UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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þ
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QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
or
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o
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TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Commission File Number 001-15975
REMEDENT, INC.
(Exact name of small business issuer as specified in its charter)
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NEVADA
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86-0837251
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(State or other jurisdiction of
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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011 32 9 321 70 80
(Issuers telephone number)
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
þ
Number of shares of issuers common stock outstanding as of November 15, 2007: 18,606,245
Transitional Small Business Disclosure Format (check one). Yes
o
No
þ
Documents incorporated by reference: None.
REMEDENT, INC.
TABLE OF CONTENTS
FORM 10-QSB REPORT
September 30, 2007
PART I FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements
REMEDENT, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(unaudited)
1
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, 2007
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March 31, 2007
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(unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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3,778,185
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$
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126,966
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Accounts receivable, net of allowance for doubtful accounts of $92,729 at September
30, 2007
and $79,996 at March 31, 2007
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1,034,291
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1,724,121
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Inventories, net
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1,025,512
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1,132,941
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Prepaid expense
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889,639
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668,421
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Total current assets
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6,727,627
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3,652,449
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PROPERTY AND EQUIPMENT, NET
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614,413
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589,623
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OTHER ASSETS
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Long-term investment
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300,000
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Patents, net
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132,121
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135,894
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TOTAL ASSETS
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$
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7,774,161
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$
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4,377,966
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LIABILITIES AND STOCKHOLDERS DEFICIT
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CURRENT LIABILITIES:
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Current portion, long term debt
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$
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26,498
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$
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43,499
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Line of Credit
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230,409
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1,530,276
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Notes payable
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11,282
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11,282
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Accounts payable
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1,586,013
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1,441,502
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Accrued liabilities
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518,197
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412,435
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Due to related parties
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50,536
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50,536
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Total current liabilities
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2,422,935
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3,489,530
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LONG TERM DEBT
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148,350
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152,343
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STOCKHOLDERS DEFICIT:
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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, $0.001 par value;
(50,000,000 shares authorized, 18,596,245 shares issued and outstanding at
September 30, 2007 and 12,996,245 shares issued and outstanding at March 31, 2007)
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18,596
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12,996
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Additional paid-in capital
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17,809,487
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11,904,000
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Accumulated deficit
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(12,543,300
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)
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(11,147,600
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)
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Accumulated other comprehensive income (loss) (foreign currency translation adjustment)
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(81,907
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)
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(33,303
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)
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Total stockholders equity (deficit)
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5,202,876
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736,093
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
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$
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7,774,161
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$
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4,377,966
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COMMITMENTS (Note 18)
SUBSEQUENT EVENT (Note 19)
The accompanying notes are an integral part of these consolidated financial statements.
2
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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2007
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2006
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2007
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2006
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Net sales
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$
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1,076,350
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$
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2,415,114
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$
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2,320,949
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$
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3,710,753
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Cost of sales
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799,763
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1,210,012
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1,244,598
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1,955,674
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Gross profit
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276,587
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1,205,102
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1,076,351
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1,755,079
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Operating Expenses
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Research and development
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46,168
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115,218
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75,557
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240,500
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Sales and marketing
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282,553
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236,839
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385,793
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623,414
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General and administrative
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946,257
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833,762
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1,911,330
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1,671,112
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Depreciation and amortization
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70,150
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46,432
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135,784
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87,694
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TOTAL OPERATING EXPENSES
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1,345,128
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1,232,251
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2,508,464
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2,622,720
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INCOME (LOSS) FROM OPERATIONS
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(1,068,541
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)
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(27,149
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)
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(1,432,113
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)
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(867,641
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)
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OTHER INCOME (EXPENSES)
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Interest expense
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(26,441
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(73,454
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(55,214
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(97,469
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Interest income
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90,233
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91,625
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Other income
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2,746
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27,523
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TOTAL OTHER INCOME (EXPENSES)
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63,792
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(70,708
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36,411
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(69,946
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NET LOSS
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$
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(1,004,749
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)
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$
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(97,857
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$
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(1,395,702
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$
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(937,587
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LOSS PER SHARE
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Basic and fully diluted
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$
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(0.05
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$
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(0.01
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)
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$
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(0.08
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$
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(0.07
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)
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WEIGHTED AVERAGE SHARES OUTSTANDING
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Basic and fully diluted
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18,596,245
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12,996,245
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17,035,589
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12,947,479
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The accompanying notes are an integral part of these consolidated financial statements.
3
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF 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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2007
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2006
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2007
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2006
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Net Income (Loss)
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$
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(1,004,749
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)
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$
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(97,857
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)
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$
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(1,395,702
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)
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$
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(937,587
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OTHER COMPREHENSIVE INCOME (LOSS):
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Foreign currency translation adjustment
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(53,204
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)
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14,413
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(48,604
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)
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25,415
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Comprehensive income (loss)
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$
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(1,057,953
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)
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$
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(83,444
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)
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$
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(1,444,306
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)
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$
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(912,712
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)
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The accompanying notes are an integral part of these consolidated financial statements.
4
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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For the six months ended
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September 30,
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2007
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2006
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
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$
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(1,395,702
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)
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$
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(937,587
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)
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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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135,784
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87,694
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Allowance for doubtful accounts
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7,521
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(6,172
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)
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Stock issued upon conversion of convertible debentures
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25,706
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Value of stock options to employees
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12,846
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189,515
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Changes in operating assets and liabilities:
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Accounts receivable
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752,589
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(131,043
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)
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Inventories
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(17,919
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)
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150,516
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Prepaid expenses
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(461,365
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)
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(7,399
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)
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Accounts payable
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67,364
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(171,177
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)
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Accrued liabilities
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83,718
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(69,527
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)
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Income taxes payable
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(105,048
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)
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Net cash used by operating activities
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(815,164
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)
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(974,522
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)
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CASH FLOWS FROM INVESTING ACTIVITIES
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Decrease (increase) in restricted cash
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(10,285
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)
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Purchases of patents
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(11,152
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)
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Purchases of equipment
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(83,919
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)
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(111,322
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)
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Net cash used by investing activities
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(95,071
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)
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(121,607
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)
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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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Principal payments on capital lease note payable
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(31,741
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)
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(11,170
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)
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Note payments related parties
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(8,422
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)
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Proceeds from (repayments of) line of credit
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(1,331,646
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)
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987,560
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Net cash provided by financing activities
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4,534,854
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967,968
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NET (DECREASE) INCREASE IN CASH
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3,624,619
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(128,161
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)
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Effect of exchange rate changes on cash and cash equivalents
|
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26,600
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(52,224
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)
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CASH AND CASH EQUIVALENTS, BEGINNING
|
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126,966
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|
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332,145
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CASH AND CASH EQUIVALENTS, ENDING
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$
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3,778,185
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$
|
151,761
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Supplemental Information:
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Interest paid
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$
|
23,376
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|
$
|
48,572
|
|
|
|
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Income taxes paid
|
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$
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|
|
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$
|
|
|
|
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The accompanying notes are an integral part of these consolidated financial statements.
