UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended June 30, 2008
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission File No. 001-15975
REMEDENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Nevada
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86-0837251
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(State or Other Jurisdiction
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(I.R.S. Employer Identification
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Of Incorporation or Organization)
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Number)
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Xavier De Cocklaan 42, 9831 Deurle, Belgium
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N/A
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrants telephone number, including area code
011 32 9 321 70 80
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
þ
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.
Yes
o
No
þ
As of August 18, 2008 there were 18,995,969 outstanding shares of the registrants common stock.
REMEDENT, INC.
FORM 10-Q INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30, 2008
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March 31, 2008
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(unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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1,467,692
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$
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1,728,281
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Accounts receivable, net of allowance for doubtful accounts of $32,083 at June 30,
2008 and $32,181 at March 31, 2008
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2,444,089
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1,902,920
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Inventories, net
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1,450,696
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1,360,709
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Prepaid expense
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877,486
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970,173
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Total current assets
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6,239,963
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5,962,083
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PROPERTY AND EQUIPMENT, NET
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907,876
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692,609
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OTHER ASSETS
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675,000
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675,000
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Patents, net
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107,680
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15,827
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TOTAL ASSETS
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$
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7,930,519
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$
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7,445,519
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES:
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Current portion, long term debt
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$
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67,344
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$
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58,583
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Line of Credit
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853,621
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779,718
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Accounts payable
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1,854,429
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2,002,439
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Accrued liabilities
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816,023
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781,737
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Income taxes payable
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15,122
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15,121
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Total current liabilities
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3,606,539
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3,637,598
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LONG TERM DEBT
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168,604
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94,754
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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, $0.001 par value; (50,000,000 shares authorized, 18,637,803 shares
issued and outstanding at June 30, 2008 and March 31, 2008 )
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18,638
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18,638
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Additional paid-in capital
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18,014,107
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17,929,992
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Accumulated deficit
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(13,932,611
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(14,263,113
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Accumulated other comprehensive income (loss) (foreign currency translation adjustment)
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55,242
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27,650
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Total stockholders equity (deficit)
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4,155,376
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3,713,167
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
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$
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7,930,519
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$
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7,445,519
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COMMITMENTS (Note 18)
SUBSEQUENT EVENT (Note 19)
The accompanying notes are an integral part of these consolidated financial statements.
1
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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For the three months ended
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June 30,
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2008
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2007
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Net sales
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$
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3,635,479
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$
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1,244,657
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Cost of sales
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1,269,424
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665,428
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Gross profit
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2,366,055
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579,229
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Operating Expenses
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Research and development
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124,958
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29,389
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Sales and marketing
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671,299
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103,241
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General and administrative
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1,130,313
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744,481
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Depreciation and amortization
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91,261
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65,634
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TOTAL OPERATING EXPENSES
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2,017,831
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942,745
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INCOME (LOSS) FROM OPERATIONS
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348,224
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(363,516
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OTHER INCOME (EXPENSES)
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Interest expense
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(35,343
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(28,829
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Other income
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17,621
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1,392
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TOTAL OTHER INCOME (EXPENSES)
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(17,723
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(27,437
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NET INCOME (LOSS) BEFORE TAX
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$
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330,501
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$
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(390,953
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INCOME (LOSS) PER SHARE
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Basic
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$
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0.02
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$
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(0.03
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Fully diluted
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$
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0.01
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$
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(0.03
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WEIGHTED AVERAGE SHARES OUTSTANDING
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Basic
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18,637,803
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13,611,630
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Fully diluted
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27,000,995
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13,611,630
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The accompanying notes are an integral part of these consolidated financial statements.
