UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended September 30, 2008
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission File No. 001-15975
REMEDENT, INC.
(Exact Name of Registrant 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 Incorporation or Organization)
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(I.R.S. Employer 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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Registrants telephone number, including area code
011 32 9 321 70 80
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-3 of the Exchange Act.
(Check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.
Yes
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No
þ
As of November 18, 2008 there were 19,495,969 outstanding shares of the registrants common stock.
REMEDENT, INC.
FORM 10-Q INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, 2008
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March 31, 2008
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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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1,711,220
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$
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1,728,281
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Accounts receivable, net of allowance
for doubtful accounts of $29,109 at
September 30, 2008 and $32,181 at
March 31, 2008
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1,872,822
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1,902,920
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Inventories, net
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1,815,311
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1,360,709
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Prepaid expense
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1,883,754
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970,173
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Total current assets
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7,283,107
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5,962,083
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PROPERTY AND EQUIPMENT, NET
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863,178
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692,609
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OTHER ASSETS
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675,000
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675,000
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Patents, net
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339,144
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115,827
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TOTAL ASSETS
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$
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9,160,429
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$
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7,445,519
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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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41,005
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$
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58,583
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Line of Credit
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1,630,542
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779,718
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Accounts payable
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1,993,316
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2,002,439
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Accrued liabilities
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1,107,491
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781,737
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Income taxes payable
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11,299
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15,121
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Total current liabilities
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4,738,653
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3,637,598
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LONG TERM DEBT
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176,327
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94,754
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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, $0.001 par value;
(50,000,000 shares authorized,
18,995,969 shares issued and
outstanding at September 30, 2008 and
March 31, 2008 )
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18,996
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18,638
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Additional paid-in capital
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22,988,450
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17,929,992
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Accumulated deficit
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(18,620,973)
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(14,263,113
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)
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Accumulated other comprehensive income
(loss) (foreign currency translation
adjustment)
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(186,024)
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27,650
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Total stockholders equity
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4,200,449
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3,713,167
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
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$
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9,160,429
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$
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7,445,519
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COMMITMENTS (Note 20)
The accompanying notes are an integral part of these consolidated financial statements.
1
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 six months ended
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September 30,
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September 30,
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2008
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2007
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2008
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2007
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Net sales
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$
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2,771,079
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$
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1,076,350
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$
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6,406,558
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$
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2,320,949
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Cost of sales
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785,453
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686,649
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2,054,877
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1,352,076
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Gross profit
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1,985,626
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389,701
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4,351,681
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968,873
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Operating Expenses
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Research and development
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47,415
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46,168
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172,373
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75,557
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Sales and marketing
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840,207
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282,553
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1,511,506
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385,793
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General and administrative
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1,273,723
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1,059,371
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2,404,036
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1,803,852
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Depreciation and amortization
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183,111
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70,150
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274,372
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135,784
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TOTAL OPERATING EXPENSES
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2,344,456
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1,458,242
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4,362,287
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2,400,986
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INCOME (LOSS) FROM OPERATIONS
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(358,830)
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(1,068,541
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(10,606)
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(1,432,113
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OTHER INCOME (EXPENSES)
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Warrants issued pursuant to
Distribution Agreement
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(4,323,207)
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(4,323,207)
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Interest expense
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(44,8366)
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(26,441
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(80,180)
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(55,214
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Interest income
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39,845
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90,233
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56,131
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91,625
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TOTAL OTHER INCOME (EXPENSES)
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(4,328,198)
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63,792
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(4,347,256)
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36,411
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NET LOSS
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$
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(4,687,028)
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$
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(1,004,749
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$
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(4,357,862)
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$
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(1,395,702
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LOSS PER SHARE
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Basic and fully diluted
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$
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(0.25)
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$
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(0.05
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$
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(0.23)
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$
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(0.08
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WEIGHTED AVERAGE SHARES OUTSTANDING
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Basic and fully diluted
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18,968,717
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18,596,245
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18,804,164
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17,035,589
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The accompanying notes are an integral part of these consolidated financial statements.
2
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 six months ended
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September 30,
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September 30,
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(Unaudited)
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(Unaudited)
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2008
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2007
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2008
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2007
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Net Income (Loss)
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$
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(4,687,028)
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$
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(1,004,749
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$
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(4,357,862
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$
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(1,395,702
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OTHER COMPREHENSIVE INCOME (LOSS):
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Foreign currency translation adjustment
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(241,266)
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(53,204
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(213,674
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(48,604
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Comprehensive income (loss)
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(4,928,294)
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$
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(1,057,953
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$
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(4,571,536
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$
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(1,444,306
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3
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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For the six months ended
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September 30,
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2008
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2007
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
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$
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(4,357,862
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$
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(1,395,702
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Adjustments to reconcile net income (loss) to net cash used by operating activities
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Depreciation and amortization
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274,372
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135,784
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Inventory reserve
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(1,508
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Allowance for doubtful accounts
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(3,072
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)
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7,521
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Stock based compensation
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176,850
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12,846
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Warrants issued pursuant to Distribution Agreement
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4,323,207
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Changes in operating assets and liabilities:
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Accounts receivable
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30,098
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752,589
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Inventories
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(454,602
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(17,919
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Prepaid expenses
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(913,581
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(461,365
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Accounts payable
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(9,123
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)
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67,364
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Accrued liabilities
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325,754
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83,718
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Income taxes payable
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(3,822
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Net cash used by operating activities
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(113,279
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(815,164
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CASH FLOWS FROM INVESTING ACTIVITIES
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Long-term investments
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Purchases of patents
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(11,152
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Purchases of equipment
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(329,755
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(83,919
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Net cash used by investing activities
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(329,755
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(95,071
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CASH FLOWS FROM FINANCING ACTIVITIES
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Net proceeds from private placement
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5,898,241
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Proceeds from (principal payments on) capital lease note payable
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63,995
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(31,741
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Proceeds from (repayments of) line of credit
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850,824
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(1,331,646
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Net cash provided by financing activities
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914,819
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4,534,854
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NET (DECREASE) INCREASE IN CASH
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(28,225
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)
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3,624,619
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Effect of exchange rate changes on cash and cash equivalents
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11,164
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26,600
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CASH AND CASH EQUIVALENTS, BEGINNING
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1,728,281
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126,966
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CASH AND CASH EQUIVALENTS, ENDING
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$
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1,711,220
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$
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3,778,185
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Supplemental Information:
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Interest paid
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$
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65,010
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$
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23,376
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Income taxes paid
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$
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$
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Schedule of non-cash financing and investing activities:
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Warrants issued pursuant to Distribution Agreement
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$
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4,323,207
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$
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Shares issued as prepayment for goods
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$
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250,000
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$
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Shares issued for license
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$
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319,483
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$
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The accompanying notes are an integral part of these consolidated financial statements.
4
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
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BACKGROUND AND ORGANIZATION
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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.
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2.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Organization and Principles of Consolidation
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The accompanying consolidated financial statements include the accounts of Remedent, Inc.
(formerly Remedent USA, Inc.), a Nevada corporation, and its five 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, Sylphar N.V. (incorporated in
Belgium as a wholly owned subsidiary on September 24, 2007), and Glamtech-USA, Inc. (a Delaware
corporation acquired effective August 24, 2008 see Note 3) (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.
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Interim Financial Information
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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 six months ended
September 30, 2008, are not necessarily indicative of the results that may be expected for the
year ended March 31, 2009. Accordingly, your attention is directed to footnote disclosures found
in the Annual Report on Form 10-KSB for the year ended March 31, 2008, and particularly to Note
2, which includes a summary of significant accounting policies.