5
SUPPLEMENTAL NON-CASH INVESTING
AND FINANCING ACTIVITIES:
On July 31, 2006, the Company issued 32,133 shares of its common stock in exchange for $20,000 in
convertible debentures and accrued interest of $12,133. The difference between the conversion price
of $1.00 per share and the market value of the common stock exchanged valued at $1.80 per share
totaled $25,706 and was charged to interest expense.
6
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
|
|
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 three subsidiaries, Remedent N.V.
(Belgian corporation) located in Deurle, Belgium, Remedent Professional, Inc. (incorporated in
California) and a subsidiary of Remedent Professional Holdings, Inc. and Remedent Asia Pte. Ltd,
a wholly-owned subsidiary formed under the laws of Singapore (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, 2007, are not necessarily indicative of the results that may be expected for the
year ended March 31, 2008. Accordingly, your attention is directed to footnote disclosures found
in the Annual Report on Form 10-KSB for the year ended March 31, 2007, and particularly to Note
1, which includes a summary of significant accounting policies.
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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 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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|
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Revenue Recognition
|
|
|
|
The Company recognizes revenue from product sales when persuasive evidence of a sale exists: that
is, a product is shipped under an agreement with a customer; risk of loss and title has passed to
the customer; the fee is fixed or determinable; and collection of the resulting receivable is
reasonably assured. Sales allowances are estimated based upon historical experience of sales
returns.
|
7
|
|
Impairment of Long-Lived Assets
|
|
|
|
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, 2007, management believes there was no impairment
of the Companys long-lived assets.
|
|
|
|
Pervasiveness of Estimates
|
|
|
|
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, the Company evaluates estimates and
judgments, including those related to revenue, bad debts, inventories, fixed assets, intangible
assets, stock based compensation, income taxes, and contingencies. Estimates are based on
historical experience and on various other assumptions that the Company believes reasonable in
the circumstances. The results form the basis for making judgments about the carrying 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
located in Western Europe. 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.
|
|
|
|
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 $14,179 at September 30, 2007 and $13,366 at March 31, 2007.
|
|
|
|
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.
|
8
|
|
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, 2007 and September 30, 2006, advertising expense was $100,104 and
$219,925, 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 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
$21,269 and $20,049 as of September 30, 2007 and March 31, 2007, 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
|
|
|
|
Basic net income (loss) per common share is computed by dividing net income (loss) attributable
to common stockholders by the weighted average number of shares of common stock outstanding
during the period. Net income (loss) per common share
|
9
|
|
attributable to common stockholders assuming dilution is computed by dividing net income by the
weighted average number of shares of common stock outstanding plus the number of additional
common shares that would have been outstanding if all dilutive potential common shares had been
issued. Potential common shares related to stock options and stock warrants are excluded from the
computation when their effect is anti-dilutive.
|
|
|
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 subsidiary, Remedent N.V. is the Euro.
The functional currency for Remedent Professional, 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 deficit.
|
|
|
|
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 a loss of $48,604 and a gain of $25,415 for the six month periods ended
September 30, 2007 and September 30, 2006, 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, 2007 and September 30, 2006,
equity compensation in the form of stock options and grants of restricted stock totaled $12,846
and $189,515, respectively.
|
|
3.
|
|
PRIVATE PLACEMENT
|
|
|
|
On June 25, 2007, the Company completed its private offering of 5,600,000 shares of its common
stock, par value $.001 per share at a purchase price of $1.25 per share (the Shares) and
warrants to purchase 4,200,000 shares of common stock, par value $.001 per share, at an exercise
price of $1.55 per share (the Warrants) to certain institutional and accredited investors, for
an aggregate purchase price of $7,000,000 (the Offering).
|
|
|
|
Under the terms of the Offering, the Warrants are exercisable for a period of five years and
entitle the holder to purchase one share of restricted common stock (the Warrant Shares) for
$1.55 per Warrant Share. The Company also has the right to redeem the Warrants for $0.001 per
Warrant Share covered by the Warrants if the Shares trade on the OTC Electronic Bulletin Board or
similar market above $5.25 per share for 20 consecutive trading days following the initial
effective date of the registration statement covering the resale of the Shares and Warrant
Shares, based upon the closing bid price for the Shares for each trading day (the
|
10
|
|
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.
|
|
|
|
The total costs of this private placement were $1,101,759, comprising of: commissions of
$762,505; out-of-pocket costs of $25,000; professional fees of $242,274 and direct travel costs
of $71,980; and have been recorded against share capital as a cost of financing.
|
|
|
|
The Offering was conducted in reliance upon an exemption from registration under the Securities
Act of 1933, as amended (the Securities Act), including, without limitation, that under Section
506 of Regulation D promulgated under the Securities Act. The Units were offered and sold by the
Company to accredited investors in reliance on Section 506 of Regulation D of the Securities Act
of 1933, as amended.
|
|
4.
|
|
CONCENTRATION OF RISK
|
|
|
|
Financial Instruments Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of trade accounts receivable.
