
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)
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$
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(0.14
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)
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$
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(0.12
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)
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WEIGHTED AVERAGE SHARES OUTSTANDING
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Basic and fully diluted
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18,602,115
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12,996,245
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17,557,700
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12,963,794
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The accompanying notes are an integral part of these consolidated financial statements.
4
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
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For the three months ended
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For the nine months ended
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December 31,
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December 31,
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(Unaudited)
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(Unaudited)
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2007
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2006
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2007
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2006
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Net Income (Loss)
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$
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(1,096,750
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)
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$
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(647,563
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)
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$
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(2,492,452
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)
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$
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(1,585,151
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)
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OTHER COMPREHENSIVE INCOME (LOSS):
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Foreign currency translation adjustment
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58,949
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31,096
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10,345
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56,511
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Comprehensive income (loss)
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$
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(1,037,801
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)
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$
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(616,467
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)
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$
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(2,482,107
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)
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$
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(1,528,640
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)
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The accompanying notes are an integral part of these consolidated financial statements.
5
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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For the nine months ended
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December 31,
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2007
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2006
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
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$
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(2,492,452
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)
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$
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(1,585,151
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)
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Adjustments to reconcile net loss to net cash used by operating activities
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Depreciation and amortization
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215,941
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147,590
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Allowance for doubtful accounts
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(13,417
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)
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(2,597
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)
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Stock issued upon conversion of convertible debentures
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25,706
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Value of stock options to employees and consultants
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101,271
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221,959
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Changes in operating assets and liabilities:
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Accounts receivable
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137,273
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990,234
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Inventories
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4,043
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373,479
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Prepaid expenses
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(352,607
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)
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(357,197
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)
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Accounts payable
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203,075
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(366,123
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)
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Accrued liabilities
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(35,253
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)
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(177,609
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)
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Income taxes payable
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81,859
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(107,783
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)
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Net cash used by operating activities
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(2,150,267
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)
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(837,492
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)
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CASH FLOWS FROM INVESTING ACTIVITIES
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Decrease (increase) in restricted cash
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70,762
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Long-term investments
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(675,000
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)
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Purchases of patents
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(11,998
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)
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Purchases of equipment
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(165,195
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)
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(356,336
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)
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Net cash used by investing activities
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(852,193
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)
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(285,574
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)
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CASH FLOWS FROM FINANCING ACTIVITIES
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Net proceeds from issuance of stock
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5,792,893
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Principal payments on (proceeds from) capital lease note payable
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(31,684
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)
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121,203
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Note payments related parties
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(8,422
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)
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Proceeds from (repayments of) line of credit
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(716,932
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)
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1,024,679
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Net cash provided by financing activities
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5,044,277
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1,137,460
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NET INCREASE IN CASH
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2,041,817
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14,394
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Effect of exchange rate changes on cash and cash equivalents
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|
(152,245
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)
|
|
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(61,325
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)
|
CASH AND CASH EQUIVALENTS, BEGINNING
|
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|
126,966
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|
|
|
332,145
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|
|
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CASH AND CASH EQUIVALENTS, ENDING
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$
|
2,016,538
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|
$
|
285,214
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|
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|
Supplemental Information:
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|
|
|
|
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Interest paid
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|
$
|
14,418
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|
$
|
76,377
|
|
|
|
|
Income taxes paid
|
|
$
|
|
|
|
$
|
|
|
|
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|
The accompanying notes are an integral part of these consolidated financial statements.
6
SUPPLEMENTAL NON-CASH INVESTING
AND FINANCING ACTIVITIES:
On July 31, 2006, the Company issued 32,133 shares of its common stock in exchange for $20,000 in
convertible debentures and accrued interest of $12,133. The difference between the conversion price
of $1.00 per share and the market value of the common stock exchanged valued at $1.80 per share
totaled $25,706 and was charged to interest expense.
7
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
(unaudited)
1. BACKGROUND AND ORGANIZATION
The Company is a manufacturer and distributor of cosmetic dentistry products, including a full
line of professional dental and retail Over-The-Counter tooth whitening products which are
distributed in Europe, and recently in Asia and the United States. The Company manufactures many
of its products in its facility in Deurle, Belgium as well as outsourced manufacturing in China.
The Company distributes its products using both its own internal sales force and through the use
of third party distributors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Remedent, Inc.
(formerly Remedent USA, Inc.), a Nevada corporation, and its four subsidiaries, Remedent N.V.
(Belgian corporation) located in Deurle, Belgium, Remedent Professional, Inc. (incorporated in
California) and a subsidiary of Remedent Professional Holdings, Inc., Remedent Asia Pte. Ltd, a
wholly-owned subsidiary formed under the laws of Singapore, and Sylphar N.V. (incorporated in
Belgium as a wholly owned subsidiary on September 24, 2007), (collectively, the Company).
Remedent, Inc. is a holding company with headquarters in Deurle, Belgium. Remedent Professional,
Inc. and Remedent Professional Holdings, Inc. have been dormant since inception. Remedent Asia
Pte. Ltd., commenced operations as of July 2005. All significant inter-company accounts and
transactions have been eliminated in the consolidated financial statements. 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, 2007, are not necessarily indicative of the results that may be expected for the
year ended March 31, 2008. Accordingly, your attention is directed to footnote disclosures found
in the Annual Report on Form 10-KSB for the year ended March 31, 2007, and particularly to Note
1, which includes a summary of significant accounting policies.
Basis of Presentation
The Companys financial statements have been prepared on an accrual basis of accounting, in
conformity with accounting principles generally accepted in the United States of America. These
principles contemplate the realization of assets and liquidation of liabilities in the normal
course of business. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting periods. Actual results could
differ from those estimates. These financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.
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.
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
8
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 vales of assets
and liabilities that are not readily apparent from other sources. Actual results could differ
from those estimates.
Adoption of New Accounting Policies
Effective January 1, 2007, the Company adopted the provisions of the FASB Staff Position
(FSP)on EITF Issue 00-19-2
Accounting for Registration Payment Arrangements
. This accounting
position was adopted on a prospective basis with no restatement of prior period consolidated
financial statements. This position specifies that the contingent obligation to make future
payments or otherwise transfer consideration under a registration payment arrangement, whether
issued as a separate agreement or included as a provision of a financial instrument or other
agreement, should be separately recognized and measured in accordance with FASB Statement No. 5
Accounting for Contingencies. Transition to the FSP will be achieved by reporting a change in
accounting principle through a cumulative-effect adjustment to the opening balance of deficit.