2
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
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For the three months ended June 30,
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(Unaudited)
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2008
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2007
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Net Income (Loss)
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$
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330,501
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$
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(390,953
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OTHER COMPREHENSIVE
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INCOME (LOSS):
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Foreign currency translation adjustment
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27,592
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4,600
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Comprehensive income (loss)
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$
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358,093
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$
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(386,353
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3
REMEDENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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For the three months ended
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June 30,
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2008
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2007
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net income (loss)
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$
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330,501
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$
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(390,953
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Adjustments to reconcile net income (loss) to net cash used
by operating activities Depreciation and amortization
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91,261
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65,634
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Inventory reserve
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(48
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Allowance for doubtful accounts
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(98
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Value of stock options issued to employees
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88,425
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Changes in operating assets and liabilities:
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Accounts receivable
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(541,169
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296,096
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Inventories
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(89,987
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211,818
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Prepaid expenses
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92,687
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(122,238
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Accounts payable
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(148,010
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382,544
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Accrued liabilities
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34,286
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855,583
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Net cash provided by (used by) operating activities
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(142,152
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1,298,484
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CASH FLOWS FROM INVESTING ACTIVITIES
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Purchases of equipment
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(287,613
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(50,364
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Net cash used by investing activities
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(287,613
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(50,364
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CASH FLOWS FROM FINANCING ACTIVITIES
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Net proceeds from private placement
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6,045,294
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Net proceeds from (repayments of) capital lease note payable
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82,611
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(11,201
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Proceeds from (repayments of) line of credit
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34,286
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(522,226
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Net cash provided by financing activities
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116,897
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5,511,867
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NET (DECREASE) INCREASE IN CASH
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(312,868
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6,759,987
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Effect of exchange rate changes on cash and cash equivalents
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52,279
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6,756
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CASH AND CASH EQUIVALENTS, BEGINNING
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1,728,281
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126,966
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CASH AND CASH EQUIVALENTS, ENDING
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$
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1,467,692
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$
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6,893,709
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Supplemental Information:
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Interest paid
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$
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23,443
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$
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23,376
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Income taxes paid
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$
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$
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The accompanying notes are an integral part of these consolidated financial statements.
4
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
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BACKGROUND AND ORGANIZATION
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The Company is a manufacturer and distributor of cosmetic dentistry products, including a full
line of professional dental and retail Over-The-Counter tooth whitening products which are
distributed in Europe, and recently in Asia and the United States. The Company manufactures many
of its products in its facility in Deurle, Belgium as well as outsourced manufacturing in China.
The Company distributes its products using both its own internal sales force and through the use
of third party distributors.
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2.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Organization and Principles of Consolidation
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The accompanying consolidated financial statements include the accounts of Remedent, Inc.
(formerly Remedent USA, Inc.), a Nevada corporation, and its four subsidiaries, Remedent N.V.
(Belgian corporation) located in Deurle, Belgium, Remedent Professional, Inc. (incorporated in
California) and a subsidiary of Remedent Professional Holdings, Inc., Remedent Asia Pte. Ltd, a
wholly-owned subsidiary formed under the laws of Singapore, and Sylphar N.V. (incorporated in
Belgium as a wholly owned subsidiary on September 24, 2007), (collectively, the Company).
Remedent, Inc. is a holding company with headquarters in Deurle, Belgium. Remedent Professional,
Inc. and Remedent Professional Holdings, Inc. have been dormant since inception. Remedent Asia
Pte. Ltd., commenced operations as of July 2005. All significant inter-company accounts and
transactions have been eliminated in the consolidated financial statements. Corporate
administrative costs are not allocated to subsidiaries.
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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 three months ended June
30, 2008, are not necessarily indicative of the results that may be expected for the year ended
March 31, 2009. Accordingly, your attention is directed to footnote disclosures found in the
Annual Report on Form 10-KSB for the year ended March 31, 2008, and particularly to Note 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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Revenue Recognition
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The Company recognizes revenue from product sales when persuasive evidence of a sale exists:
that is, a product is shipped under an agreement with a customer; risk of loss and title has
passed to the customer; the fee is fixed
or determinable; and collection of the resulting receivable is reasonably assured. Sales
allowances are estimated based upon historical experience of sales returns.
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Impairment of Long-Lived Assets
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Long-lived assets consist primarily of patents and property and equipment. The recoverability of
long-lived assets is evaluated by an analysis of operating results and consideration of other
significant events or changes in the business environment. If impairment exists, the carrying
amount of the long-lived assets is reduced to its estimated fair value, less any costs
associated with the final settlement. As of June 30, 2008, management believes there was no
impairment of the Companys long-lived assets.
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Pervasiveness of Estimates
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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.
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Cash and Cash Equivalents
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The Company considers all highly liquid investments with maturities of three months or less to
be cash or cash equivalents.
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Accounts Receivable and Allowance for Doubtful Accounts
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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.
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Inventories
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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.
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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 $15,764 at June 30, 2008 and $15,812 at March 31, 2008.
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Prepaid Expense
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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.
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6
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Property and Equipment
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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.
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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:
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Tooling
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3 Years
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Furniture and fixtures
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4 Years
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Machinery and Equipment
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4 Years
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Patents
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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.