|
|
|
|
Concentrations of credit risk with respect to trade receivables are normally limited due to the
number of customers comprising the Companys customer base and their dispersion across different
geographic areas. At September 30, 2007 one customer accounted for 15.67% of the Companys trade
accounts receivable compared to 67.6% as at September 2006. 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, 2007, the Company had four suppliers who
accounted for a total of 15.7% of gross purchases. For the six month period ended September 30,
2006, the Company relied on one factory to manufacture certain components of its new MetaTray and
iWhite products which represented 24.9% of the Companys purchases.
|
|
|
|
Revenues For the six month period ended September 30, 2007 the Company had five customers that
accounted for 26.51% of total revenues. For the six months ended September 30, 2006 the Company
had two customers that accounted for 49% and 10%, respectively of total revenues.
|
|
5.
|
|
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
|
|
|
A summary of accounts receivable and allowance for doubtful accounts as of September 30, 2007 and
March 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
March 31, 2007
|
Accounts receivable, gross
|
|
$
|
1,127,020
|
|
|
$
|
1,804,117
|
|
Less: allowance for doubtful accounts
|
|
|
(92,729
|
)
|
|
|
(79,996
|
)
|
|
|
|
Accounts receivable, net
|
|
$
|
1,034,291
|
|
|
$
|
1,724,121
|
|
|
|
|
11
6.
|
|
INVENTORIES
|
|
|
|
Inventories are stated at the lower of cost (weighted average) or market. Inventory costs include
material, labor and manufacturing overhead. Individual components of inventory are listed below
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
March 31, 2007
|
Raw materials
|
|
$
|
30,369
|
|
|
$
|
30,579
|
|
Components
|
|
|
749,094
|
|
|
|
786,728
|
|
Finished goods
|
|
|
260,228
|
|
|
|
329,000
|
|
|
|
|
|
|
|
1,039,691
|
|
|
|
1,146,307
|
|
Less: reserve for obsolescence
|
|
|
(14,179
|
)
|
|
|
(13,366
|
)
|
|
|
|
Net inventory
|
|
$
|
1,025,512
|
|
|
$
|
1,132,941
|
|
|
|
|
7.
|
|
PREPAID EXPENSES
|
|
|
|
Prepaid expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
March 31, 2007
|
Prepaid materials and components
|
|
$
|
468,853
|
|
|
$
|
394,598
|
|
Prepaid Belgium income taxes
|
|
|
70,985
|
|
|
|
66,830
|
|
Prepaid consulting
|
|
|
142,665
|
|
|
|
66,830
|
|
VAT payments in excess of VAT receipts
|
|
|
83,036
|
|
|
|
47,260
|
|
Royalties
|
|
|
35,448
|
|
|
|
33,415
|
|
Prepaid trade show expenses
|
|
|
23,216
|
|
|
|
6,523
|
|
Prepaid rent
|
|
|
9,695
|
|
|
|
7,054
|
|
Other
|
|
|
37,830
|
|
|
|
45,911
|
|
|
|
|
|
|
$
|
889,639
|
|
|
$
|
668,421
|
|
|
|
|
8.
|
|
PROPERTY AND EQUIPMENT
|
|
|
|
Property and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
March 31, 2007
|
Furniture and Fixtures
|
|
$
|
155,493
|
|
|
$
|
137,560
|
|
Machinery and Equipment
|
|
|
681,032
|
|
|
|
559,422
|
|
Tooling
|
|
|
188,450
|
|
|
|
188,450
|
|
|
|
|
|
|
|
1,024,975
|
|
|
|
885,432
|
|
Accumulated depreciation
|
|
|
(410,562
|
)
|
|
|
(295,809
|
)
|
|
|
|
Property & equipment, net
|
|
$
|
614,413
|
|
|
$
|
589,623
|
|
|
|
|
9.
|
|
LONG TERM INVESTMENT
|
|
|
|
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 Innovative Medical & Dental Solutions, LLC (IMDS, LLC) in consideration for $300,000,
exclusive world wide rights to certain tooth whitening technology, and the right to purchase at
standard cost certain whitening lights and accessories and to sell such lights in markets not
served by the LLC. The terms of the Participation Agreement also provide that Remedent N.V. has
the first right to purchase additional equity. Parties to the Participation Agreement include two
officers of IMDS, LLC, and an individual who is both an officer and director of Remedent Inc., and
certain unrelated parties.
|
|
|
|
IMDS, LLC is registered with the Secretary of the State of Florida as a limited liability company
and with the Secretary of the State of California as a foreign corporation authorized to operate in
California. IMDS, LLC is merging with White Science World Wide, LLC, a limited liability company
organized in under the laws of the State of Georgia. The merged companies will operate as a single
entity as IMDS, LLC, a Florida limited liability company.
|
12
10.
|
|
LICENSED PATENTS
|
|
|
|
Teeth Whitening Patents
|
|
|
|
In October 2004, the Company acquired from the inventor the exclusive, perpetual license to two
issued United States patents which are applicable to several teeth whitening products currently
being marketed by the Company. Pursuant to the terms of the license agreement, the Company was
granted an exclusive, worldwide, perpetual license to manufacture, market, distribute and sell
the products contemplated by the patents subject to the payment of $65,000 as reimbursement to
the patent holder for legal and other costs associated with obtaining the patents, which was paid
in October 2004, and royalties for each unit sold subject to an annual minimum royalty of
$100,000 per year. The Company is amortizing the initial cost of $65,000 for these patents over a
ten year period and accordingly has recorded $19,500 of accumulated amortization for this patent
as of September 30, 2007. The Company accrues this royalty when it becomes payable to the
inventory therefore no provision has been made for this obligation as of September 30, 2007.