The Company adopted FASB Interpretation No.48,
Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statements No. 109
(FIN 48) on January 1, 2007. FIN 48 clarifies the
accounting for uncertainty in income taxes by prescribing a two-step method of first evaluating
whether a tax position has met a more likely than not recognition threshold and second, measuring
that tax position to determine the amount of benefit to be recognized in the financial
statements. FIN 48 provides guidance on the presentation of such positions within a classified
statement of financial position as well as on derecognition, interest and penalties, accounting
in interim periods, disclosure, and transition. The adoption of this statement did result in a
cumulative adjustment to equity and there were no unrecognized tax benefits, penalties or
interest at the time of, or subsequent to, adoption.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (Revised) Business Combinations. SFAS 141
(Revised) establishes principles and requirements for how the acquirer of a business recognizes
and measures in its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance
for recognizing and measuring the goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. The guidance will become effective for the
Companys fiscal year beginning April 1, 2009. Management is in the process of evaluating the
impact SFAS 141 (Revised) will have on the Companys financial statements upon adoption.
In December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51. SFAS 160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. The guidance will become effective for the Companys fiscal year beginning April 1,
2009. Management is in the process of evaluating the impact SFAS 160 will have on the Companys
financial statements upon adoption.
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115. This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply
only to entities that elect the fair value option. However, the amendment to SFAS No. 115
Accounting for Certain Investments in Debt and Equity Securities applies to all entities with
available-for-sale and trading securities. SFAS No. 159 is effective for the Company s fiscal
year beginning April 1, 2008. The adoption of this statement is not expected to have a material
effect on the Companys financial statements.
In September 2006, FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157). The
objective of SFAS 157 is to increase consistency and comparability in fair value measurements and
to expand disclosures about fair value measurements. SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements
that require or permit fair value measurements and does not require any new fair value
measurements. The provisions of SFAS 157 are effective for fair value measurements made in the
Companys fiscal years beginning April 1, 2008. The Company has not determined the effect, if
any, that the adoption of SFAS 157 will have on the Companys consolidated financial position or
results of operations.
9
3. PRIVATE PLACEMENT
On June 25, 2007, the Company completed its private offering of 5,600,000 shares of its common
stock, par value $.001 per share at a purchase price of $1.25 per share (the Shares) and
warrants to purchase 4,200,000 shares of common stock, par value $.001 per share, at an exercise
price of $1.55 per share (the Warrants) to certain institutional and accredited investors, for
an aggregate purchase price of $7,000,000 (the Offering).
Under the terms of the Offering, the Warrants are exercisable for a period of five years and
entitle the holder to purchase one share of restricted common stock (the Warrant Shares) for
$1.55 per Warrant Share. The Company also has the right to redeem the Warrants for $0.001 per
Warrant Share covered by the Warrants if the Shares trade on the OTC Electronic Bulletin Board or
similar market above $5.25 per share for 20 consecutive trading days following the initial
effective date of the registration statement covering the resale of the Shares and Warrant
Shares, based upon the closing bid price for the Shares for each trading day (the Redemption
Right). Once the Redemption Right vests, the Company has the right, but not the obligation, to
redeem the Warrants for $0.001 per Warrant Share covered by the Warrants upon 30 days written
notice to the holders of the Warrants.
Under the terms of the Purchase Agreement and the Registration Rights Agreement, the Company was
required to prepare and file with the Securities and Exchange Commission (the Commission) a
registration statement covering the resale of the Shares and the Warrant Shares. The Company
agreed to prepare and file a registration statement covering the resale no later than 30 days
after the Closing. The registration statement became effective October 23, 2007.
The Company engaged Roth Capital Partners, LLC, as its exclusive agent to offer the Shares and
Warrants (the Placement Agent). The Placement Agent is entitled to a fee equal to ten percent
(10%) of the gross proceeds derived from the Offering, of which the Placement Agent may, at its
option, receive up to 2% of its 10% fee in securities issued in the Offering. Further, the
Company agreed to pay the Placement Agent 5% of the exercise price of the Warrants promptly
following the Companys receipt thereof. In addition, the Company agreed to reimburse the
Placement Agent for its out-of-pocket expenses related to the Offering, including an up front
payment of $25,000 to cover such expenses, of which any unused amount will be netted against the
Placement Agents 10% fee.
As of December 31, 2007, the total costs of this private placement were $1,223,007, comprising
of: commissions of $762,505; out-of-pocket costs of $25,000; professional fees of $363,522 and
direct travel costs of $71,980; and have been recorded against share capital as a cost of
financing.
The Offering was conducted in reliance upon an exemption from registration under the Securities
Act of 1933, as amended (the Securities Act), including, without limitation, that under Section
506 of Regulation D promulgated under the Securities Act. The Units were offered and sold by the
Company to accredited investors in reliance on Section 506 of Regulation D of the Securities Act
of 1933, as amended.
4. CONCENTRATION OF RISK
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 Companys customer base and their dispersion across different
geographic areas. At December 31, 2007 one customer accounted for 21.81% of the Companys trade
accounts receivable compared to two customers at December 31, 2006 who accounted for 28% and
16.7% of accounts receivable respectively. 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 Companys
operations. For the nine month period ended December 31, 2007, the Company had five suppliers who
accounted for a total of 14.13% of gross purchases. For the nine month period ended December 31,
2006, the Company relied on two factories to manufacture certain components of its new MetaTray
and iWhite products which represented 32 % of the Companys purchases.
10
|
|
Revenues For the nine month period ended December 31, 2007 the Company had five customers that
accounted for 34.20% of total revenues. For the nine months ended December 31, 2006 the Company
had one customer that accounted for 41,8 % of total revenues.
|
|
5.
|
|
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
|
|
|
A summary of accounts receivable and allowance for doubtful accounts as of December 31, 2007 and
March 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
March 31, 2007
|
Accounts receivable, gross
|
|
$
|
1,657,886
|
|
|
$
|
1,804,117
|
|
Less: allowance for doubtful accounts
|
|
|
(73,940
|
)
|
|
|
(79,996
|
)
|
|
|
|
Accounts receivable, net
|
|
$
|
1,583,946
|
|
|
$
|
1,724,121
|
|
|
|
|
6.
|
|
INVENTORIES
|
|
|
|
Inventories are stated at the lower of cost (weighted average) or market. Inventory costs include
material, labor and manufacturing overhead. Individual components of inventory are listed below
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
March 31, 2007
|
Raw materials
|
|
$
|
34,660
|
|
|
$
|
30,579
|
|
Components
|
|
|
902,181
|
|
|
|
786,728
|
|
Finished goods
|
|
|
206,779
|
|
|
|
329,000
|
|
|
|
|
|
|
|
1,143,620
|
|
|
|
1,146,307
|
|
Less: reserve for obsolescence
|
|
|
(14,722
|
)
|
|
|
(13,366
|
)
|
|
|
|
Net inventory
|
|
$
|
1,128,898
|
|
|
$
|
1,132,941
|
|
|
|
|
7.