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Research and Development Costs
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The Company expenses research and development costs as incurred.
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Advertising
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Costs incurred for producing and communicating advertising are expensed when incurred and
included in sales and marketing and general and administrative expenses. For the three month
periods ended June 30, 2008 and June 30, 2007, advertising expense was $86,600 and $38,331,
respectively.
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Income taxes
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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
$23,646 and $23,718 as of June 30, 2008 and March 31, 2008, respectively.
|
|
|
|
Segment Reporting
|
|
|
|
Statement of Financial Accounting Standards No. 131 (SFAS 131),
Disclosure About Segments of
an Enterprise and Related
Information requires use of the management approach model for
segment reporting. The management approach model is based on the way a companys management
organizes segments within the company for making operating decisions and assessing performance.
Reportable segments are based on products
and services, geography, legal structure, management structure, or any other manner in which
management disaggregates a company. The Companys management considers its business to comprise
one segment for reporting purposes.
|
7
|
|
Computation of Earnings (Loss) per Share
|
|
|
|
Basic net income (loss) per common share is computed by dividing net income (loss) attributable
to common stockholders by the weighted average number of shares of common stock outstanding
during the period. Net income (loss) per common share attributable to common stockholders
assuming dilution is computed by dividing net income by the weighted average number of shares of
common stock outstanding plus the number of additional common shares that would have been
outstanding if all dilutive potential common shares had been issued. 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 subsidiaries, Remedent N.V. and
Sylphar N.V., is the Euro, for Remedent Asia the Singapore Dollar. Finally, the functional
currency for Remedent Professional, Inc. is the U.S. dollar. The Company translates foreign
currency statements to the reporting currency in accordance with FASB 52. The assets and
liabilities of companies whose functional currency is other that the U.S. dollar are included in
the consolidation by translating the assets and liabilities at the exchange rates applicable at
the end of the reporting period. The statements of income of such companies are translated at
the average exchange rates during the applicable period. Translation gains or losses are
accumulated as a separate component of stockholders equity.
|
|
|
|
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 gains of $27,592 and $4,600 for the three month periods ended June 30,
2008 and June 30, 2007, respectively. These amounts have been recorded as a separate component
of stockholders equity.
|
|
|
|
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 three month periods ended June 30, 2008 and June 30, 2007, equity
compensation in the form of stock options and grants of restricted stock totaled $88,425 and
$nil, respectively.
|
8
|
|
Recent Accounting Pronouncements
|
|
|
|
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and
Hedging Activities
. This statement changes the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entitys financial position, financial performance, and cash
flows. This statement is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008 (the Companys fiscal year beginning April 1, 2009),
with early application encouraged. This statement encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. Management is in the process of evaluating
the impact the future application of this pronouncement may have on its consolidated financial
statements.
|
|
|
|
In December 2007, the FASB issued SFAS No. 141 (Revised 2007)
Business Combinations
. SFAS 141
(Revised) establishes principles and requirements for how the acquirer of a business recognizes
and measures in its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance
for recognizing and measuring the goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. The guidance will become effective for the
Companys fiscal year beginning April 1, 2009. Management is in the process of evaluating the
impact SFAS 141 (Revised) will have on the Companys financial statements upon adoption.
|
|
|
|
In December 2007, the FASB issued SFAS No. 160
Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51
. SFAS 160 establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation
of a subsidiary. The guidance will become effective for the Companys fiscal year beginning
April 1, 2009. Management is in the process of evaluating the impact SFAS 160 will have on the
Companys financial statements upon adoption.
|
|
3.
|
|
PRIVATE PLACEMENT
|
|
|
|
On June 25, 2007, the Company completed its private offering of 5,600,000 shares of its common
stock, par value $.001 per share at a purchase price of $1.25 per share (the Shares) and
warrants to purchase 4,200,000 shares of common stock, par value $.001 per share, at an exercise
price of $1.55 per share (the Warrants) to certain institutional and accredited investors, for
an aggregate purchase price of $7,000,000 (the Offering).
|
|
|
|
Under the terms of the Offering, the Warrants are exercisable for a period of five years and
entitle the holder to purchase one share of restricted common stock (the Warrant Shares) for
$1.55 per Warrant Share. The Company also has the right to redeem the Warrants for $0.001 per
Warrant Share covered by the Warrants if the Shares trade on the OTC Electronic Bulletin Board
or similar market above $5.25 per share for 20 consecutive trading days following the initial
effective date of the registration statement covering the resale of the Shares and Warrant
Shares, based upon the closing bid price for the Shares for each trading day (the Redemption
Right). Once the Redemption Right vests, the Company has the right, but not the obligation, to
redeem the Warrants for $0.001 per Warrant Share covered by the Warrants upon 30 days written
notice to the holders of the Warrants.