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Basis of Presentation
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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
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5
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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.
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Revenue Recognition
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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.
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Impairment of Long-Lived Assets
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Long-lived assets consist primarily of patents and property and equipment. The recoverability of
long-lived assets is evaluated by an analysis of operating results and consideration of other
significant events or changes in the business environment. If impairment exists, the carrying
amount of the long-lived assets is reduced to its estimated fair value, less any costs
associated with the final settlement. As of September 30, 2008, management believes there was no
impairment of the Companys long-lived assets.
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Pervasiveness of Estimates
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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.
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
|
The Company considers all highly liquid investments with maturities of three months or less to
be cash or cash equivalents.
|
|
|
|
Accounts Receivable and Allowance for Doubtful Accounts
|
|
|
|
|
|
The Company sells professional dental equipment to various companies, primarily to distributors
Worldwide. The terms of sales vary by customer, however, generally are 2% 10 days, net
30 days. Accounts receivable is reported at net realizable value and net of allowance for
doubtful accounts. The Company uses the allowance method to account for uncollectible accounts
receivable. The Companys estimate is based on historical collection experience and a review of
the current status of trade accounts receivable.
|
|
|
|
|
Inventories
|
|
|
|
The Company purchases certain of its products in components that require assembly prior to
shipment to customers. All other products are purchased as finished goods ready to ship to
customers.
|
6
|
|
The Company writes down inventories for estimated obsolescence to estimated market value based
upon assumptions about future demand and market conditions. If actual market conditions are less
favorable than those projected, then additional inventory write-downs may be required. Inventory
reserves for obsolescence totaled $14,304 at September 30, 2008 and $15,812 at March 31, 2008.
|
|
|
|
Prepaid Expense
|
|
|
|
The Companys prepaid expense consists of prepayments to suppliers for inventory purchases and
to the Belgium customs department, to obtain an exemption of direct VAT payments for imported
goods out of the European Union (EU). This prepayment serves as a guarantee to obtain the
facility to pay VAT at the moment of sale and not at the moment of importing goods at the
border. Prepaid expenses also include VAT payments made for goods and services in excess of VAT
payments received from the sale of products as well as amounts for other prepaid operating
expenses.
|
|
|
|
Property and Equipment
|
|
|
|
Property and equipment are stated at cost. Major renewals and improvements are charged to the
asset accounts while replacements, maintenance and repairs, which do not improve or extend the
lives of the respective assets, are expensed. At the time property and equipment are retired or
otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of
the applicable amounts. Gains or losses from retirements or sales are credited or charged to
income.
|
|
|
|
The Company depreciates its property and equipment for financial reporting purposes using the
straight-line method based upon the following useful lives of the assets:
|
|
|
|
Tooling
|
|
3 Years
|
Furniture and fixtures
|
|
4 Years
|
Machinery and Equipment
|
|
4 Years
|
|
|
Patents
|
|
|
|
Patents consist of the costs incurred to purchase patent rights and are reported net of
accumulated amortization. Patents are amortized using the straight-line method over a period
based on their contractual lives.
|
|
|
|
Research and Development Costs
|
|
|
|
The Company expenses research and development costs as incurred.
|
|
|
|
Advertising
|
|
|
|
Costs incurred for producing and communicating advertising are expensed when incurred and
included in sales and marketing and general and administrative expenses. For the six month
periods ended September 30, 2008 and September 30, 2007, advertising expense was $184,727 and
$100,140, respectively.
|
|
|
|
Income taxes
|
|
|
|
Income taxes are provided in accordance with Statement of Financial Accounting Standards No. 109
(SFAS 109),
Accounting for Income Taxes
. Deferred taxes are recognized for temporary
differences in the bases of assets and liabilities for financial statement and income tax
reporting as well as for
|
7
|
|
operating losses and credit carry forwards. A provision has been made for income taxes due on
taxable income and for the deferred taxes on the temporary differences. The components of the
deferred tax asset and liability are individually classified as current and non-current based on
their characteristics.
|
|
|
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
|
|
|
|
Warranties
|
|
|
|
The Company typically warrants its products against defects in material and workmanship for a
period of 18 months from shipment. Based upon historical trends and warranties provided by the
Companys suppliers and sub-contractors, the Company has made a provision for warranty costs of
$21,455 and $23,718 as of September 30, 2008 and March 31, 2008, respectively.
|
|
|
|
Segment Reporting
|
|
|
|
Statement of Financial Accounting Standards No. 131 (SFAS 131),
Disclosure About Segments of
an Enterprise and Related
Information requires use of the management approach model for
segment reporting. The management approach model is based on the way a companys management
organizes segments within the company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company. The Companys
management considers its business to comprise one segment for reporting purposes.
|
|
|
|
Computation of Earnings (Loss) per Share
|
|
|
|
|
|
The Company computes net income (loss) per share in accordance with SFAS No.
128, Earnings per Share (SFAS 128). SFAS 128 requires presentation of both
basic and diluted earnings per share (EPS) on the face of the income statement.
Basic EPS is computed by dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of common shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period including stock options, using the treasury stock method,
and convertible notes, using the if-converted method. In computing diluted EPS, the
average stock price for the period is used in determining the number of shares assumed
to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all
dilutive potential common shares if their effect is anti-dilutive. Outstanding options
of 1,103,166 for the six month periods ended September 30, 2008 and 2007, respectively,
have been excluded from the above calculations as they would be anti-dilutive. Outstanding
warrants for the three and six months ended September 30, 2008 and 2007 were 10,638,405
and 7,270,026 warrants, respectively, have also been excluded from the above calculations
as they would be anti-dilutive.
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|
|
|
|
Conversion of Foreign Currencies
|
|
|
|
The reporting currency for the consolidated financial statements of the Company is the U.S.
dollar. The functional currency for the Companys European subsidiaries, Remedent N.V. and
Sylphar N.V., is the Euro, for Remedent Asia the Singapore Dollar. Finally, the functional
currency for Remedent Professional, Inc. and Glamtech-USA Inc. is the U.S. dollar. The Company
translates foreign currency statements to the reporting currency in accordance with FASB 52. The
assets and liabilities of companies whose functional currency is other that the U.S. dollar are
included in the consolidation by translating the assets and liabilities at the exchange rates
applicable at the end of the reporting period. The statements of income of such companies are
translated at the average exchange rates during the applicable period. Translation gains or
losses are accumulated as a separate component of stockholders equity.
|
8
|
|
Comprehensive Income (Loss)
|
|
|
The Company has adopted the provisions of Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income
(SFAS No. 130). SFAS No. 130 establishes standards for the
reporting and display of comprehensive income, its components and accumulated balances in a full
set of general purpose financial statements. SFAS No. 130 defines comprehensive income (loss) to
include all changes in equity except those resulting from investments by owners and
distributions to owners, including adjustments to minimum pension liabilities, accumulated
foreign currency translation, and unrealized gains or losses on marketable securities.
|
|
|
|
The Companys only component of other comprehensive income is the accumulated foreign currency
translation consisting of losses of $213,674 and $48,604 the six month periods ended September
30, 2008 and September 30, 2007, respectively. These amounts have been recorded as a separate
component of stockholders deficit.