|
|
PREPAID EXPENSES
|
|
|
|
Prepaid expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
March 31, 2007
|
|
Prepaid materials and components
|
|
$
|
518,193
|
|
|
$
|
394,598
|
|
Prepaid Belgium income taxes
|
|
|
73,605
|
|
|
|
66,830
|
|
Prepaid consulting
|
|
|
98,540
|
|
|
|
66,830
|
|
VAT payments in excess of VAT receipts
|
|
|
196,388
|
|
|
|
47,260
|
|
Royalties
|
|
|
36,803
|
|
|
|
33,415
|
|
Prepaid trade show expenses
|
|
|
45,526
|
|
|
|
6,523
|
|
Prepaid rent
|
|
|
10,066
|
|
|
|
7,054
|
|
Other
|
|
|
44,809
|
|
|
|
45,911
|
|
|
|
|
|
|
|
|
|
|
$
|
1,023,930
|
|
|
$
|
668,421
|
|
|
|
|
|
|
|
|
8.
|
|
PROPERTY AND EQUIPMENT
|
|
|
|
Property and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
March 31, 2007
|
Furniture and Fixtures
|
|
$
|
180,603
|
|
|
$
|
137,560
|
|
Machinery and Equipment
|
|
|
768,971
|
|
|
|
559,422
|
|
Tooling
|
|
|
254,450
|
|
|
|
188,450
|
|
|
|
|
|
|
|
1,204,024
|
|
|
|
885,432
|
|
Accumulated depreciation
|
|
|
(476,502
|
)
|
|
|
(295,809
|
)
|
|
|
|
Property & equipment, net
|
|
$
|
727,522
|
|
|
$
|
589,623
|
|
|
|
|
Tooling includes a payment made to a company called Sensable, in reference to the development of a
tailored veneer modeling solution, referred to as GlamSmile Design Software. At the end of
December 31, 2007, named software was still under development and is expected to be delivered to
the company by the end of next quarter, beginning of the following quarter.
11
9.
|
|
LONG TERM INVESTMENTS AND ADVANCES
|
|
|
|
Innovative Medical & Dental Solutions, LLC (IMDS, LLC)
|
|
|
|
Effective July 15, 2007 the Company entered into a Limited Liability Company Merger and Equity
Reallocation Agreement (the Participation Agreement) through its subsidiary, Remedent N.V.
Pursuant to the terms of the Participation Agreement, the Company has acquired a 10% equity
interest in IMDS, LLC in consideration for $300,000 which was converted against IMDS receivables.
|
|
|
|
The agreement stipulates certain exclusive world wide rights to certain tooth whitening
technology, and the right to purchase at standard cost certain whitening lights and accessories
and to sell such lights in markets not served by the LLC. The terms of the Participation
Agreement also provide that Remedent N.V. has the first right to purchase additional equity.
Parties to the Participation Agreement include two officers of IMDS, LLC, and an individual who
is both an officer and director of Remedent Inc., and certain unrelated parties.
|
|
|
|
IMDS, LLC is registered with the Secretary of the State of Florida as a limited liability company
and with the Secretary of the State of California as a foreign corporation authorized to operate
in California. IMDS, LLC is merging with White Science World Wide, LLC, a limited liability
company organized under the laws of the State of Georgia. The merged companies will operate as a
single entity as IMDS, LLC, a Florida limited liability company.
|
|
|
|
Soca Networks Singapore (Soca)
|
|
|
|
Pursuant to the terms of a letter of intent dated December 17, 2007, the Company has agreed to
purchase 20% of Soca for a total purchase price of $750,000. Half of the purchase price has been
advanced $375,000 to Soca as a down payment, pending completion of the agreement terms. The
balance of $375,000 is to be paid through the issuance of 220,588 shares of the Companys common
stock. The final agreement is currently being negotiated and management expects to close the
agreement prior to year end.
|
|
10.
|
|
LICENSED PATENTS
|
|
|
|
Teeth Whitening Patents
|
|
|
|
In October 2004, the Company acquired from the inventor the exclusive, perpetual license to two
issued United States patents which are applicable to several teeth whitening products currently
being marketed by the Company. Pursuant to the terms of the license agreement, the Company was
granted an exclusive, worldwide, perpetual license to manufacture, market, distribute and sell
the products contemplated by the patents subject to the payment of $65,000 as reimbursement to
the patent holder for legal and other costs associated with obtaining the patents, which was paid
in October 2004, and royalties for each unit sold subject to an annual minimum royalty of
$100,000 per year. The Company is amortizing the initial cost of $65,000 for these patents over a
ten year period and accordingly has recorded $21,125 of accumulated amortization for this patent
as of December 31, 2007. The Company accrues this royalty when it becomes payable to the
inventory therefore no provision has been made for this obligation as of December 31, 2007.
|
|
|
|
Universal Applicator Patent
|
|
|
|
In September 2004, the Company entered into an agreement with Lident N.V. (Lident), a company
controlled by Mr. De Vreese, the Companys Chairman, to obtain an option, exercisable through
December 31, 2005, to license an international patent (excluding the US) and worldwide
manufacturing and distribution rights for a potential new product which Lident had been assigned
certain rights by the inventors of the products, who are unrelated parties, prior to Mr. De
Vreese association with the Company. The patent is an Italian patent which relates to a single
use universal applicator for dental pastes, salves, creams, powders, liquids and other substances
where manual application could be relevant. The Company has filed to have the patent approved
throughout Europe. The agreement required the Company to advance to the inventors through Lident
a fully refundable deposit of 100,000 subject to the Companys due diligence regarding the
enforceability of the patent and marketability of the product, which, if viable, would be
assigned to the Company for additional consideration to the inventors of 100,000 and an
ongoing royalty from sales of products related to the patent equal to 3% of net sales and, if not
viable, the deposit would be repaid in full by Lident. The consideration the Company had agreed
to pay Lident upon the exercise of the option is the same as the consideration Lident is
obligated to pay the original inventors. Consequently, Lident would not have profited from the
exercise of
|
12
|
|
the option. Furthermore, at a meeting of the Companys Board of Directors on July 13, 2005, the
Board accepted Lidents offer to facilitate an assignment of Lidents intellectual property
rights to the technology to the Company in exchange for the reimbursement of Lidents actual
costs incurred relating to the intellectual property. Consequently, when the Company exercises
the option, all future payments, other than the reimbursement of costs would be paid directly to
the original inventors and not to Lident.
|
|
|
|
On December 12, 2005, the Company exercised the option and the Company and the patent holder
agreed to revise the assignment agreement whereby the Company agreed to pay 50,000 additional
compensation in the form of prepaid royalties instead of the 100,000 previously agreed,
25,000 of which had been paid by the Company in September 2005 and the remaining 25,000
to be paid upon the Companys first shipment of a product covered by the patent. The patent is
being amortized over five (5) years and accordingly, the Company has recorded $50,297 of
accumulated amortization for this patent as of December 31, 2007. At the end of December 31,
2007, the product has not yet been commercialized. Management believes no impairment is
applicable.