|
|
|
|
Universal Applicator Patent
|
|
|
|
In September 2004, the Company entered into an agreement with Lident N.V. (Lident), a company
controlled by Mr. De Vreese, the Companys Chairman, to obtain an option, exercisable through
December 31, 2005, to license an international patent (excluding the US) and worldwide
manufacturing and distribution rights for a potential new product which Lident had been assigned
certain rights by the inventors of the products, who are unrelated parties, prior to Mr. De
Vreese association with the Company. The patent is an Italian patent which relates to a single
use universal applicator for dental pastes, salves, creams, powders, liquids and other substances
where manual application could be relevant. The Company has filed to have the patent approved
throughout Europe. The agreement required the Company to advance to the inventors through Lident
a fully refundable deposit of
100,000 subject to the Companys due diligence regarding the
enforceability of the patent and marketability of the product, which, if viable, would be
assigned to the Company for additional consideration to the inventors of
100,000 and an ongoing
royalty from sales of products related to the patent equal to 3% of net sales and, if not viable,
the deposit would be repaid in full by Lident. The consideration the Company had agreed to pay
Lident upon the exercise of the option is the same as the consideration Lident is obligated to
pay the original inventors. Consequently, Lident would not have profited from the exercise of the
option. Furthermore, at a meeting of the Companys Board of Directors on July 13, 2005, the Board
accepted Lidents offer to facilitate an assignment of Lidents intellectual property rights to
the technology to the Company in exchange for the reimbursement of Lidents actual costs incurred
relating to the intellectual property. Consequently, when the Company exercises the option, all
future payments, other than the reimbursement of costs would be paid directly to the original
inventors and not to Lident.
|
|
|
|
On December 12, 2005, the Company exercised the option and the Company and the patent holder
agreed to revise the assignment agreement whereby the Company agreed to pay
50,000 additional
compensation in the form of prepaid royalties instead of the
100,000 previously agreed,
25,000
of which had been paid by the Company in September 2005 and the remaining
25,000 to be paid upon
the Companys first shipment of a product covered by the patent. The patent is being amortized
over five (5) years and accordingly, the Company has recorded $43,775 of accumulated amortization
for this patent as of September 30, 2007.
|
|
11.
|
|
LINE OF CREDIT
|
|
|
|
On October 8, 2004, our wholly owned subsidiary, Remedent N.V., obtained a mixed-use line of
credit facility with Fortis Bank, a Belgian bank, for
1,070,000 (the Facility). The Facility
was secured by a first lien on the assets of Remedent N.V. The purpose of the Facility is to
provide working capital to grow our business and to finance certain accounts receivable as
necessary. Since opening the Facility in 2004, Remedent N.V. and Fortis Bank have subsequently
amended the Facility several times to increase or decrease the line of credit. On May 3, 2005 the
Facility was amended to decrease the line of credit to
1,050,000. On March 13, 2006 the Facility
was amended to increase the mixed-use line of credit to
2,300,000, consisting of a
1,800,000
credit line based on the eligible accounts receivable and a
500,000 general line of credit. The
latest amendment to the Facility, dated September 1, 2006, amended and decreased the mixed-use
line of credit to
2,050,000. Each line of credit carries its own interest rates and fees as
provided in the Facility. Remedent N.V. is currently only utilizing two lines of credit, advances
based on account receivables and the straight loan. As of September 30, 2007 and March 31, 2007,
Remedent N.V. had, in the aggregate, $230,409 and $1,530,276 advances outstanding, respectively,
under this mixed-use line of credit facility.
|
13
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
March 31, 2007
|
Union Bank Debt:
|
|
|
|
|
|
|
|
|
Maturity Dates: April 26, 2005
Interest rate: 7.5% per annum
Security: All of the assets of
the company. Unpaid principal
balance:
|
|
$
|
11,282
|
|
|
$
|
11,282
|
|
|
|
|
Total note payable
|
|
$
|
11,282
|
|
|
$
|
11,282
|
|
|
|
|
13.
|
|
LONG TERM DEBT
|
|
|
|
On September 15, 2005, the Company entered into two five year capital lease agreements for
manufacturing equipment totaling
70,296 (US $85,231). On October 24, 2006, the Company entered
into another five year capital lease agreement for additional manufacturing equipment totaling
123,367 (US $157,503). The leases require monthly payments of principal and interest at 7.43% of
1,258 (US$1,784 at September 30, 2007) for the first two leases and 9.72% of
2,256 (US$3,200 at
September 30, 2007) and provide for buyouts at the conclusion of the five year term of
2,820
(US$3,998) or 4.0% of original value for the first two contracts and
4,933 (US $6,944) or 4.0 %
of the original value for the second contract. The book value as of September 30, 2007 and March
31, 2007 of the equipment subject to the foregoing leases are $183,059 and $198,225,
respectively.
|
|
14.
|
|
DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS
|
|
|
|
Balances due to related parties consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
March 31, 2007
|
|
Demand loan from a former officer and major stockholder
|
|
$
|
50,536
|
|
|
$
|
50,536
|
|
|
|
|
|
|
|
|
|
|
$
|
50,536
|
|
|
$
|
50,536
|
|
|
|
|
|
|
|
|
|
|
Borrowings from employees and entities controlled by officers of the Company are, unsecured,
non-interest bearing, and due on demand.
|
|
|
|
Transactions with related parties consisted of the following:
|
|
|
|
Compensation:
|
|
|
|
During the six month periods ended September 30, 2007 and 2006 respectively, the Company incurred
$342,644 and $291,220 respectively, as compensation for all directors and officers.
|
|
|
|
Effective August 8, 2007, the Company appointed a Senior Vice President and Head of U.S.