|
|
|
|
Stock Based Compensation
|
|
|
|
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R,
Share-Based
Payment
. Subsequently, the Securities and Exchange Commission (SEC) provided for a phase-in
implementation process for SFAS No. 123R, which required adoption of the new accounting standard
no later than January 1, 2006. SFAS No. 123R requires accounting for stock options using a
fair-value-based method as described in such statement and recognize the resulting compensation
expense in the Companys financial statements. Prior to January 1, 2006, the Company accounted
for employee stock options using the intrinsic value method under APB No. 25, Accounting for
Stock Issued to Employees and related Interpretations, which generally resulted in no employee
stock option expense. The Company adopted SFAS No. 123R on January 1, 2006 and does not plan to
restate financial statements for prior periods. The Company plans to continue to use the
Black-Scholes option valuation model in estimating the fair value of the stock option awards
issued under SFAS No. 123R. The adoption of SFAS No. 123R has a material impact on the Companys
results of operations. For the six month periods ended September 30, 2008 and September 30,
2007, equity compensation in the form of stock options and grants of restricted stock totaled
$176,850 and $12,846 respectively.
|
|
|
|
Accounting Policy Change and New Accounting Pronouncements
|
|
|
|
(a) Adoption of New Accounting Policy
|
|
|
|
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
. This Statement permits
entities to choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been elected will be
reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15,
2007.
|
|
|
|
|
|
The Company adopted the provisions of SFAS No. 159 on April 1, 2008. The adoption of SFAS No.
159 did not have a material impact on the companys financial
reporting.
|
|
|
|
|
(b) New Accounting Pronouncements
|
|
|
|
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and
Hedging Activities
. This statement changes the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an
|
9
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|
entity uses derivative instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
and its related interpretations, and (c) how derivative instruments and related hedged items
affect an entitys financial position, financial performance, and cash flows. This statement is
effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008 (the Companys fiscal year beginning April 1, 2009), with early application
encouraged. This statement encourages, but does not require, comparative disclosures for earlier
periods at initial adoption. Management is in the process of evaluating the impact the future
application of this pronouncement may have on its consolidated financial statements.
|
|
|
|
In December 2007, the FASB issued SFAS No. 141 (Revised 2007)
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 February 2008, the FASB released FSP No. FAS 157-2. FSP No. FAS 157-2 defers the effective
date of SFAS 157,
Fair Value Measurements
, for one year for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. It does not defer recognition and disclosure requirements
for financial assets and financial liabilities, or for nonfinancial assets and nonfinancial
liabilities that are remeasured at least annually.
|
|
|
|
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.
|
3. DISTRIBUTION AGREEMENT
|
|
On August 24, 2008, the Company entered into a distribution agreement (the Distribution
Agreement) with Den-Mat Holdings, LLC, a Delaware limited liability company (Den-Mat). Under
the terms of the Distribution Agreement, the Company:
|
|
|
|
(a) appointed Den-Mat to be the sole and exclusive distributor to market, license and sell
certain products relating to the Companys GlamSmile tray technology, including, but not limited
to, its GlamSmile veneer products and other related veneer products (the Products), throughout
the world, with the exception of Australia, Austria, Belgium, Brazil, France (including
Dom-Tom), Germany, Italy, New Zealand, Oman, Poland, Qatar, Saudi Arabia, Singapore,
Switzerland, Thailand, and United Arab Emirates (collectively the Excluded Markets) and the
China Market; and
|
|
|
|
(b) granted Den-Mat a sole and exclusive, transferable and sublicensable right and license to
use all intellectual property related to the Products throughout specified territory, as well as
certain rights in the excluded markets and rights in future intellectual property. Such rights
include the right to manufacture the Products upon payment of royalties for the initial three
year guaranty period (Guaranty Period). Upon the expiration of the Guaranty Period, as
detailed in the Distribution
|
10
|
|
Agreement, the sole and exclusive distribution rights and licenses granted under the Agreement
automatically become non-exclusive distribution rights and licenses, and all rights to use the
GlamSmile name and mark shall cease unless the Guaranty Period is extended by Den-Mat under
the terms of the Distribution Agreement. Upon termination of the Distribution Agreement, all of
Den-Mats rights in the Companys intellectual property, including the right to manufacture the
Products shall cease.
|
|
|
|
As consideration for such distribution, licensing and manufacturing rights, Den-Mat will pay the
Company: (i) an initial payment of $2,425,000 (received in the period ended September 30, 2008);
(ii) a payment of $250,000 for each of the first three contract periods in the initial Guaranty
Period, subject to certain terms and conditions; (iii) certain periodic payments as additional
paid-up royalties in the aggregate amount of $500,000; (iv) a payment of $1,000,000 promptly
after Den-Mat manufactures a limited quantity of Products at a facility owned or leased by
Den-Mat; (v) a payment of $1,000,000 promptly upon completion of certain training of Den-Mats
personnel; (vi) a payment of $ 1.000.000 upon the first to occur of (a)February 1, 2009 of (b)
the date thirty (30) days after den-Mat sells GlamSmile Products incorporating twenty thousand
(20,000) Units/Teeth to customers regardless of whether Den-Mat has manufactured such
Units/Teeth in a Den-Mat facility or has purchased such Units/Teeth from Remedent; (vii) certain
milestone payments; and (viii) certain royalty payments. Further, as consideration for Den-Mats
obligations under the Distribution Agreement, the Company agreed to, among other things:
(i) issue to Den-Mat or an entity to be designated by Den-Mat, warrants to purchase up to
3,378,379 shares of the Corporations common stock, par value $0.001 per share (the Warrant
Shares) at an exercise price of $1.48 per share, exercisable for a period of five years (the
Den-Mat Warrant) (issued in the period ended September 30, 2008); (ii) execute and deliver to
Den-Mat a registration rights agreement covering the registration of the Warrant Shares (the
Registration Rights Agreement); and (iii) cause its Chairman of the Board, Guy De Vreese, to
execute and deliver to Den-Mat a non-competition agreement.
|
4. ACQUISITION OF GLAMTECH-USA, INC.
|
|
On August 24, 2008, the Company entered into a Rescission Agreement with Glamtech-USA, Inc., a
Delaware corporation (Glamtech). The Company had previously granted Glamtech the exclusive
right to distribute its GlamSmile veneer products in the United States and Canada pursuant to an
Exclusive Distribution Agreement, dated April 10, 2008, and in the United Kingdom pursuant to an
Exclusive Distribution Agreement dated May 2008. Concurrently, the Company entered into a Stock
Purchase Agreement (the Stock Purchase Agreement) with each of the two Glamtech shareholders
(the Holders), for the purchase of all of Glamtechs outstanding common stock in exchange for:
(i) at the election of the Holders at any time within 6 months, to receive either, but not both,
(a) an aggregate of 1,000,000 restricted shares of our common stock (the Shares), or (b) 5
year warrants (the Warrants), valued at $1.48 per warrant, to purchase an aggregate of
1,247,216 restricted shares of the Companys common stock at an exercise price of $1.30 per
share (the Warrant Shares); and together with either the Shares or the Warrants, (ii) certain
limited royalty payments allocated to sales in the United States, Canada, and the United Kingdom
of the Products during the term of the Companys Distribution Agreement with Den-Mat Holdings
(Note 3).
|
|
|
|
|
Subsequent to September 30, 2008, both Holders have elected to receive a total
of 1,000,000
restricted shares. The shares will be issued during the quarter ended December 31, 2008.