|
11.
|
|
LINE OF CREDIT
|
|
|
|
On October 8, 2004, our wholly owned subsidiary, Remedent N.V., obtained a mixed-use line of
credit facility with Fortis Bank, a Belgian bank, for 1,070,000 (the Facility). The
Facility was secured by a first lien on the assets of Remedent N.V. The purpose of the Facility
is to provide working capital to grow our business and to finance certain accounts receivable as
necessary. Since opening the Facility in 2004, Remedent N.V. and Fortis Bank have subsequently
amended the Facility several times to increase or decrease the line of credit. On May 3, 2005 the
Facility was amended to decrease the line of credit to 1,050,000. On March 13, 2006 the
Facility was amended to increase the mixed-use line of credit to 2,300,000, consisting of a
1,800,000 credit line based on the eligible accounts receivable and a 500,000 general
line of credit. The latest amendment to the Facility, dated September 1, 2006, amended and
decreased the mixed-use line of credit to 2,050,000. Each line of credit carries its own
interest rates and fees as provided in the Facility. Remedent N.V. is currently only utilizing
two lines of credit, advances based on account receivables and the straight loan. As of December
31, 2007 and March 31, 2007, Remedent N.V. had, in the aggregate, $813,344 and $1,530,276
advances outstanding, respectively, under this mixed-use line of credit facility.
|
|
12.
|
|
LONG TERM DEBT
|
|
|
|
On September 15, 2005, the Company entered into two five year capital lease agreements for
manufacturing equipment totaling 70,296 (US $85,231). On October 24, 2006, the Company
entered into another five year capital lease agreement for additional manufacturing equipment
totaling 123,367 (US $157,503). The leases require monthly payments of principal and interest
at 7.43% of 1,258 (US$1,852 at December 31, 2007) for the first two leases and 9.72% of
2,256 (US$3,321 at December 31, 2007) and provide for buyouts at the conclusion of the five
year term of 2,820 (US$4,151) or 4.0% of original value for the first two contracts and
4,933 (US $7,262) or 4.0 % of the original value for the second contract. The book value as
of December 31, 2007 and March 31, 2007 of the equipment subject to the foregoing leases are
$161,811 and $198,225, respectively.
|
|
13.
|
|
DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS
|
|
|
|
Balances due to related parties consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
March 31, 2007
|
|
Demand loan from a former officer and major stockholder
|
|
$
|
50,536
|
|
|
$
|
50,536
|
|
|
|
|
|
|
|
|
|
|
$
|
50,536
|
|
|
$
|
50,536
|
|
|
|
|
|
|
|
|
|
|
Borrowings from employees and entities controlled by officers of the Company are, unsecured,
non-interest bearing, and due on demand.
|
|
|
|
Transactions with related parties consisted of the following:
|
|
|
|
Compensation:
|
|
|
|
During the nine month periods ended December 31, 2007 and 2006 respectively, the Company incurred
$483,304 and $441,707 respectively, as compensation for all directors and officers.
|
13
|
|
Effective August 8, 2007, the Company appointed a Senior Vice President and Head of U.S.
Marketing. Terms of the appointment provide for an initial base salary of $150,000 per year and
options to purchase 100,000 shares of common stock under the Companys 2004 Incentive and
Nonstatutory Stock Option Plan (granted Refer to Note 16).
|
|
|
|
Sales Transactions:
|
|
|
|
One of the Companys directors owns a 5% interest in a client company, IMDS Inc. (refer to Note
9), to which goods were sold during the years ended March 31, 2007 and 2006 totaling $476,122 and
$38,494 respectively, sales during the three month period ended December 31, 2007 totaled $
47,256. Accounts receivable with this customer totaled $63,272 and $ 105,851 as at December 31,
2007 and 2006 respectively.
|
|
|
|
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
reflecting arms length consideration payable for similar services or transfers.
|
|
|
|
Other related party transactions are disclosed in Supplemental Non-Cash Investing and Financing
Activities, clause (e), and Note 17. (Refer to Note 9.)
|
|
14.
|
|
ACCRUED LIABILITIES
|
|
|
|
Accrued liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
March 31, 2007
|
Accrued customer prepayments
|
|
$
|
12,401
|
|
|
$
|
|
|
Accrued payroll and employee benefit taxes
|
|
|
167,234
|
|
|
|
260,676
|
|
Commissions
|
|
|
4,291
|
|
|
|
2,834
|
|
Accrued audit and tax preparation fees
|
|
|
19,000
|
|
|
|
27,282
|
|
Reserve for warranty costs
|
|
|
22,082
|
|
|
|
20,049
|
|
Accrued interest
|
|
|
1,289
|
|
|
|
6,180
|
|
Accrued consulting fees
|
|
|
11,701
|
|
|
|
2,528
|
|
Other accrued expenses
|
|
|
139,183
|
|
|
|
92,886
|
|
|
|
|
|
|
$
|
377,182
|
|
|
$
|
412,435
|
|
|
|
|
15.
|
|
CAPITAL STOCK
|
|
|
|
During the three months ended December 31, 2007 the Company received $15,900 on the exercise of
10,000 common stock purchase warrants.
|
|
16.
|
|
EQUITY COMPENSATION PLANS
|
|
|
|
The Board of Directors and stockholders approved the Nonstatutory Stock Option Plan (the 2001
Plan) and adopted it on May 29, 2001. The Company has reserved 250,000 shares of its common
stock for issuance to the directors, employees and consultants under the Plan. The Plan is
administered by the Board of Directors. Vesting terms of the options range from immediately to
five years.
|
|
|
|
Pursuant to an Information Statement on Schedule 14C mailed on May 9, 2005 to all stockholders of
record as of the close of business on February 1, 2005 and became effective September 3, 2005,
the Company authorized the implementation of a 2004 Incentive and Nonstatutory Stock Option Plan
(2004 Plan) reserving 800,000 shares of common stock for issuance to employees, directors and
consultants of the Company or any subsidiaries. This plan became effective as of September 3,
2005 after the Company had completed a one for twenty reverse split.
|
|
|
|
On October 1, 2006, the Company granted to a marketing consultant 25,000 options to purchase the
Companys common stock at a price of $1.80 per share. These options vested immediately upon grant
and are exercisable for a period of five years. The Company valued the foregoing options using
the Black Scholes option pricing model using the following assumptions: no dividend yield;
expected volatility rate of 91.58%; risk free interest rate of 5% and an average life of 5 years
resulting in a value of $1.298 per option granted.
|
14
|
|
On September 14, 2006, pursuant to an S-8 filed with the SEC, the Company registered 1,150,000
common shares, pursuant to compensation arrangements.
|
|
|
|
On August 17, 2007, pursuant to the terms of the Companys 2004 Plan, the Company granted to an
employee 100,000 options to purchase the Companys common stock at a price of $1.50 per share.