Marketing. Terms of the appointment provide for an initial base salary of $150,000 per year and
options to purchase 100,000 shares of common stock under the Companys 2004 Incentive and
Nonstatutory Stock Option Plan (granted Refer to Note 16).
|
|
|
|
Sales Transactions:
|
|
|
|
One of the Companys directors owns a 5% interest in a client company, IMDS Inc. (refer to Note
9), to which goods were sold during the years ended March 31, 2007 and 2006 totaling $476,122 and
$38,494 respectively. Accounts receivable with this customer totaled $22,809 and $0 as at
September 30, 2007 and 2006 respectively.
|
|
|
|
All related party transactions involving provision of services or tangible assets were recorded
at the exchange amount, which is the value established and agreed to by the related parties
reflecting arms length consideration payable for similar services or transfers.
|
|
|
|
Other related party transactions are disclosed in Supplemental Non-Cash Investing and Financing
Activities, clause (e), and Note 17. (Refer to Note 9.)
|
14
15.
|
|
ACCRUED LIABILITIES
|
|
|
|
Accrued liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
March 31, 2007
|
Accrued private placement costs
|
|
$
|
29,946
|
|
|
$
|
|
|
Accrued customer prepayments
|
|
|
31,570
|
|
|
|
|
|
Accrued employee benefit taxes
|
|
|
242,701
|
|
|
|
260,676
|
|
Commissions
|
|
|
4,431
|
|
|
|
2,834
|
|
Accrued audit and tax preparation fees
|
|
|
21,692
|
|
|
|
27,282
|
|
Reserve for warranty costs
|
|
|
21,269
|
|
|
|
20,049
|
|
Accrued interest
|
|
|
81
|
|
|
|
6,180
|
|
Accrued consulting fees
|
|
|
37,531
|
|
|
|
2,528
|
|
Other accrued expenses
|
|
|
128,976
|
|
|
|
92,886
|
|
|
|
|
|
|
$
|
518,197
|
|
|
$
|
412,435
|
|
|
|
|
16.
|
|
EQUITY COMPENSATION PLANS
|
|
|
|
The Board of Directors and stockholders approved the Nonstatutory Stock Option Plan (the 2001
Plan) and adopted it on May 29, 2001. The Company has reserved 250,000 shares of its common
stock for issuance to the directors, employees and consultants under the Plan. The Plan is
administered by the Board of Directors. Vesting terms of the options range from immediately to
five years.
|
|
|
|
Pursuant to an Information Statement on Schedule 14C mailed on May 9, 2005 to all stockholders of
record as of the close of business on February 1, 2005 and became effective September 3, 2005,
the Company authorized the implementation of a 2004 Incentive and Nonstatutory Stock Option Plan
(2004 Plan) reserving 800,000 shares of common stock for issuance to employees, directors and
consultants of the Company or any subsidiaries. This plan became effective as of September 3,
2005 after the Company had completed a one for twenty reverse split.
|
|
|
|
On October 1, 2006, the Company granted to a marketing consultant 25,000 options to purchase the
Companys common stock at a price of $1.80 per share. These options vested immediately upon grant
and are exercisable for a period of five years. The Company valued the foregoing options using
the Black Scholes option pricing model using the following assumptions: no dividend yield;
expected volatility rate of 91.58%; risk free interest rate of 5% and an average life of 5 years
resulting in a value of $1.298 per option granted.
|
|
|
|
On September 14, 2006, pursuant to an S-8 filed with the SEC, the Company registered 1,150,000
common shares, pursuant to compensation arrangements.
|
|
|
|
On August 17, 2007 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 $5,982 has been
recorded in the period ended September 30, 2007.
|
|
|
|
On September 21, 2007 the Company granted to employees and directors a total of 570,000 options
to purchase the Companys common stock at a price of $1.75 per share. These options will vest
over the next 3 years and are exercisable for a period of 10 years. The Company valued the
foregoing options using the Black Scholes option pricing model using the following assumptions:
no dividend yield; expected volatility rate of 115%; risk free interest rate of 4.75% and an
average life of 7 years resulting in a value of $1.47 per option granted. The value of these
options will be recognized on a straight-line basis over the next three years and accordingly a
value of $6,864 has been recorded in the period ended September 30, 2007.
|
15
|
|
A summary of the option activity for the six months ended September 30, 2007 pursuant to the
terms of the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Plan
|
|
|
2004 Plan
|
|
|
Other
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
Options outstanding ,
March 31, 2007
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
210,666
|
|
|
$
|
3.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
520,000
|
|
|
|
1.71
|
|
|
|
150,000
|
|
|
$
|
1.75
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding,
September 30, 2007
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
730,666
|
|
|
$
|
2.29
|
|
|
|
150,000
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
September 30, 2007
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
210,666
|
|
|
$
|
4.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price range
|
|
$
|
1.00 to $4.00
|
|
|
|
|
|
|
$1.50 to $4.00
|
|
|
|
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining life
|
|
4.5 years
|
|
|
|
|
|
|
5.82 years
|
|
|
|
|
|
|
9.98 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
|
|
|
|
of outstanding
|
|
|
exercise price of
|
|
|
plans (excluding
|
|
|
|
options, warrants
|
|
|
outstanding options
|
|
|
securities reflected
|
|
Plan Category
|
|
and right
|
|
|
warrants and rights
|
|
|
in column (a))
|
|
Equity Compensation Plans approved by security holders
|
|
|
1,103,166
|
|
|
$
|
2.01
|
|
|
|
96,834
|
|
Equity Compensation Plans not approved by security
holders
|
|
|
297,298
|
|
|
$
|
1.50
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,400,464
|
|
|
$
|
1.91
|
|
|
|
96,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to January 1, 2006, the Company accounted for employee stock-based compensation under the
recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees, and related Interpretations, as permitted by SFAS No.
123, Accounting for Stock-Based Compensation. Under the recognition principles of APB No. 25,
compensation expense related to restricted stock and performance units was recognized in the
financial statements. However, APB No. 25 generally did not require the recognition of
compensation expense for stock options because the exercise price of these instruments was
generally equal to the fair value of the underlying common stock on the date of grant, and the
related number of shares granted were fixed at that point in time.
|
|
|
|
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, 2007 the Company recognized $12,846 (2006 $189,515) in compensation expense in the
consolidated statement of operations.
|
|
17.
|
|
COMMON STOCK WARRANTS AND OTHER OPTIONS
|
|
|
|
On February 10, 2006, the Company issued to an individual the right to purchase 150,000 shares of
the Companys common stock at an exercise price of $2.60 per share for a term of five (5) years
pursuant to the terms and conditions of a Stock Option Agreement as consideration for past
services performed and the release of any and all claims under this individuals prior
|
16
|
|
agreements with the Company. The 150,000 options have been valued in accordance with the Black-Scholes
pricing model utilizing an historic volatility factor of 1.55, a risk free interest rate of 4.5%
and an expected life for the options of five years, resulting in a value of $2.41 per option
granted for a total for the warrants of $361,500. The value of this option grant was recorded
as of December 31, 2005 as a research and development expense.