The company has acquired GlamTech effective August 24, 2008 however, the cost of acquisition have
not neen recorded as September 30, 2008 because they were not estimable. The costs related to the acquisition of Glamtech will be accounted for in the quarter ended December
31, 2008, using the purchase method.
|
|
11
|
|
Pro forma (unaudited) information for the three months ended September 30, 2008 as if the
acquisition of Glamtech had occurred at June 30, 2008 is presented below. Comparative pro forma
information for the corresponding prior interim period is not provided because it is unavailable
since Glamtech was only incorporated on April 9, 2008:
|
|
|
|
|
|
|
|
As presented
|
|
|
September 30, 2008
|
|
|
(unaudited)
|
Revenue
|
|
$
|
2,771,079
|
|
Loss from continuing operations
|
|
$
|
(358,830
|
)
|
Net loss
|
|
$
|
(4,687,028
|
)
|
Income (loss) per share
|
|
$
|
(0.25
|
)
|
5. 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.
|
12
|
|
As of September 30, 2008, the total costs of this private placement were $1,235,223, comprising
of: commissions of $762,505; out-of-pocket costs of $25,000; professional fees of $375,738 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.
|
6. 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 September 30, 2008 one customer accounted for 53% of the Companys trade
accounts receivable. 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 six month period ended September 30, 2008, the Company had five suppliers
who accounted for a total of 24% of gross purchases. For the six month period ended June 30,
2007, the Company had five suppliers who accounted for a total of 29% of gross purchases.
|
|
|
|
Revenues For the six months ended September 30, 2008 the Company had five customers that
accounted for 55% of total revenues. Out of these five customers, one accounted for 39% and
another accounted for 11% of total revenues.
|
|
|
|
For the six month period ended September 30, 2007 the Company had five customers that accounted
for 32% of total revenues.
|
7. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
|
A summary of accounts receivable and allowance for doubtful accounts as of September 30, 2008 and
March 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
March 31, 2008
|
Accounts receivable, gross
|
|
$
|
1,901,931
|
|
|
$
|
1,935,101
|
|
Less: allowance for doubtful accounts
|
|
|
(29,109
|
)
|
|
|
(32,181
|
)
|
|
|
|
Accounts receivable, net
|
|
$
|
1,872,822
|
|
|
$
|
1,902,920
|
|
|
|
|
13
8. 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:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
March 31, 2008
|
Raw materials
|
|
$
|
23,722
|
|
|
$
|
29,788
|
|
Components
|
|
|
1,088,622
|
|
|
|
970,101
|
|
Finished goods
|
|
|
717,271
|
|
|
|
376,632
|
|
|
|
|
|
|
|
1,829,615
|
|
|
|
1,376,521
|
|
Less: reserve for obsolescence
|
|
|
(14,304
|
)
|
|
|
(15,812
|
)
|
|
|
|
Net inventory
|
|
$
|
1,815,311
|
|
|
$
|
1,360,709
|
|
|
|
|
9. PREPAID EXPENSES
|
|
Prepaid expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
March 31, 2008
|
Prepaid materials and components
|
|
$
|
1,154,651
|
|
|
$
|
588,639
|
|
Prepaid Belgium income taxes
|
|
|
|
|
|
|
79,060
|
|
Prepaid consulting
|
|
|
72,114
|
|
|
|
62,237
|
|
VAT payments in excess of VAT receipts
|
|
|
69,985
|
|
|
|
117,467
|
|
Royalties
|
|
|
35,758
|
|
|
|
39,530
|
|
Prepaid trade show expenses
|
|
|
18,311
|
|
|
|
25,276
|
|
Prepaid rent
|
|
|
11,511
|
|
|
|
10,812
|
|
Other
|
|
|
21,424
|
|
|
|
47,152
|
|
|
|
|
|
|
$
|
1,383,754
|
|
|
$
|
970,173
|
|
|
|
|
10. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
March 31, 2008
|
Furniture and Fixtures
|
|
$
|
211,601
|
|
|
$
|
182,079
|
|
Machinery and Equipment
|
|
|
1,167,484
|
|
|
|
801,251
|
|
Tooling
|
|
|
188,450
|
|
|
|
254,450
|
|
|
|
|
|
|
|
1,567,535
|
|
|
|
1,237,780
|
|
Accumulated depreciation
|
|
|
(704,357
|
)
|
|
|
(545,171
|
)
|
|
|
|
Property & equipment, net
|
|
$
|
863,178
|
|
|
$
|
692,609
|
|
|
|
|
11. 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.
|
14
|
|
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 are operating 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 within the first half of calendar 2009.
|
12. 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 $26,000 of accumulated amortization for this
patent as of September 30, 2008. The Company accrues this royalty when it becomes payable to
inventory therefore as of September 30, 2008, a provision of $35,758 has been made for this
obligation (2007-Nil).
|
|
|
|
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 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
|
15
|
|
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. As
of September 30, 2008 the Company has not yet received the final product.
The patent is being amortized over five (5) years and accordingly, the Company has recorded
$67,354 of accumulated amortization for this patent as of September 30, 2008.
|
13. 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 January 3, 2008, amended and
decreased the mixed-use line of credit to 2,050,000, to be used by Remedent NV and/or
Sylphar NV. Each line of credit carries its own interest rates and fees as provided in the
Facility. Remedent N.V. and Sylphar N.V. are currently only utilizing two lines of credit,
advances based on account receivables and the straight loan. As of September 30, 2008 and March
31, 2008, Remedent N.V. and Sylphar N.V. had in aggregate, $1,630,542 and $779,718 in advances
outstanding, respectively, under this mixed-use line of credit facility.
|
14. LONG TERM DEBT
|
|
On June 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 $148,559). On May 15, 2008, the company entered into a third capital
lease agreement over a three year period for additional manufacturing equipment totaling
63,395 (US $ 98,516).The leases require monthly payments of principal and interest at 7.43% of
1,258 (US$1,799,31 at September 30, 2008) for the first two leases and 9.72% of 2,276
(US$3,255 at September 30, 2008) and provide for buyouts at the conclusion of the five year term
of 2,820 (US$4,033) or 4.0% of original value for the first two contracts and 4,933 (US
$7,056) or 4.0 % of the original value for the second contract. The third lease contract
requires monthly payments of principal and interest at 9.40% of 1,909 (US $ 2,730 at
September 30, 2008) and provides for buyout at the conclusion of the three year term of
633,95 (US $ 907) or 1% of the original value of this contract.
|
|
|
The net book value as of September 30, 2008 and March 31, 2008 of the equipment subject to the
foregoing leases are $217,332 and $149,673, respectively.
|
16
15. DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS
|
|
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 six month periods ended September 30, 2008 and 2007 respectively, the Company
incurred $349,569 and $317,644 respectively, as compensation for all directors and officers.
|
|
|
|
Sales Transactions:
|
|
|
|
One of the Companys directors owns a minority interest in a client company, IMDS Inc., to which
goods were sold during the six months ended September 30, 2008 and 2007 totaling $41,035 and
$8,904 respectively. Accounts receivable with this customer as at September 30, 2008 and March
31, 2008 totaled $9,297 and $91,533 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.