These options will vest over the next 3 years and are exercisable for a period of 5 years. The
Company valued the foregoing options using the Black Scholes option pricing model using the
following assumptions: no dividend yield; expected volatility rate of 115%; risk free interest
rate of 4.75% and an average life of 5 years resulting in a value of $1.24 per option granted.
The value of these options will be recognized on a straight-line basis over the next three years
and accordingly a value of $17,381 has been recorded in the period ended December 31, 2007.
|
|
|
|
On September 21, 2007 the Company granted to employees and directors a total of 570,000 options
to purchase the Companys common stock at a price of $1.75 per share. These options will vest
over the next 3 years and are exercisable for a period of 10 years. The Company valued the
foregoing options using the Black Scholes option pricing model using the following assumptions:
no dividend yield; expected volatility rate of 115%; risk free interest rate of 4.75% and an
average life of 7 years resulting in a value of $1.47 per option granted. The value of these
options will be recognized on a straight-line basis over the next three years and accordingly a
value of $83,889 has been recorded in the period ended December 31, 2007.
|
|
|
|
A summary of the option activity for the nine months ended December 31, 2007 pursuant to the
terms of the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Plan
|
|
|
2004 Plan
|
|
|
Other
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
Options outstanding , March 31, 2007
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
210,666
|
|
|
$
|
3.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
520,000
|
|
|
|
1.71
|
|
|
|
150,000
|
|
|
$
|
1.75
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31,
2007
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
730,666
|
|
|
$
|
2.29
|
|
|
|
150,000
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable December 31,
2007
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
210,666
|
|
|
$
|
4.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price range
|
|
$
|
1.00 to $4.00
|
|
|
|
|
|
|
$
|
1.50 to $4.00
|
|
|
|
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining life
|
|
4.3 years
|
|
|
|
|
|
5.62 years
|
|
|
|
|
|
8.97 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares available for future issuance
|
|
|
27,500
|
|
|
|
|
|
|
|
69,334
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Companys equity compensation plans approved and not approved by shareholders is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Number of securities
|
|
|
|
securities to be
|
|
|
|
|
|
|
remaining available for
|
|
|
|
issued upon
|
|
|
|
|
|
|
future issuance under
|
|
|
|
exercise of
|
|
|
Weighted-average
|
|
|
equity compensation
|
|
|
|
of outstanding
|
|
|
exercise price of
|
|
|
plans (excluding
|
|
|
|
options, warrants
|
|
|
outstanding options
|
|
|
securities reflected
|
|
Plan Category
|
|
and right
|
|
|
warrants and rights
|
|
|
in column (a))
|
|
Equity Compensation Plans approved by security holders
|
|
|
1,103,166
|
|
|
$
|
2.01
|
|
|
|
96,834
|
|
Equity Compensation Plans not approved by security holders
|
|
|
297,298
|
|
|
$
|
1.50
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,400,464
|
|
|
$
|
1.91
|
|
|
|
96,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to January 1, 2006, the Company accounted for employee stock-based compensation under the
recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees, and related Interpretations, as permitted by SFAS No.
123, Accounting for Stock-Based Compensation. Under the recognition principles of APB No. 25,
compensation expense related to restricted stock and performance units was recognized in the
financial statements. However, APB No. 25 generally did not require the recognition of
compensation expense for stock options because the exercise price of these instruments was
generally equal to the fair value of the underlying common stock on the date of grant, and the
related number of shares granted were fixed at that point in time.
|
15
|
|
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No.
123(R), Share-Based Payment. In addition to recognizing compensation expense related to
restricted stock and performance units, SFAS No. 123(R) also requires recognition of compensation
expense related to the estimated fair value of stock options. The Company adopted SFAS No. 123(R)
using the modified-prospective-transition method. Under that transition method, compensation
expense recognized subsequent to adoption includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of January 1, 2006, based on the values
estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost
for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair
values estimated in accordance with the provisions of SFAS No. 123(R). Consistent with the
modified-prospective-transition method, the Companys results of operations for prior periods
have not been adjusted to reflect the adoption of FAS 123(R). For the nine months) ended December
31, 2007 the Company recognized $101,270 (2006 $221,959) in compensation expense in the
consolidated statement of operations.
|
|
17.
|
|
COMMON STOCK WARRANTS AND OTHER OPTIONS
|
|
|
|
On February 10, 2006, the Company issued to an individual the right to purchase 150,000 shares of
the Companys common stock at an exercise price of $2.60 per share for a term of five (5) years
pursuant to the terms and conditions of a Stock Option Agreement as consideration for past
services performed and the release of any and all claims under this individuals prior agreements
with the Company. The 150,000 options have been valued in accordance with the Black-Scholes
pricing model utilizing an historic volatility factor of 1.55, a risk free interest rate of 4.5%
and an expected life for the options of five years, resulting in a value of $2.41 per option
granted for a total for the warrants of $361,500. The value of this option grant was recorded as
of December 31, 2005 as a research and development expense.
|
|
|
|
In November 2006, the Company entered into a Settlement Agreement and Release (Settlement
Agreement) with this individual pursuant to which the prior agreement was terminated. In
connection with the Settlement Agreement, the Company agreed to pay this individual $65,000 in
settlement of all accounts which was recorded as an expense as of the date of the Settlement
Agreement and he in turn agreed to the cancellation of his options to purchase 150,000 shares of
the Companys common stock in exchange for certain product rights that the Company had elected
not to pursue.
|
|
|
|
As of December 31, 2007, the Company has 7,260,026 warrants to purchase the Companys common
stock outstanding that were not granted under shareholder approved equity compensation plans at
prices ranging between $1.20 and $3.00 per share with expiration dates between August 2007 and
September 2012 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Average Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Warrants and options outstanding , March 31, 2007
|
|
|
3,105,651
|
|
|
$
|
1.72
|
|
Granted
|
|
|
4,200,000
|
|
|
|
1.55
|
|
Exercised
|
|
|
(10,000
|
)
|
|
|
1.59
|
|
Cancelled or expired
|
|
|
(35,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable December 31, 2007
|
|
|
7,260,026
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
Exercise price range
|
|
$
|
1.20 to $10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining life
|
|
4.95 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
18.
|
|
SEGMENT INFORMATION
|
|
|
|
The Companys only operating segment consists of dental products and oral hygiene products sold
by Remedent Inc., Remedent N.V., Sylphar N.V., and Remedent Asia. Since the Company only has one
segment, no further segment information is presented.