|
|
|
|
Under the terms of the Purchase Agreement and the Registration Rights Agreement, the Company was
required to prepare and file with the Securities and Exchange Commission (the Commission) a
registration statement covering the resale of the Shares and the Warrant Shares. The Company
agreed to prepare and file a registration statement covering the resale no later than 30 days
after the Closing. The registration statement became effective October 23, 2007.
|
|
|
|
The Company engaged Roth Capital Partners, LLC, as its exclusive agent to offer the Shares and
Warrants (the Placement Agent). The Placement Agent is entitled to a fee equal to ten percent
(10%) of the gross proceeds derived from the Offering, of which the Placement Agent may, at its
option, receive up to 2% of its 10% fee in securities issued in the Offering. Further, the
Company agreed to pay the Placement Agent 5% of the exercise price of the Warrants promptly
following the Companys receipt thereof. In addition, the Company agreed to
reimburse the Placement Agent for its out-of-pocket expenses related to the Offering, including
an up front payment of $25,000 to cover such expenses, of which any unused amount will be netted
against the Placement Agents 10% fee.
|
9
|
|
As of June 30, 2008, the total costs of this private placement were $1,228,808, comprising of:
commissions of $762,505; out-of-pocket costs of $25,000; professional fees of $369,323 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.
|
|
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 June 30, 2008 one customer accounted for 44% of the Companys trade
accounts receivable. The Company performs ongoing credit evaluations of its customers and
normally does not require collateral to support accounts receivable.
|
|
|
|
Purchases The Company has diversified its sources for product components and finished goods
and, as a result, the loss of a supplier would not have a material impact on the Companys
operations. For the three month period ended June 30, 2008, the Company had five suppliers who
accounted for a total of 25% of gross purchases. For the three month period ended June 30,
2007, the Company had five suppliers who accounted for a total of 29% of gross purchases.
|
|
|
|
Revenues For the three months ended June 30, 2008 the Company had one customer that accounted
for 36% of total revenues. For the three month period ended June 30, 2007 the Company had five
customers that accounted for 32% of total revenues.
|
|
5.
|
|
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
|
|
|
A summary of accounts receivable and allowance for doubtful accounts as of June 30, 2008 and
March 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
March 31, 2008
|
Accounts receivable, gross
|
|
$
|
2,476,172
|
|
|
$
|
1,935,101
|
|
Less: allowance for doubtful accounts
|
|
|
(32,083)
|
|
|
|
(32,181
|
)
|
|
|
|
Accounts receivable, net
|
|
$
|
2,444,089
|
|
|
$
|
1,902,920
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
March 31, 2008
|
Raw materials
|
|
$
|
30,681
|
|
|
$
|
29,788
|
|
Components
|
|
|
1,090,416
|
|
|
|
970,101
|
|
Finished goods
|
|
|
345,363
|
|
|
|
376,632
|
|
|
|
|
|
|
|
1,466,460
|
|
|
|
1,376,521
|
|
Less: reserve for obsolescence
|
|
|
(15,764)
|
|
|
|
(15,812
|
)
|
|
|
|
Net inventory
|
|
$
|
1,450,696
|
|
|
$
|
1,360,709
|
|
|
|
|
10
7.
|
|
PREPAID EXPENSES
|
|
|
|
Prepaid expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
March 31, 2008
|
|
|
|
Prepaid materials and components
|
|
$
|
621,666
|
|
|
$
|
588,639
|
|
Prepaid Belgium income taxes
|
|
|
|
|
|
|
79,060
|
|
Prepaid consulting
|
|
|
73,861
|
|
|
|
62,237
|
|
VAT payments in excess of VAT receipts
|
|
|
82,674
|
|
|
|
117,467
|
|
Royalties
|
|
|
39,410
|
|
|
|
39,530
|
|
Prepaid trade show expenses
|
|
|
15,408
|
|
|
|
25,276
|
|
Prepaid rent
|
|
|
15,347
|
|
|
|
10,812
|
|
Other
|
|
|
29,119
|
|
|
|
47,152
|
|
|
|
|
|
|
$
|
877,486
|
|
|
$
|
970,173
|
|
|
|
|
8.