|
16. ACCRUED LIABILITIES
|
|
Accrued liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
March 31, 2008
|
Accrued employee benefit taxes and payroll
|
|
$
|
230,268
|
|
|
$
|
178,645
|
|
Accrued Travel
|
|
|
16,773
|
|
|
|
17,667
|
|
Advances and deposits
|
|
|
343,400
|
|
|
|
212,736
|
|
Commissions
|
|
|
252,181
|
|
|
|
130,875
|
|
Accrued audit and tax preparation fees
|
|
|
3,529
|
|
|
|
4,000
|
|
Reserve for warranty costs
|
|
|
21,455
|
|
|
|
23,718
|
|
Accrued interest
|
|
|
1,593
|
|
|
|
984
|
|
Accrued consulting fees
|
|
|
16,803
|
|
|
|
35,204
|
|
Other accrued expenses
|
|
|
221,489
|
|
|
|
177,908
|
|
|
|
|
|
|
$
|
1,107,491
|
|
|
$
|
781,737
|
|
|
|
|
17. CAPITAL STOCK
|
|
On July 11, 2008, the Company iissued 358,166 shares of restricted common stock as partial payment
of products and certain exclusivity rights pursuant to the terms of that certain Distribution Agreement
dated as of June 30, 2008, which was filed on a Form 8-K on July 7, 2008. The value of the shares issued
was $569,483. The securities issued are exempt from the registration requirements of the Securities
Act of 1933, as amended,
pursuant to Sections 4(2), and Rule 506 of Regulation D of the Securities and Exchange Commission and from
various similar state exemptions.
|
18. 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 June 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 June 3, 2005
after the Company had completed a one for twenty reverse split.
|
17
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 $28,780 has been recorded in the year ended March 31, 2008.
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 $176,850 has been recorded in the six months ended
September 30, 2008 (2007 $12,846).
A summary of the option activity for the six months ended September 30, 2008 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, 2008
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
730,666
|
|
|
$
|
4.46
|
|
|
|
150,000
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, September 30,
2008
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
730,666
|
|
|
$
|
4.46
|
|
|
|
150,000
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable September 30,
2008
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
383,999
|
|
|
$
|
4.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price range
|
|
$
|
1.00 to $4.00
|
|
|
|
|
|
|
$
|
1.50 to $4.00
|
|
|
|
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining life
|
|
3.53 years
|
|
|
|
|
|
|
6.48 years
|
|
|
|
|
|
|
8.98 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
|
|
|
|
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
|
|
|
$
|
1.93
|
|
|
|
96,834
|
|
Equity Compensation Plans not approved by security holders
|
|
|
297,298
|
|
|
$
|
1.50
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,400,464
|
|
|
$
|
1.84
|
|
|
|
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
18
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.
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 six
months ended September 30, 2008 the Company recognized $176,850 (2007 $12,846) in compensation
expense in the consolidated statement of operations.
19. COMMON STOCK WARRANTS AND OTHER OPTIONS
As of September 30, 2008, the Company has 10,638,405 warrants outstanding to purchase the
Companys common stock 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 August 2013 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Average Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Warrants and options outstanding , March 31, 2008
|
|
|
7,260,026
|
|
|
$
|
1.67
|
|
Granted
|
|
|
3,378,379
|
|
|
|
1.48
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable September 30, 2008
|
|
|
10,638,405
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
Exercise price range
|
|
$
|
1.20 to $3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining life
|
|
3.54 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company valued the warrants granted in the period at $4,323,207, using the Black Scholes
option pricing model using the following assumptions: no dividend yield; expected volatility
rate of 131%; risk free interest rate of 3.07% and an average life of 5 years resulting in a
value of $1.28 per option granted.
20. 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 Ltd.. Since the Company only has
one segment, no further segment information is presented.
Customers Outside of the United States
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
September 30, 2007
|
|
U.S. sales
|
|
$
|
3,904,368
|
|
|
$
|
113,834
|
|
Foreign sales
|
|
|
2,502,189
|
|
|
|
2,207,115
|
|
|
|
|
|
|
|
|
|
|
$
|
6,406,557
|
|
|
$
|
2,320,949
|
|
|
|
|
|
|
|
|
19
21. COMMITMENTS
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
$7,018 per month ($10,038 per month at September 30, 2008). The minimum aggregate rent to be
paid over the remaining lease term based upon the conversion rate for
the at March 31, 2008
is $359,773.
Minimum monthly lease payments for real estate, and all other leased equipment for the next
three years are as follows based upon the conversion rate for the (Euro) at September 30, 2008.
|
|
|
|
|
March 31, 2009
|
|
$
|
240,734
|
|
March 31, 2010
|
|
$
|
76,896
|
|
March 31, 2011
|
|
$
|
42,143
|
|
|
|
|
|
Total:
|
|
$
|
359,773
|
|
|
|
|
|
Factoring Agreement
On April 24, 2008, the Company entered into a Factoring Agreement (Agreement) with First
Community Financial, a division of Pacific Western Bank (First Community) whereby First
Community may purchase, from time to time, on a limited recourse basis such of the Companys
accounts now existing or hereafter created and arising out of the sale of goods or service by
the Company. The factoring credit facility limit is $1,000,000 and amounts factored are subject
to an interest rate of prime plus 2%. Security for the factoring credit facility is a first
charge over all the assets of the Company. The Agreement shall remain in effect until October
16, 2008 and may be renewed for successive six month periods unless terminated under certain
conditions.
OEM Agreement
On June 30, 2008, the Company entered into an OEM Agreement (Agreement) with SensAble
Technologies, Inc., a corporation under the laws of Delaware (SensAble) whereby the Company
will integrate SensAble products and technology into the Companys system. The Agreement
provides the Company with the exclusive right to distribute certain SensAble products throughout
the world for a period of twelve months from the date of the Agreement. The Company has the
option and right to extend the initial twelve month exclusivity period for another twelve
months. The term of the Agreement will be for two years and began on June 30, 2008.
20
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The discussion contained herein is for the three months ended September 30, 2008 and 2007. 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-Q for the quarterly period ended September 30, 2008.
In addition to historical information, this section contains forward-looking statements,
including statements regarding the growth of product lines, optimism regarding the business,
expanding sales and other statements. Words such as expects, anticipates, intends, plans, believes,
sees, estimates and variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future performance and involve
certain risks and uncertainties that are difficult to predict. Actual results could vary materially
from the description contained herein due to many factors including continued market acceptance of
our products. In addition, actual results could vary materially based on changes or slower growth
in the oral care and cosmetic dentistry products market; the potential inability to realize
expected benefits and synergies; domestic and international business and economic conditions;
changes in the dental industry; unexpected difficulties in penetrating the oral care and cosmetic
dentistry products market; changes in customer demand or ordering patterns; changes in the
competitive environment including pricing pressures or technological changes; technological
advances; shortages of manufacturing capacity; future production variables impacting excess
inventory and other risk factors. Factors that could cause or contribute to any differences are
discussed in Risk Factors and elsewhere in the Companys annual report on Form 10-KSB filed on
July 15, 2008 with the Securities and Exchange Commission. Except as required by applicable law or
regulation, the Company undertakes no obligation to revise or update any forward-looking statements
contained in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008.
The information contained in this Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2008 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-Q 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 line of professional veneers as
well as 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 its
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, in just four years we have established dealers in 35 countries
encompassing, Europe, Asia, Latin America, the Pacific Rim and the Middle East.
For the quarter ending September 30, 2008, 80.69% of our revenue has been generated by our
Belgian Subsidiaries, Remedent NV and Sylphar NV; 18.96% by our US organization and .35% by our
Asian Subsidiary.
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 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.
21
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 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.