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
December 31, 2006
|
U.S. sales
|
|
$
|
316,208
|
|
|
$
|
173,733
|
|
Foreign sales
|
|
|
4,137,691
|
|
|
|
4,696,428
|
|
|
|
|
|
|
$
|
4,453,899
|
|
|
$
|
4,870,161
|
|
|
|
|
16
19.
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
Real Estate Lease
|
|
|
|
The Company leases its 26,915 square feet office and warehouse facility in Deurle, Belgium from
an unrelated party pursuant to a nine year lease commencing December 20, 2001 at a base rent of
$6,838 per month ($9,696 per month at December 31, 2007). In addition, the Company is responsible
for the payment of annual real estate taxes for the property which totaled 3,245 ($4,382) for
calendar year 2006. The minimum aggregate rent to be paid over the remaining lease term based
upon the conversion rate for the at December 31, 2007 is $283,142. Rent expense for the
foregoing lease for the nine months ended December 31, 2007 and December 31, 2006 was $80,991 and
$59,040 respectively.
|
|
|
|
Minimum monthly lease payments for real estate, and all other leased equipment for the next four
years are as follows based upon the conversion rate for the (Euro) at December 31, 2007.
|
|
|
|
|
|
March 31, 2008
|
|
$
|
231,425
|
|
March 31, 2009
|
|
$
|
212,805
|
|
March 31, 2010
|
|
$
|
68,954
|
|
March 31, 2011
|
|
$
|
37,790
|
|
Item 2. Managements Discussion and Analysis of Financial Condition or Plan of Operations
|
|
The discussion contained herein is for the nine months ended December 31, 2007 and 2006. The
following discussion should be read in conjunction with the Companys condensed consolidated
financial statements and the notes to the condensed consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 2007.
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, 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 Companys annual report on Form 10-KSB filed on
July 13, 2007 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-QSB for the quarterly period ended December 31, 2007.
The information contained in this Quarterly Report on Form 10-QSB for the quarterly period ended
December 31, 2007 is not a complete description of the Companys business or the risks associated
with an investment in the Companys common stock. Each reader should carefully review and consider
the various disclosures made by the Company in this Quarterly Report on Form 10-QSB for the
quarterly period ended December 31, 2007 and in the Companys other filings with the Securities and
Exchange Commission.
|
Overview
We design, develop, manufacture and distribute cosmetic dentistry products. Leveraging our
knowledge of regulatory requirements regarding dental products and managements experience in the
needs of the professional dental community, we have developed a family of teeth whitening products
for both professional and Over-The-Counter use, that are distributed in Europe, Asia and the
United States. We manufacture many of our products in our facility in Deurle, Belgium as well as
outsourced manufacturing in China. We distribute our products using both our own internal sales
force and through the use of third party distributors. As a result of this approach, we have
established dealers in 35 countries encompassing, Europe, Asia, Latin America, the Pacific Rim and
the Middle East.
For the fiscal years ending March 31, 2003 through 2007, substantially all of our revenue has
been generated by our Belgian subsidiary, Remedent N.V., which has experienced substantial growth
in its revenues.
Our products can be generally classified into the following categories: professional dental
products and Over-The Counter tooth whitening products. In the fall of 2006, we launched a
proprietary veneer technology product line called GlamSmile. GlamSmile
17
veneers are ultra thin claddings made from a mixture of a hybrid composite and porcelain
materials which are attached to the front of the patients teeth. Because GlamSmile veneers are so
thin, the dentist does not need to remove healthy tooth structure leaving the patients healthy
tooth structure intact which results in several important benefits: (i) no local anesthesia is
required to prepare the teeth; (ii) reduced (if any) tooth sensitivity post-procedure; and (iii)
the process is reversible. In addition, in the three months ended March 31, 2006, a variation of
our MetaTray
®
product named iWhite
®
was introduced to our global retail distribution network. We
introduced MetaTray in August 2005, our next generation of products targeted for the professional
dentist market. MetaTray is a completely self-contained whitening system that can be administered
by dentists.
During the second half of the fiscal year ended March 31, 2006, we established sales offices
in Singapore to service the Asian market. In conjunction with the establishment of the office in
Singapore, we formed a wholly owned subsidiary, Remedent Asia Pte Ltd. Although sales in Singapore
have taken time to materialize, we believe progress is being made in establishing market share in
this region.
In June 2007, we completed a private placement of 5,600,000 shares of our common stock at
$1.25 per share and warrants to purchase up to 4,200,000 shares of common stock at an exercise
price of $1.55 per share to certain institutional and accredited investors for an aggregate
purchase price of $7,000,000, of which we received proceeds of approximately $5,776,993, net of
costs.
The following table presents our consolidated statements of loss, as a percentage of sales, for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
NET SALES
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
COST OF SALES
|
|
|
58.20
|
%
|
|
|
57.96
|
%
|
|
|
58.23
|
%
|
|
|
53.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
41.80
|
%
|
|
|
42.04
|
%
|
|
|
41.77
|
%
|
|
|
46.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8.07
|
%
|
|
|
5.47
|
%
|
|
|
5.56
|
%
|
|
|
6.24
|
%
|
Sales and marketing
|
|
|
28.65
|
%
|
|
|
10.33
|
%
|
|
|
22.38
|
%
|
|
|
15.26
|
%
|
General and administrative
|
|
|
50.98
|
%
|
|
|
75.21
|
%
|
|
|
64.91
|
%
|
|
|
52.22
|
%
|
Depreciation and amortization
|
|
|
3.76
|
%
|
|
|
5.17
|
%
|
|
|
4.85
|
%
|
|
|
3.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
91.46
|
%
|
|
|
96.18
|
%
|
|
|
97.70
|
%
|
|
|
76.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(49.66
|
)%
|
|
|
(54.14
|
)%
|
|
|
(55.93
|
)%
|
|
|
(30.71
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(0.35
|
)%
|
|
|
(1.71
|
)%
|
|
|
0.65
|
%
|
|
|
0.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(50.01
|
)%
|
|
|
(55.85
|
)%
|
|
|
(55.28
|
)%
|
|
|
(30.04
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
(50.01
|
)%
|
|
|
(55.85
|
)%
|
|
|
(55.28
|
)%
|
|
|
(30.04
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Net sales increased for the three months ended December 31, 2007 by $973,542, or 84%, to
$2,132,950 compared to $1,159,408 for the three months ended December 31, 2006. For the three
months ended December 31, 2007, the increase in sales is primarily due to the increased sales of
OTC products, more specifically the iWhite and Remesense product lines as well as increased sales
of GlamSmile veneers.
Net sales of the veneer product, GlamSmile, increased for the three months ended December 31,
2007 by $284,068, or 3,222.19 % to $292,884 compared to $8,816 for the three months ended December
31, 2006.