|
|
|
|
In November 2006, the Company entered into a Settlement Agreement and Release (Settlement
Agreement) with this individual pursuant to which the prior agreement was terminated. In
connection with the Settlement Agreement, the Company agreed to pay this individual $65,000 in
settlement of all accounts which was recorded as an expense as of the date of the Settlement
Agreement and he in turn agreed to the cancellation of his options to purchase 150,000 shares of
the Companys common stock in exchange for certain product rights that the Company had elected
not to pursue.
|
|
|
|
As of September 30, 2007, the Company has 7,270,026 warrants to purchase the Companys common
stock outstanding that were not granted under shareholder approved equity compensation plans at
prices ranging between $1.20 and $3.00 per share with expiration dates between August 2007 and
September 2012 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Average Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
Warrants and options outstanding , March 31, 2007
|
|
|
3,105,651
|
|
|
$
|
1.72
|
|
Granted
|
|
|
4,200,000
|
|
|
|
1.55
|
|
Cancelled or expired
|
|
|
(35,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable September 30, 2007
|
|
|
7,270,026
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
Exercise price range
|
|
$
|
1.20 to $10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining life
|
|
4.96Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.
|
|
SEGMENT INFORMATION
|
|
|
|
The Companys only operating segment consists of dental products and oral hygiene products sold
by Remedent Inc., Remedent N.V., and Remedent Asia. Since the Company only has one segment, no
further segment information is presented.
|
|
|
|
Customers Outside of the United States
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
U.S. sales
|
|
$
|
113,834
|
|
|
$
|
56,651
|
|
Foreign sales
|
|
|
2,207,115
|
|
|
|
3,654,102
|
|
|
|
|
|
|
|
|
|
|
$
|
2,320,949
|
|
|
$
|
3,710,753
|
|
|
|
|
|
|
|
|
19.
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
Real Estate Lease
|
|
|
|
The Company leases its 26,915 square feet office and warehouse facility in Deurle, Belgium from
an unrelated party pursuant to a nine year lease commencing December 20, 2001 at a base rent of
$6,838 per month ($9,696 per month at September 30, 2007). In addition, the Company is
responsible for the payment of annual real estate taxes for the property which totaled
3,245
($4,382) for calendar year 2006. The minimum aggregate rent to be paid over the remaining lease
term based upon the conversion rate for the
at September 30, 2007 is $284,594. Rent expense for
the foregoing lease for the six months ended September 30, 2007 and September 30, 2006 was
$59,149 and $51,452 respectively.
|
|
|
|
Equipment Lease
|
|
|
|
In November 2004, the Company leased new computer equipment from a Belgium based Lessor pursuant
to a three year operating lease with monthly payments of
1,005 ($1,425 per month at September
30, 2007). The aggregate rent to be paid over the remaining lease term is $2,850.
|
17
Minimum monthly lease payments for real estate, and all other leased equipment for the next four
years are as follows based upon the conversion rate for the (Euro) at September 30, 2007.
|
|
|
|
|
March 31, 2008
|
|
$
|
234,414
|
|
March 31, 2009
|
|
$
|
212,805
|
|
March 31, 2010
|
|
$
|
68,954
|
|
March 31, 2011
|
|
$
|
37,790
|
|
Item 2. Managements Discussion and Analysis of Financial Condition or Plan of Operations
The discussion contained herein is for the six months ended September 30, 2007 and 2006. The
following discussion should be read in conjunction with the Companys condensed consolidated
financial statements and the notes to the condensed consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-QSB for the quarterly period ended September 30,
2007. In addition to historical information, this section contains forward-looking statements,
including statements regarding the growth of product lines, optimism regarding the business,
expanding sales and other statements. Words such as expects, anticipates, intends, believes, sees,
estimates and variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future performance and involve
certain risks and uncertainties that are difficult to predict. Actual results could vary materially
from the description contained herein due to many factors including continued market acceptance of
our products. In addition, actual results could vary materially based on changes or slower growth
in the oral care and cosmetic dentistry products market; the potential inability to realize
expected benefits and synergies; domestic and international business and economic conditions;
changes in the dental industry; unexpected difficulties in penetrating the oral care and cosmetic
dentistry products market; changes in customer demand or ordering patterns; changes in the
competitive environment including pricing pressures or technological changes; technological
advances; shortages of manufacturing capacity; future production variables impacting excess
inventory and other risk factors. Factors that could cause or contribute to any differences are
discussed in Risk Factors and elsewhere in the Companys annual report on Form 10-KSB filed on
July 13, 2007 with the Securities and Exchange Commission. Except as required by applicable law or
regulation, the Company undertakes no obligation to revise or update any forward-looking statements
contained in this Quarterly Report on Form 10-QSB for the quarterly period ended September 30,
2007. The information contained in this Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 2007 is not a complete description of the Companys business or the risks associated
with an investment in the Companys common stock. Each reader should carefully review and consider
the various disclosures made by the Company in this Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 2007 and in the Companys other filings with the Securities
and Exchange Commission.
Overview
We design, develop, manufacture and distribute cosmetic dentistry products. Leveraging our
knowledge of regulatory requirements regarding dental products and managements experience in the
needs of the professional dental community, we have developed a family of teeth whitening products
for both professional and Over-The-Counter use, that are distributed in Europe, Asia and the
United States. We manufacture many of our products in our facility in Deurle, Belgium as well as
outsourced manufacturing in China. We distribute our products using both our own internal sales
force and through the use of third party distributors. As a result of this approach, we have
established dealers in 35 countries encompassing, Europe, Asia, Latin America, the Pacific Rim and
the Middle East.
For the fiscal years ending March 31, 2003 through 2007, substantially all of our revenue has
been generated by our Belgian subsidiary, Remedent N.V., which had experienced substantial growth
in its revenues.