As discussed in further detail below, in the Section entitled, Unregistered Sales of Equity
Securities and Use of Proceeds, on August 24, 2008, we entered into a Distribution, License and
Manufacturing Agreement with our wholly owned subsidiary, Remedent N.V., and Den-Mat Holdings, LLC,
a Delaware limited liability company (Den-Mat), whereby we appointed Den-Mat to be the sole and
exclusive distributor to market, license and sell certain products relating to our GlamSmile tray
technology, including, but not limited to, our GlamSmile veneer products and other related veneer
products (the Products), throughout the world, with the exception of Australia, Austria, Belgium,
Brazil, France (including Dom-Tom), Germany, Italy, New Zealand, Oman, Poland, Qatar, Saudi Arabia,
Singapore, Switzerland, Thailand, and United Arab Emirates (collectively the Excluded Markets)
and the China Market.
Further, as a condition to the Den-Mat transaction, on August 24, 2008, we entered into a
Rescission Agreement with Glamtech-USA, Inc., a Delaware corporation (Glamtech). We had
previously granted Glamtech the exclusive right to distribute our GlamSmile veneer products in the
United States and Canada pursuant to an Exclusive Distribution Agreement, dated April 10, 2008, and
in the United Kingdom pursuant to an Exclusive Distribution Agreement dated May 2008.
Concurrently, we entered into a Stock Purchase Agreement (the Stock Purchase Agreement) with each
of the two Glamtech shareholders (the Holders), for the purchase of all of Glamtechs outstanding
common stock in exchange for: (i) at the election of the Holders at any time within 6 months, to
receive either, but not both, (a) an aggregate of one million (1,000,000) restricted shares of our
common stock (the Shares), or (b) five (5) year warrants (the Warrants), valued by our Board of
Directors at $1.48 per warrant, to purchase an aggregate of one million two hundred and forty-seven
thousand two hundred and sixteen (1,247,216) restricted shares of our common stock at a exercise
price of $1.30 per share (the Warrant Shares); and together with either the Shares or the
Warrants, (ii) certain limited royalty payments allocated to sales in the United States, Canada,
and the United Kingdom of the Products during the term of our Distribution Agreement with Den-Mat.
Our Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon
our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates, including those related to bad debts, intangible
assets, income taxes, and contingencies and litigation, among others. We base our estimates on
historical experience and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. We believe that certain
critical accounting policies affect our more significant judgments and estimates used in the
preparation of our consolidated financial statements: revenue recognition, inventory valuation,
research and development costs, stock-based compensation, impairment of long-lived assets and
conversion of foreign currencies. These accounting policies are discussed in ITEM 6
MANAGEMENTS
22
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION contained in our Annual Report on Form 10-KSB for the
fiscal year ended March 31, 2008, as well as in the notes to the March 31, 2008 consolidated
financial statements. There have not been any significant changes to these accounting policies
since they were previously reported at March 31, 2008.
Results of Operations
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 six months ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
NET SALES
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
COST OF SALES
|
|
|
28.34
|
%
|
|
|
63.80
|
%
|
|
|
32.07
|
%
|
|
|
58.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
71.66
|
%
|
|
|
36.20
|
%
|
|
|
67.93
|
%
|
|
|
41.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1.71
|
%
|
|
|
4.29
|
%
|
|
|
2.69
|
%
|
|
|
3.26
|
%
|
Sales and marketing
|
|
|
30.32
|
%
|
|
|
26.25
|
%
|
|
|
23.59
|
%
|
|
|
16.62
|
%
|
General and administrative
|
|
|
45.96
|
%
|
|
|
98.43
|
%
|
|
|
37.52
|
%
|
|
|
77.72
|
%
|
Depreciation and amortization
|
|
|
6.61
|
%
|
|
|
6.52
|
%
|
|
|
4.28
|
%
|
|
|
5.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
84.60
|
%
|
|
|
135.49
|
%
|
|
|
68.09
|
%
|
|
|
103.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(12.95
|
)%
|
|
|
(99.29
|
)%
|
|
|
(0.17
|
)%
|
|
|
(61.70
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(156.24
|
)%
|
|
|
5.93
|
%
|
|
|
(67.86
|
)%
|
|
|
1.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(169.19
|
)%
|
|
|
(93.35
|
)%
|
|
|
(68.02
|
)%
|
|
|
(60.13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
(169.19
|
)%
|
|
|
(93.35
|
)%
|
|
|
(68.02
|
)%
|
|
|
(60.13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
Net sales increased for the three months ended September 30, 2008 by $1,694,729 or 157.5%, to
$2,771,079 as compared to $1,076,350 for the three months ended September 30, 2007. For the three
months ended September 30, 2008, the increase in sales is primarily due to the increased sales of
the GlamSmile Product Group.
For the six months ended September 30, 2008, sales increased by $4,085,609 to $6,406,558 as
compared to $2,320,949 for the six months ended September 30, 2007 primarily for the reasons
discussed above for the three month period.
Cost of Sales
Cost of sales increased for the three months ended September 30, 2008 by $98,804, or 14.4% to
$785,453 as compared to $686,649 for the three months ended September 30, 2007. Accordingly, cost
of sales, as a percentage of net sales, decreased from 63.8% for the quarter ended September 30,
2007 to 28.3% for the quarter ended September 30, 2008. Cost of sales has decreased both because of
increased sales of higher margin products and improved cost efficiencies.
We have re-organized our production process and have increased our in-house manufacturing
resulting in lower costs than our previously outsourced third party manufacturing. We continue to
closely monitor and look for new strategies to optimize and improve our current processes in order
to decrease our costs.
23
For the six months ended September 30, 2008, cost of sales increased by $702,801 or 52% from
$1,352,076 for the six months ended September 30, 2007 to $2,054,877 for the six months ended
September 30, 2008. This increase is directly associated with increased sales. However, cost of
sales as a percentage of net sales has decreased from 58.26% for the six month period ended
September 30, 2007 to 32.07% for the six month period ended September 30, 2007 primarily for the
same reasons discussed above for the three month period.
Gross Profit
Our gross profit increased by $1,595,925 or 409.5%, to $1,985,626 for the three month period
ended September 30, 2008 as compared to $389,701 for the three month period ended September 30,
2007. Our gross profit as a percentage of sales increased from 36% in the three months ended
September 30, 2007 to 72% for the three months ended September 30, 2008. The increase in gross
profit is the result of the increased sales of higher margin products and the decrease in cost of
sales as discussed above.
Our gross profit increased by $3,382,808 or 349%, to $4,351,681 for the six month period ended
September 30, 2008 as compared to $968,873 for the six month period ended September 30, 2007. Our
gross profit as a percentage of sales increased from 42% in the six months ended September 30, 2007
to 68% for the six months ended September 30, 2008. The increase in gross profit is the result of
the increased sales of higher margin products and the decrease in cost of sales as discussed above.
Operating Expenses
Research and Development
.
Research and development expenses increased by $1,247, or 2.7%, to $47,415 for the three
months ended September 30, 2008 as compared to $46,168 for the three months ended September 30,
2007.
For the six months ended September 30, 2008, research and development expenses increased by
$96,816 or 128.1%%, to $172,373 as compared to $75,557 for the six months ended September 30, 2007.
The principal reason for this increase is the ongoing efforts to develop new products and improve
existing products to meet the highest standards on the market.
Sales and marketing costs
Sales and marketing costs increased by $557,654, or 197.4%, to $840,207 for the three months
ended September 30, 2008 as compared to $282,553 for the three months ended September 30, 2007. The
increase is largely due to increased provisions for commissions in relation to our sales people and
increased marketing costs to promote our products in new acquired markets in different countries.