For the nine months ended December 31, 2007, sales decreased by $416,262 to $4,453,899 as
compared to $4,870,161 for the nine months ended December 31, 2006. The decrease in net sales for
the nine months ended December 2007 as compared to the net sales for the nine months ended December
2006 is primarily due to the non- recurrence of one specific iWhite launch order in the summer of
2006.
Net sales of the veneer product, GlamSmile, increased for the nine months ended December 31,
2007 by $483,244, or 3,277.56 % to $497,988, compared to $14,744 for the nine months ended December
31, 2006.
18
Cost of Sales
Cost of sales increased for the three months ended December 31, 2007 by $599,380, or 84.7% to
$1,271,430 as compared to $672,050 for the three months ended December 31, 2006. The increase in
cost of sales is in line with the increase in sales of 84% which is as discussed above.
For the nine months ended December 31, 2007, cost of sales decreased by $4,218 from $2,627,724
for the nine months ended December 31, 2006 to $2,623,506 for the nine months ended December 31,
2007. This decrease is primarily the result of the decreased sales volume for the period. Cost of
sales as a percentage of net sales increased 4% from 53.96% for the nine months ended December 31,
2006 to 58% for the nine months ended December 31, 2007 primarily for the same reasons discussed
above for the three month period.
Gross Profit
Gross profit increased by $374,162 to $861,520 for the three month period ended December 31,
2007 as compared to $487,358 for the three month period ended December 31, 2006. This increase is
the result of the increased sales as explained above. For the three month period ended December 31,
2007, our gross profit as a percentage of sales decreased 1.65% from 42.04% to 40.39% as compared
to the three months ended December 2006. This decrease in percentage gross profit is mostly due to
the mix in the product range, some products have higher margins than others, which is reflected in
the decreased gross profit for the three month period ended December 31, 2007 compared to December
31, 2006.
For the nine months ended December 31, 2007, gross profit decreased by $412,044 to $1,830,393
as compared to $2,242,437 for the nine months ended December 31, 2006. The decrease for the nine
month period is primarily due to the decreased sales for the nine months ended December 31, 2007 as
compared to the nine months ended December 31, 2006.
Operating Expenses
Research and Development
.
Research and development expenses increased by 108,714, or 171.5%, to $172,108 for the three
months ended December 31, 2007 as compared to $63,394 for the three months ended December 31, 2006.
The increase is due to product tests and upscale costs for a new consumer product, based on
dissolvable strip technology, as well as line extensions for the Glamsmile veneers.
For the nine months ended December 31, 2007, research and development expenses decreased
$56,229 or 18.5%, to $247,665 as compared to $303,894 for the nine months ended December 31, 2006.
The decrease is the result of the termination of the consultancy agreement in reference to the Meta
Tray and IWhite products at the end of December 31, 2006 as well as other research and development
costs associated with the launch of the Meta Tray and iWhite products, which did not recur.
Sales and marketing costs
Sales and marketing costs increased $491,388, or 410.3%, to $611,144 for the three months
ended December 31, 2007 as compared to $119,756 for the three months ended December 31, 2006. The
increase is partially due to the set up of a US office in order to support the introduction of our
veneer product into the US market. This office incurred additional sales and marketing costs of
$179,370 for the three month period ended December 31, 2007. Also, the sales and marketing costs
for our US OTC division increased by $30,547 compared to the three months ended December 31, 2006
as additional sales force was deployed. It should also be noted that the sales and marketing costs
for the three months ended December 31, 2006, were low due to a reorganization that was finalized
at the end of September 30, 2006.
For the nine months ended December 31, 2007, sales and marketing costs increased $253,767, or
34.1%, to $996,937 as compared to $743,170 for the nine months ended December 31, 2006. The
increase is largely due to the set up of a US office to support our veneer product in the US market
as discussed above for the three month period.
General and administrative costs
General and administrative costs for the three months ended December 31, 2007 and 2006 were
$1,087,313 and $872,042, respectively, representing an increase of $215,271 or 24.7%. The increase
in general and administrative costs for the three months ended December 31, 2007 as compared to the
prior year is the result of our investments made to increase customer support concurrent with the
launch of our GlamSmile veneers product line in both Europe and the US.
19
For the nine months ended December 31, 2007, general and administrative costs increased
$348,011, or 13.7%, to $2,891,165 as compared to $2,543,154 for the nine months ended December 31,
2006. The foregoing increase is primarily due to the result of the three month increase discussed
above.
Depreciation and amortization
Our depreciation and amortization expense increased from $59,896 to $80,157 for the three
months ended December 31, 2007 compared to the three months ended December 31, 2006, an increase of
33.8%. This increase is due to investments we have made in updating and modernizing our Dental Lab
and related machinery, in order to bring it to a higher professional level. With the described
investments made, our lab now has the capacity to provide a higher level of support for our sales
team, especially with respect to the support of our veneers.
For the nine months ended December 31, 2007, depreciation and amortization costs increased
$68,351, or 46.3%, to $215,941 as compared to $147,590 for the nine months ended December 31, 2006.
The foregoing increase is the result of depreciation expense associated with additional
infrastructure investments and investments in a semi-automatic production machine which allows
higher production capacity at lower production cost and additional investments made as explained
above.
Net interest expense
Net interest expense decreased by $8,261 to $16,588 from $24,849 during the three months ended
December 31, 2007 over the comparable three months ended December 31, 2006. The decrease is mainly
the result of decreased utilization of our bank credit facility. For the three months ended
December 31, 2007 the Company earned $9,040 in interest revenue as compared to $nil for the three
months ended December 31, 2006. Interest was earned on cash balances received as a result of the
Companys 2007 private placement.
For the nine months ended December 31, 2007, interest expense decreased $50,516 to $71,802 as
compared to $122,318 for the nine months ended December 31, 2006. The main reason is the decreased
use of our available bank credit facility which occurred primarily because of the Companys
decision to reduce the use of the credit line with funds received pursuant to the recent private
placement. For the nine months ended December 31, 2007 the Company earned $100,665 in interest
revenue as compared to $nil for the nine months ended December 31, 2006. Interest income was
earned because of cash balances on hand as a result of the Companys 2007 equity financings.
Liquidity and Capital Resources
We believe we have sufficient cash and available cash resources to meet our capital
expenditures and continue our operations for the next twelve months. However, we anticipate that we
may require additional financing to expand our product line and customer base, and establish
operations in markets other than Europe. We intend to obtain the additional capital required for
expansion by obtaining debt or through the sale of our equity securities. Such financings may
result in further dilution in the equity ownership of our shares. There is still no assurance that
we will be able to maintain operations at a level sufficient for an investor to obtain a return on
his investment in our common stock. Further, we may continue to be unprofitable.
Cash and Cash equivalents
Our balance sheet at December 31, 2007 reflects cash and cash equivalents of $2,016,538 as compared
to $126,966 as of March 31, 2007, an increase of $1,889,572. The increase of cash and cash
equivalents is due to the completion of the Private Placement which was finalized at the end of the
quarter ending June 30, 2007.