Our products can be generally classified into the following categories: professional dental
products and Over-The Counter tooth whitening products. In the fall of 2006, we launched a
proprietary veneer technology product line called GlamSmile. GlamSmile veneers are ultra thin
claddings made from a mixture of a hybrid composite and porcelain materials which are attached to
the front of the patients teeth. Because GlamSmile veneers are so thin, the dentist does not need
to remove healthy tooth structure leaving the patients healthy tooth structure intact which
results in several important benefits: (i) no local anesthesia is required to prepare the teeth;
(ii) reduced (if any) tooth sensitivity post-procedure; and (iii) the process is reversible. In
addition, in the three months ended March 31, 2006, a variation of our MetaTray
®
product
named iWhite
®
was introduced to our global retail distribution
18
network. We introduced MetaTray in August 2005, our next generation of products targeted for the
professional dentist market. MetaTray is a completely self-contained whitening system that can be
administered by dentists.
During the second half of the fiscal year ended March 31, 2006, we established sales offices
in Singapore to service the Asian market. In conjunction with the establishment of the office in
Singapore, we formed a wholly owned subsidiary, Remedent Asia Pte Ltd. Although sales in Singapore
have taken time to materialize, we believe progress is being made in establishing market share in
this region.
In June 2007, we completed a private placement of 5,600,000 shares of our common stock at
$1.25 per share and warrants to purchase up to 4,200,000 shares of common stock at an exercise
price of $1.55 per share to certain institutional and accredited investors for an aggregate
purchase price of $7,000,000, of which we received proceeds of approximately $5,898,241, net of
costs.
The following table presents our consolidated statements of loss, as a percentage of sales, for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
For the six months ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
COST OF SALES
|
|
|
53.81
|
%
|
|
|
50.10
|
%
|
|
|
53.62
|
%
|
|
|
52.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
46.19
|
%
|
|
|
49.90
|
%
|
|
|
46.38
|
%
|
|
|
47.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4.29
|
%
|
|
|
4.77
|
%
|
|
|
3.26
|
%
|
|
|
6.48
|
%
|
Sales and marketing
|
|
|
26.25
|
%
|
|
|
9.81
|
%
|
|
|
16.62
|
%
|
|
|
16.80
|
%
|
General and administrative
|
|
|
108.41
|
%
|
|
|
34.52
|
%
|
|
|
82.35
|
%
|
|
|
45.03
|
%
|
Depreciation and amortization
|
|
|
6.52
|
%
|
|
|
1.92
|
%
|
|
|
5.85
|
%
|
|
|
2.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
145.47
|
%
|
|
|
51.02
|
%
|
|
|
108.08
|
%
|
|
|
70.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(99.29
|
)%
|
|
|
(1.12
|
)%
|
|
|
(61.70
|
)%
|
|
|
(23.38
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
5.93
|
%
|
|
|
(2.93
|
)%
|
|
|
1.57
|
%
|
|
|
(1.88
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(93.35
|
)%
|
|
|
(4.05
|
)%
|
|
|
(60.13
|
)%
|
|
|
(25.27
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
(93.35
|
)%
|
|
|
(4.05
|
)%
|
|
|
(60.13
|
)%
|
|
|
(25.27
|
)%
|
|
|
|
|
|
Net Sales
We experienced a sales decrease for the six months ended September 30, 2007 of $1,389,804, or
37.5%, to $2,320,949 as compared to $3,710,753 for the six months ended September 30, 2006.
At the end of March 2007, the Company announced at the IDS, one of the important Worldwide Dental
Shows, which took place in Koln (Germany), that the Company was currently working on an updated
version of the Remecure. The launch of the new unit is scheduled for the second half of 2007. The
main reason for the decrease in net sales for the six months ended September 30, 2007 is mostly
attributable to reduced sales of the Remecure product line. It is our belief that the market is
anticipating the launch of the updated version and therefore, has been conservative in placing new
orders over recent months.
Cost of Sales
Our cost of sales decreased for the six months ended September 30, 2007 by $711,706, or 36.4%, to
$1,244,598 as compared to $1,955,674 for the six months ended September 30, 2006. The main reason
for this decrease is the decrease in sales explained above. Accordingly, cost of sales, as a
percentage of net sales, increased from 52.7% for the six months ended September 30, 2006 to 53.7%
19
for the six months ended September 30, 2007. Cost of sales has increased because of the initial
iWhite orders, which took place during the quarter ending September 2006, products that are known
for higher margins, orders that did not re-occur during the Quarter ending September 2007.
Abstracting these initial orders shows that the cost of sales during the quarter ended September
2007 is at a comparable level as compared to the quarter ending September 2006.
Gross Profit
Our gross profit decreased by $678,728 or 38.7%, to $1,076,351 for the six month period ended
September 30, 2007 as compared to $1,755,079 for the six month period ended September 30, 2006. Our
gross profit as a percentage of sales decreased by 1% from 47.3% for the six months ended September
30, 2006 as compared to 46.3% for the six months ended September 30, 2007. The decrease in gross
profit is the result of the initial iWhite orders which took place during the quarter ending
September 2006, which are known for their higher margins. These initial orders did not re-occur
during the quarter ending September 2007.
Operating Expenses
Research and Development
. Our research and development expenses decreased $164,943 to $75,557 for
the six months ended September 30, 2007 as compared to $240,500 for the six months ended September
30, 2006, a decrease of 68.6%. The principal reason for this decrease is the earlier than
anticipated termination of the agreement for consultancy services with respect to the development
of our Meta Tray and iWhite products. As a result, these costs have decreased by $150,000 as
compared to the costs paid during the same period in 2006.
Sales and marketing costs
. Our sales and marketing costs decreased $237,621 or 38.1%, to $385,793
for the six months ended September 30, 2007 as compared to $623,414 for the six months ended
September 30, 2006. The reason for this decrease is largely due to closing our office located in
Los Angeles, California. We have changed our US OTC sales strategy from direct to indirect. Rather
than create our own distribution channels we intend to establish relationships with companies that
have existing distribution channels. Note that the decrease was tempered due to initial investments
made and related to the set up of a US office to support our US strategy concerning the
introduction of our Veneer product in the US market.