For the six months ended September 30, 2008, sales and marketing costs increased by $1,125,713
or 291.8% to $1,511,506 as compared to $385,793 for the six months ended September 30, 2007. The
principal reasons for increased sales and marketing costs are as discussed above.
24
General and administrative costs
.
General and administrative costs for the three months ended September 30, 2008 and 2007 were
$1,273,723 and $1,059,371, respectively, representing an increase of $214,352 or 20.2%. The
increase in general and administrative costs 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.
For the six months ended September 30, 2008, general and administrative costs increased by
$604,184, or 102.1%, to $2,404,036 as compared to $1,803,852 for the six months ended September 30,
2007. The foregoing increase is the result of three month increase discussed above
Depreciation and amortization.
Our depreciation and amortization expense increased from $70,150 to $183,111 for the three
months ended September 30, 2008 compared to the three months ended September 30, 2007, an increase
of 161%. The increase is mostly due to the investment in a semi-automatic production machine for
the production of our foam strips, which will allow us to significantly increase our production
capacity. This investment allowed us to streamline and improve production significantly with
resultant increases in capacity and quality as well as decreased costs. Secondly, investments are
being made in software and related hardware to bring the design of veneers to the next level which
will allow the dentist to modify the design of the final product, gaining substantial time in the
production process
For the six months ended September 30, 2008, depreciation and amortization costs increased
$138,588 or 102% to $274,372 as compared to $135,784 for the six months ended September 30, 2007.
The foregoing increase is the result of three month increase discussed above.
Net interest and other expense
s
Net interest expense increased by $18,396 to $44,837 from $26,385 during the three months
ended September 30, 2008 over the comparable three months ended September 30, 2007. The increase is
mainly the result of our increased utilization of our bank credit facility.
For the six months ended September 30, 2008, interest expense increased by $24,966 to $80,180
as compared to $55,214 for the six months ended September 30, 2007. The main reason is the
increased use of our available bank credit facility which occurred primarily because of investments
made in light of the new agreement with Den-Mat which was finalized effective August 24, 2008. The
investments are in order to support increasing demand for our veneer product and are specifically
related to inventory and a new production facility.
During the three months ended September 30, 2008 we granted 3,738,379 warrants to purchase our
common stock to Den-Mat. The Company valued the warrants at $4,323,207, using the Black Scholes
option pricing model using the following assumptions: no dividend yield; expected volatility rate
of 131%; risk free interest rate of 3.07% and an average life of 5 years resulting in a value of
$1.28 per option granted. This was a non-cash expense.
25
Liquidity and Capital Resources
Cash and Cash equivalent
Our balance sheet at September 30, 2008 reflects cash and cash equivalents of $1,711,220 as
compared to $1,728,281 as of March 31, 2008, a decrease of $17,061.
For the remainder of fiscal year 2009, we believe that, with our current cash and amounts to
be received from our cash receivables, we believe to we have sufficient working capital to satisfy
our working capital requirements. As it may be required, we intend to draw from our credit facility
as additional cash would be needed.
In addition, from time to time we may be required to raise capital to continue our current
operations, reduce advances outstanding on our credit facilities, and to fund future growth.
Operations
Net cash used by operations decreased by $701,885 resulting in net cash being used by
operations of $113,279 for the six months ended September 30, 2008 as compared to net cash used by
operations of $815,164 for the six months ended September 30, 2007. The decrease in net cash used
by operations for the six months ended September 30, 2008 as compared to the six months ended
September 30, 2007 is primarily attributable to increased profit margins in 2008.
Investing activities
Net cash used in investing activities totaled $329,755 for the six months ended September 30,
2008 as compared to net cash used in investing activities of $95,071 for the six months ended
September 30, 2007. Cash used in investing activities in the six months ended September 30, 2008
was mainly for equipment to be used in the production process of Veneers, additional hardware
equipment in relation to support our GlamSmile product line in combination with our new designed
software, enabling the dentist to interfere in the production process, investments made for
moldings concerning the GlamSmile product group and moldings for new OTC products.
Financing activities
Net cash provided by financing activities totaled $914,819 for the six months ended
September 30, 2008 as compared to net cash provided in financing activities of $4,534,854 for the
six months ended September 30, 2007.Net cash provided from financing activities in the six month
period ended September 30, 2007 was higher than in the six months ended September 30, 2008 because
of 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.
During the six months ended September 30, 2008 we recognized an increase in cash and cash
equivalents of $11,164 (2007 $26,600) as a result of the effect of exchange rates between the
Euro and the US Dollar.
26
Off-Balance Sheet Arrangements
At September 30, 2008, we did not have any transactions, obligations or relationships that
could be considered off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 4T. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to
be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the
Exchange Act), is recorded, processed, summarized, and reported within the required time periods
and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and our Chief Financial Officer (our Principal Accounting Officer), as
appropriate, to allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can only provide reasonable assurance of
achieving the desired control objective, and management is required to exercise its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Management conducted an evaluation, under the supervision and with the participation of the
Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of September 30, 2008. Based on this
evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our
disclosure controls and procedures were effective as of September 30, 2008.
Change in Internal Control Over Financial Reporting
There have been no changes in the Companys internal controls over financial reporting
identified in connection with the evaluation of disclosure controls and procedures discussed above
that occurred during the quarter ended September 30, 2008 or subsequent to that date that have
materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
To the best knowledge of management, there are no material legal proceedings pending against
the Company.
Item 1A. Risk Factors
Not Applicable.
27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 11, 2008, we issued 358,166 shares of restricted common stock to SensAble Technologies, Inc. as partial payment of products and certain exclusivity rights pursuant to the terms of that certain Distribution Agreement dated as of June 30, 2008, which was filed on a Form 8-K on July 7, 2008. The value of the shares issued was $569,483. The securities issued are exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Sections 4(2), and Rule 506 of Regulation D of the Securities and Exchange Commission and from various similar state exemptions.
On August 24, 2008, in connection with the Distribution, License and Manufacturing Agreement
entered into between the Company, our wholly owned subsidiary, Remedent N.V., and Den-Mat Holdings,
LLC, a Delaware limited liability company (Den-Mat), we granted to Den-Mat a warrant to purchase
up to Three Million Three Hundred Seventy-Eight Thousand Three Hundred Seventy-Nine (3,378,379)
shares of our common stock, par value $0.001 per share (the Warrant Shares) at an exercise price
of $1.48 per share (the Den-Mat Warrant). The Den-Mat Warrant is exercisable for a period of
five (5) years, subject to possible extension based on our failure to cause a registration
statement covering the resale of the Warrant Shares to remain in effect pursuant to a certain
Registration Rights Agreement, as further described below. The Den-Mat Warrant is subject to
adjustment under certain specified circumstances, including, but not limited to, upon any share
consolidation, capital reorganization, reclassification of the capital stock, merger or
consolidation with another entity, and in certain cases when we issue securities at a price per
share lower than the exercise price of the Warrant Shares then in effect. All of the securities
issued to Den-Mat are exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Sections 4(2), and Rule 506 of Regulation D of the Securities and Exchange
Commission and from various similar state exemptions.