Operations
Net cash used by operations increased by $1,312,775 resulting in net cash being used by operations
of $2,150,267 for the nine months ended December 31, 2007 as compared to net cash used by
operations of $837,492 for the nine months ended December 31, 2006. The increase in net cash used
by operations for the nine months ended December 31, 2007 as compared to the nine months ended
December 31, 2006 is primarily attributable to the net loss. Cash used by our net loss for the
nine months ended December 31, 2007 was offset by a reduction in our accounts receivable of
$137,273 and an increase in our accounts payable of $203,075.
20
Investing activities
Net cash used in investing activities totaled $852,193 for the nine months ended December 31, 2007
as compared to net cash used in investing activities of $285,574 for the nine months ended December
31, 2006. The increase in net cash used in investing activities for the nine months ended December
31, 2007 is primarily attributable to purchases of equipment for $165,195 and investments of
$675,000 made with respect to our GlamSmile division.
Financing activities
Net cash provided by financing activities totaled $5,044,277 for the nine months ended December 31,
2007 as compared to net cash provided in financing activities of $1,137,460 for the nine months
ended December 31, 2006. The increase in net cash provided from financing activities in the nine
months period ended December 31, 2007 is primarily attributable to the net cash proceeds received
by the Company from a Private Placement, which took place at the end of the quarter ended June 30,
2007, with net proceeds totaling $5,776,993 which was offset by a $825,978 repayment of our
existing Credit Line.
During the three months ended December 31, 2007 the Company also received $15,900 on the exercise
of 10,000 common stock purchase warrants.
Off-balance Sheet Arrangements
At December 31, 2007, we did not have any transactions, obligations or relationships that could be
considered off-balance sheet arrangements.
Recently Issued Accounting Standards
Effective January 1, 2007, we adopted the provisions of the FASB Staff Position (FSP) on
EITF Issue 00-19-2 Accounting for Registration Payment Arrangements. This accounting position was
adopted on a prospective basis with no restatement of prior period consolidated financial
statements. This position specifies that the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement, whether issued as a
separate agreement or included as a provision of a financial instrument or other agreement, should
be separately recognized and measured in accordance with FASB Statement No. 5 Accounting for
Contingencies. Transition to the FSP will be achieved by reporting a change in accounting
principle through a cumulative-effect adjustment to the opening balance of deficit.
We adopted FASB Interpretation No.48,
Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statements No. 109
(FIN 48) on January 1, 2007. FIN 48 clarifies the
accounting for uncertainty in income taxes by prescribing a two-step method of first evaluating
whether a tax position has met a more likely than not recognition threshold and second, measuring
that tax position to determine the amount of benefit to be recognized in the financial statements.
FIN 48 provides guidance on the presentation of such positions within a classified statement of
financial position as well as on derecognition, interest and penalties, accounting in interim
periods, disclosure, and transition. The adoption of this statement did not have a material effect
on our companys interim unaudited consolidated financial statements.
Item 3. Controls and Procedures
.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be
disclosed in the reports filed or submitted by the Company under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the time periods specified in the
rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required
to be disclosed in the reports filed under the Securities Exchange Act of 1934 is accumulated and
communicated to the Companys management, including its principal executive and financial officers,
as appropriate, to allow timely decisions regarding required disclosure.
The Company carried out an evaluation, under the supervision and with the participation of its
management, including its principal executive officer and principal financial officer, of the
effectiveness of the design and operation of the Companys disclosure controls and procedures as of
the end of the period covered by this report. Based upon and as of the date of that evaluation, the
Companys principal executive officer and financial officers concluded that the Companys
disclosure controls and procedures are effective to
21
ensure that information required to be disclosed in the reports the Company files and submits
under the Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms.
(b) Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during
the quarter ended December 31, 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
.
None.
Item 2. Unregistered Sale of Equity Securities
.
None.
Item 3. Defaults In Senior Securities.
None.
Item 4. Submission Of Matters To A Vote Of Security Holders.
The annual meeting of shareholders of the Company was held on November 5, 2007. The
shareholders voted, either in person or by proxy, on the following proposals. The directors listed
below were elected, and all other proposals submitted to a vote of the shareholders were approved,
with the results of the shareholder vote as follows:
|
1
|
|
The following four directors were elected to hold office for one-year terms or until
their successors are elected and qualified:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes Against
|
|
|
|
|
Votes For
|
|
or Withheld
|
|
Total Voted
|
Guy De Vreese
|
|
|
16,783,357
|
|
|
|
2,657
|
|
|
|
16,786,014
|
|
Robin List
|
|
|
16,783,357
|
|
|
|
2,657
|
|
|
|
16,786,014
|
|
Stephen Ross
|
|
|
16,784,325
|
|
|
|
721
|
|
|
|
16,785,046
|
|
Fred Kolsteeg
|
|
|
16,784,325
|
|
|
|
721
|
|
|
|
16,785,046
|
|
|
2.
|
|
To approve adoption of the 2007 Equity Incentive Plan:
|
|
|
|
|
|
For
|
|
|
15,719,684
|
|
Against
|
|
|
23,410
|
|
Abstain
|
|
|
1,500
|
|
|
3.
|
|
To ratify the Board of Directors appointment of PKF Bedrijfsrevisoren as the Companys
independent registered accounting firm for the 2008 fiscal year.
|
|
|
|
|
|
For
|
|
|
16,780,168
|
|
Against
|
|
|
2,002
|
|
Abstain
|
|
|
2,810
|
|
Item 5. Other Information.
None.
22
Item 6. Exhibits
The following documents are filed as part of this report:
Exhibit No.
|
|
|
31.1
|
|
Certifications of the Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act
|
|
|
|
31.2
|
|
Certifications of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act
|
|
|
|
32.1
|
|
Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act
|
|
|
|
32.2
|
|
Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act
|
23
SIGNATURES
In accordance with the requirements of the Exchange Act the Registrant caused this Quarterly Report
for the period December 31, 2007 to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
|
REMEDENT, INC.
|
Dated: February 13, 2008
|
|
/s/ Robin List
|
|
|
|
|
|
By: Robin List
|
|
|
Its: Chief Executive Officer (Principal Executive Officer) and Director
|
|
|
|
Dated: February 13, 2008
|
|
/s/ Philippe Van Acker
|
|
|
|
|
|
By: Philippe Van Acker
|
|
|
Its: Chief Financial Officer (Principal Financial Officer and Principal
Accounting Officer)
|
24
Exhibit Index
Exhibit No.
31.1
|
|
Certifications of the Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act
|
|
31.2
|
|
Certifications of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act
|
|
32.1
|
|
Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act
|
|
32.2
|
|
Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act
|
25
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