General and administrative costs
. Our general and administrative costs for the six months ended
September 30, 2007 and 2006 were $1,911,330 and $1,671,112, respectively, representing an increase
of $240,218 or 14.4%. The increase in general and administrative costs for the six months ended
September 30, 2007 as compared to the prior year is mainly due to our initial investments made to
improve our support concerning the launch of our GlamSmile products, more specific, the veneers.
Additionally, it should be noted, that legal general corporate costs increased as a result of the
recent private placement which took place at the end of the quarter ending June 2007.
Depreciation and amortization
. Our depreciation and amortization increased $48,090 or 54.8%, to
$135,784 for the six months ended September 30, 2007 as compared to $87,694 for the six months
ended September 30, 2006. 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 through significantly reduced production times. It has also
reduced our manufacturing costs. Secondly, investments have been made in updating and modernizing
our Dental Lab and related machinery, in order to bring it to a higher professional level. With the
investments made, our lab now has the capacity to provide a higher level of support for our sales
team, especially with respect to the support of our veneers.
Net interest expense
was $55,214 for the six months ended September 30, 2007 as compared to $97,469
for the six months ended September 30, 2006, a decrease of $42,255, or 43.4%. The main reason is
the decreased use of our available bank credit line which occurred primarily because of the
Companys decision to reduce the use of the credit line with funds received pursuant to the recent
private placement. This decision was made in order to avoid the repayment of expected more
expensive Euros against the USD.
Item 3. Controls and Procedures
.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be
disclosed in the reports filed or submitted by the Company under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the
20
time periods specified in the rules and forms of the Securities and Exchange Commission.
Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in the reports filed under the Securities Exchange
Act of 1934 is accumulated and communicated to the Companys management, including its principal
executive and financial officers, as appropriate, to allow timely decisions regarding required
disclosure.
The Company carried out an evaluation, under the supervision and with the participation of its
management, including its principal executive officer and principal financial officer, of the
effectiveness of the design and operation of the Companys disclosure controls and procedures as of
the end of the period covered by this report. Based upon and as of the date of that evaluation, the
Companys principal executive officer and financial officers concluded that the Companys
disclosure controls and procedures are effective to ensure that information required to be
disclosed in the reports the Company files and submits under the Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms.
(b) Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during
the quarter ended September 30, 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
.
None.
Item 2. Unregistered Sale of Equity Securities
.
On September 25, 2007, the Company completed a 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
five year 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 Company 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.
The sales and issuances of common stock and warrants to purchase common stock in private
placements listed above were made by us in reliance upon the exemptions from registration provided
under Section 4(2) and 4(6) of the Securities Act of 1933, as amended, and Rule 506 of Regulation
D, promulgated by the Securities and Exchange Commission under federal securities laws and
comparable exemptions for sales to accredited investors under state securities laws. The offers
and sales were made to accredited investors as defined in Rule 501(a) under the Securities Act, no
general solicitation was made by us or any person acting on our behalf; the securities sold were
subject to transfer restrictions, and the certificates for those shares contained an appropriate
legend stating that they had not been registered under the Securities Act and may not be offered or
sold absent registration or pursuant to an exemption there from.
Item 3. Defaults In Senior Securities.
None.
Item 4. Submission Of Matters To A Vote Of Security Holders.
21
The annual meeting of shareholders of the Company was held on November 5, 2007. The
shareholders voted, either in person or by proxy, on the following proposals. The directors listed
below were elected, and all other proposals submitted to a vote of the shareholders were approved,
with the results of the shareholder vote as follows:
|
1
|
|
The following four directors were elected to hold office for one-year
terms or until their successors are elected and qualified:
|
|
|
|
|
|
|
|
|
|
|
|
Votes Against
|
|
|
|
|
Votes For
|
|
or Withheld
|
|
Total Voted
|
Guy De Vreese
|
|
16,783,357
|
|
2,657
|
|
16,786,014
|
Robin List
|
|
16,783,357
|
|
2,657
|
|
16,786,014
|
Stephen Ross
|
|
16,784,325
|
|
721
|
|
16,785,046
|
Fred Kolsteeg
|
|
16,784,325
|
|
721
|
|
16,785,046
|
|
2.
|
|
To approve adoption of the 2007 Equity Incentive Plan:
|
|
|
|
For
|
|
15,719,684
|
Against
|
|
23,410
|
Abstain
|
|
1,500
|
|
3.
|
|
To approve the Board of Directors appointment of PKF Bedrijfsrevisoren
as the Companys independent registered accounting firm for the 2008
fiscal year.
|
|
|
|
For
|
|
16,780,168
|
Against
|
|
2,002
|
Abstain
|
|
2,810
|
Item 5. Other Information.
None.
Item 6. Exhibits
The following documents are filed as part of this report:
Exhibit No.
10.1
|
|
Limited Liability Company Merger and Reallocation Agreement between Remedent NV and IMDS,
LLC, dated July 15, 2007
|
|
31.1
|
|
Certifications of the Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act
|
|
31.2
|
|
Certifications of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act
|
|
32.1
|
|
Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act
|
|
32.2
|
|
Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act
|
22
SIGNATURES
In accordance with the requirements of the Exchange Act the Registrant caused this quarterly report
for the period September 30, 2007 to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
|
|
REMEDENT, INC.
|
|
|
/s/ Robin List
|
|
Dated: November 19, 2007
|
By: Robin List
|
|
|
Its: Chief Executive Officer (Principal
Executive Officer) and Director
|
|
|
|
|
|
|
/s/ Philippe Van Acker
|
|
Dated: November 19, 2007
|
By: Philippe Van Acker
|
|
|
Its: Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
|
|
|
23
Exhibit Index
Exhibit No.
10.1
|
|
Limited Liability Company Merger and Reallocation Agreement between Remedent NV and
IMDS, LLC, dated July 15, 2007
|
|
31.1
|
|
Certifications of the Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act
|
|
31.2
|
|
Certifications of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act
|
|
32.1
|
|
Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act
|
|
32.2
|
|
Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act
|