Further, we entered into a Registration Rights Agreement with Den-Mat on August 24, 2008 (the
Registration Rights Agreement) whereby we agreed to prepare and file with the Securities and
Exchange Commission (Commission) a registration statement covering the resale of the Warrant
Shares within seventy-five (75) days of the date of the Registration Rights Agreement. We agreed
to use commercially reasonable efforts to have such registration statement declared effective by
the Commission, with such effectiveness to take place (i) within five (5) days after receiving
notification that it will not be reviewed by the Commission, or (ii) within one hundred thirty-five
(135) days of the date of the Registration Rights Agreement (one hundred sixty-five (165) days if
reviewed by the Commission). In addition, in the event that the number of Warrant Shares is
subject to adjustment under the terms of the Den-Mat Warrant, we agreed to prepare and file a
registration statement covering the resale of such additional Warrant Shares within thirty (30)
days of receipt of a written demand by the holder of such Warrant Shares.
On August 24, 2008, as part of the consideration for the rescission and release under the
Rescission Agreement entered into between the Company, our wholly owned subsidiary, Remedent N.V.,
and Glamtech-USA, Inc., a Delaware corporation (Glamtech), we entered into a Stock Purchase
Agreement (the Stock Purchase Agreement) with each of the two Glamtech shareholders (the
Holders), for the purchase of all of Glamtechs outstanding common stock in exchange for, among
certain other consideration: at the election of the Holders at any time within 6 months, to
receive either, but not both, (a) an aggregate of one million (1,000,000) restricted shares of the
registrants common stock (the Shares), or (b) five (5) year warrants (the Warrants), valued by
the registrants Board of Directors at $1.48 per warrant, to purchase an aggregate of one million
two hundred and forty-seven thousand two hundred and sixteen (1,247,216) restricted shares of the
registrants common stock at a exercise price of $1.30 per share (the Warrant Shares). Further,
pursuant to the terms of the Stock Purchase Agreement, we agreed to register the Shares or the
Warrant Shares, as applicable, on a registration statement with the U.S. Securities and Exchange
Commission no later than thirty (30) calendar days following the date of the Holders election, but
no sooner than seventy-five (75) days from the effective date of the Stock Purchase Agreement. All
of the securities issued to the two Glamtech shareholders are exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Sections 4(2), and Rule 506 of
Regulation D of the Securities and Exchange Commission and from various similar state exemptions.
For additional information about the above transactions, please refer to our Current Report on
Form 8-K, filed with the Commission on August 28, 2008.
28
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission Of Matters To A Vote Of Security Holders
No matters were submitted to a vote of security holders during the quarter ended September 30,
2008.
Item 5. Other Information
None.
Item 6. Exhibits
|
|
|
Exhibit
|
|
|
No
|
|
Description
|
3.1
|
|
Articles of Incorporation of Jofran Confectioners International, Inc., a Nevada
corporation, dated July 31, 1986 (1)
|
|
|
|
3.2
|
|
Amendment to Articles of Incorporation changing name from Jofran Confectioners
International, Inc., a Nevada corporation, to Cliff Typographers, Inc., a Nevada
corporation, dated July 31, 1986 (1)
|
|
|
|
3.3
|
|
Amendment to Articles of Incorporation changing name from Cliff Typographers, Inc., a
Nevada corporation, to Cliff Graphics International, Inc., a Nevada corporation, dated
January 9, 1987 (1)
|
|
|
|
3.4
|
|
Amendment to Articles of Incorporation changing name from Cliff Graphics International,
Inc., a Nevada corporation, to Global Golf Holdings, Inc., a Nevada corporation, dated
March 8, 1995 (1)
|
|
|
|
3.5
|
|
Amendment to Articles of Incorporation changing name from Global Golf Holdings, Inc., a
Nevada corporation, to Dino Minichiello Fashions, Inc., a Nevada corporation, dated
November 20, 1997 (1)
|
|
|
|
3.6
|
|
Amendment to Articles of Incorporation changing name from Dino Minichiello Fashions, Inc.,
a Nevada corporation, to Resort World Enterprises, Inc., a Nevada corporation, dated
August 18, 1998 (1)
|
|
|
|
3.7
|
|
Amendment to Articles of Incorporation changing name from Resort World Enterprises, Inc.,
a Nevada corporation, to Remedent , Inc., dated October 5, 1998 (1)
|
|
|
|
3.8
|
|
Amended and Restated Articles of Incorporation changing name from Remedent, USA, Inc. to
Remedent, Inc. and to effect a one-for-twenty reverse stock split on June 3, 2005 (2)
|
|
|
|
3.9
|
|
Amended and Restated Bylaws (2)
|
|
|
|
4.1
|
|
Specimen of Stock Certificate (3)
|
|
|
|
4.2
|
|
Form of Subscription Agreement (4)
|
|
|
|
4.3
|
|
Form of Warrant for Common Stock (4)
|
|
|
|
4.4
|
|
Form of Registration Rights Agreement (4)
|
|
|
|
4.5
|
|
Form of Warrant for Unit (5)
|
|
|
|
4.6
|
|
Form of Warrant for Common Stock (6)
|
|
|
|
4.7
|
|
Form of Warrant dated August 24, 2008 for Den-Mat Holdings, LLC (7)
|
29
|
|
|
Exhibit
|
|
|
No
|
|
Description
|
4.8
|
|
Form of Stock Purchase Agreement dated August 24, 2008 entered into in connection with the
Rescission Agreement dated August 24, 2008 by and between Remedent, Inc., Remedent N.V.
and Glamtech-USA, Inc. (7)
|
|
|
|
10.1
|
|
Distribution, License and Manufacturing Agreement, dated August 24, 2008, by and between
Remedent, Inc., Remedent N.V. and Den-Mat Holdings, LLC (7)
|
|
|
|
10.2
|
|
Form of Registration Rights Agreement dated August 24, 2008 between Remedent, Inc. and
Den-Mat Holdings, LLC (7)
|
|
|
|
10.3
|
|
Rescission Agreement, dated August 24, 2008, by and between Remedent, Inc., Remedent N.V.
and Glamtech-USA, Inc. (7)
|
|
|
|
10.4
|
|
Distribution Agreement, dated June
30, 2008, by and between Remedent, Inc.
and SensAble Technologies, Inc. (8)
|
|
|
|
31.1
|
|
Certifications of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act.*
|
|
|
|
31.2
|
|
Certifications of the 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.*
|
|
|
|
*
|
|
Filed herewith.
|
|
(1)
|
|
Incorporated by reference from Registration Statement on Form SB-2 filed with the SEC on July
24, 2002.
|
|
(2)
|
|
Incorporated by reference from Form 8-K filed with the SEC on June 8, 2005.
|
|
(3)
|
|
Incorporated by reference from Form SB-2 filed with the SEC on August 4, 2005.
|
|
(4)
|
|
Incorporated by reference from Form 8-K filed with the SEC on July 11, 2005.
|
|
(5)
|
|
Incorporated by reference from Form SB-2/A filed with the SEC on October 26, 2005.
|
|
(6)
|
|
Incorporated by reference from Form 8-K filed with the SEC on June 27, 2007.
|
|
(7)
|
|
Incorporated by reference from Form 8-K filed with the SEC on August 28, 2008.
|
|
|
(8)
|
|
Incorporated by reference from Form 8-K filed with the SEC on
July 7, 2008.
|
|
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
REMEDENT, INC.
|
|
|
Date: November 19, 2008
|
By:
|
/s/
Robin List
|
|
|
|
Name:
|
Robin List
|
|
|
|
Title:
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
Date: November 19, 2008
|
By:
|
/s/
Philippe Van Acker
|
|
|
|
Name:
|
Philippe Van Acker
|
|
|
|
Title:
|
Chief Financial Officer
|
|
|
|
31
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