|
|
PROPERTY AND EQUIPMENT
|
|
|
|
Property and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
March 31, 2008
|
Furniture and Fixtures
|
|
$
|
198,789
|
|
|
$
|
182,079
|
|
Machinery and Equipment
|
|
|
984,154
|
|
|
|
801,251
|
|
Tooling
|
|
|
342,450
|
|
|
|
254,450
|
|
|
|
|
|
|
|
1,525,393
|
|
|
|
1,237,780
|
|
Accumulated depreciation
|
|
|
(617,517)
|
|
|
|
(545,171
|
)
|
|
|
|
Property & equipment, net
|
|
$
|
907,876
|
|
|
$
|
692,609
|
|
|
|
|
9.
|
|
LONG TERM INVESTMENTS AND ADVANCES
|
|
|
|
Innovative Medical & Dental Solutions, LLC (IMDS, LLC)
|
|
|
|
Effective July 15, 2007 the Company entered into a Limited Liability Company Merger and Equity
Reallocation Agreement (the Participation Agreement) through its subsidiary, Remedent N.V.
Pursuant to the terms of the Participation Agreement, the Company has acquired a 10% equity
interest in IMDS, LLC in consideration for $300,000 which was converted against IMDS
receivables.
|
|
|
|
The agreement stipulates certain exclusive world wide rights to certain tooth whitening
technology, and the right to purchase at standard cost certain whitening lights and accessories
and to sell such lights in markets not served by the LLC. The terms of the Participation
Agreement also provide that Remedent N.V. has the first right to purchase additional equity.
Parties to the Participation Agreement include two officers of IMDS, LLC, and an individual who
is both an officer and director of Remedent Inc., and certain unrelated parties.
|
|
|
|
IMDS, LLC is registered with the Secretary of the State of Florida as a limited liability
company and with the Secretary of the State of California as a foreign corporation authorized to
operate in California. IMDS, LLC is merging with White Science World Wide, LLC, a limited
liability company organized under the laws of the State of Georgia. The merged companies are
operating as a single entity as IMDS, LLC, a Florida limited liability company.
|
|
|
|
Soca Networks Singapore (Soca)
|
|
|
|
Pursuant to the terms of a letter of intent dated December 17, 2007, the Company has agreed to
purchase 20% of Soca for a total purchase price of $750,000. Half of the purchase price has been
advanced $375,000 to Soca as a down payment, pending completion of the agreement terms. The
balance of $375,000 is to be paid through the issuance of 220,588 shares of the Companys common
stock. The final agreement is currently being negotiated and management expects to close the
agreement within the first half of the new fiscal year 2009.
|
11
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 $24,375 of accumulated amortization for this
patent as of June 30, 2008. The Company accrues this royalty when it becomes payable to
inventory therefore no provision has been made for this obligation as of June 30, 2008
(2007-Nil).
|
|
|
|
Universal Applicator Patent
|
|
|
|
In September 2004, the Company entered into an agreement with Lident N.V. (Lident), a company
controlled by Mr. De Vreese, the Companys Chairman, to obtain an option, exercisable through
December 31, 2005, to license an international patent (excluding the US) and worldwide
manufacturing and distribution rights for a potential new product which Lident had been assigned
certain rights by the inventors of the products, who are unrelated parties, prior to Mr. De
Vreese association with the Company. The patent is an Italian patent which relates to a single
use universal applicator for dental pastes, salves, creams, powders, liquids and other
substances where manual application could be relevant. The Company has filed to have the patent
approved throughout Europe. The agreement required the Company to advance to the inventors
through Lident a fully refundable deposit of
100,000 subject to the Companys due diligence
regarding the enforceability of the patent and marketability of the product, which, if viable,
would be assigned to the Company for additional consideration to the inventors of
100,000
and an ongoing royalty from sales of products related to the patent equal to 3% of net sales
and, if not viable, the deposit would be repaid in full by Lident. The consideration the Company
had agreed to pay Lident upon the exercise of the option is the same as the consideration Lident
is obligated to pay the original inventors. Consequently, Lident would not have profited from
the exercise of the option. Furthermore, at a meeting of the Companys Board of Directors on
July 13, 2005, the Board accepted Lidents offer to facilitate an assignment of Lidents
intellectual property rights to the technology to the Company in exchange for the reimbursement
of 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. The Company paid
25,000 in September 2005 and the remaining
25,000 was paid in
the period ended June 30, 2008. The patent is being amortized over five (5) years and
accordingly, the Company has recorded $61,411 of accumulated amortization for this patent as of
June 30, 2008.
|
|
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 January 3, 2008, amended and
decreased the mixed-use line of credit to
2,050,000, to be used by Remedent NV and/or
Sylphar NV. Each line of credit carries its own interest rates and fees as provided in the
Facility.
|
12
|
|
Remedent N.V. and Sylphar N.V. are currently only utilizing two lines of credit, advances based
on account receivables and the straight loan. As of June 30, 2008 and March 31, 2008, Remedent
N.V. and Sylphar N.V. had in aggregate, $853,621 and $779,718 in advances outstanding,
respectively, under this mixed-use line of credit facility.
|
|
12.
|
|
LONG TERM DEBT
|
|
|
|
On June 15, 2005, the Company entered into two five year capital lease agreements for
manufacturing equipment totaling
70,296 (US $85,231). On October 24, 2006, the Company
entered into another five year capital lease agreement for additional manufacturing equipment
totaling
123,367 (US $157,503). On May 15, 2008, the company entered into a third capital
lease agreement over a three year period for additional manufacturing equipment totaling
63,395 (US $ 98,516).The leases require monthly payments of principal and interest at 7.43% of
1,258 (US$1,983 at June 30, 2008) for the first two leases and 9.72% of
2,276 (US$3,588
at June 30, 2008) and provide for buyouts at the conclusion of the five year term of
2,820
(US$4,445) or 4.0% of original value for the first two contracts and
4,933 (US $7,776) or
4.0 % of the original value for the second contract. Concerning the third lease contract
requires monthly payments of principal and interest at 9,40% of
1,909 (US $ 3,009 at June 30, 2008) and provides for buyout at the conclusion of the three
year term of
633,95 (US $ 999) or 1% of the original value of this contract.
|
|
|
|
The book value as of June 30, 2008 and March 31, 2008 of the equipment subject to the
foregoing leases are $235,947 and $149,673, respectively.
|
|
13.
|
|
DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS
|
|
|
|
Borrowings from employees and entities controlled by officers of the Company are, unsecured,
non-interest bearing, and due on demand.
|
|
|
|
Transactions with related parties consisted of the following:
|
|
|
|
Compensation:
|
|
|
|
During the three month periods ended June 30, 2008 and 2007 respectively, the Company incurred
$179,632 and $156,594 respectively, as compensation for all directors and officers.
|
|
|
|
Sales Transactions:
|
|
|
|
One of the Companys directors owns a minority interest in a client company, IMDS Inc., to which
goods were sold during the quarter ended June 30, 2008 and 2007 totaling $34,980 and $355
respectively. Accounts receivable at year end with this customer totaled $91,533 and $392,057 as
at March 31, 2008 and 2007 respectively.
|
|
|
|
Accounts receivable with this customer totaled $47,429 and $361,129 as at June 30, 2008 and 2007
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.
|
13
14.
|
|
ACCRUED LIABILITIES
|
|
|
|
Accrued liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
March 31, 2008
|
|
|
|
Accrued employee benefit taxes and payroll
|
|
$
|
142,247
|
|
|
$
|
178,645
|
|
Accrued Travel
|
|
|
11,823
|
|
|
|
17,667
|
|
Advances and deposits
|
|
|
6,655
|
|
|
|
212,736
|
|
Commissions
|
|
|
254,861
|
|
|
|
130,875
|
|
Accrued audit and tax preparation fees
|
|
|
8,343
|
|
|
|
4,000
|
|
Reserve for warranty costs
|
|
|
23,646
|
|
|
|
23,718
|
|
Accrued interest
|
|
|
|
|
|
|
984
|
|
Accrued consulting fees
|
|
|
3,288
|
|
|
|
35,204
|
|
Other accrued expenses
|
|
|
271,112
|
|
|
|
177,908
|
|
|
|
|
|
|
$
|
816,023
|
|
|
$
|
781,737
|
|
|
|
|
15.
|
|
EQUITY COMPENSATION PLANS
|
|
|
|
The Board of Directors and stockholders approved the Nonstatutory Stock Option Plan (the 2001
Plan) and adopted it on May 29, 2001. The Company has reserved 250,000 shares of its common
stock for issuance to the directors, employees and consultants under the Plan. The Plan is
administered by the Board of Directors. Vesting terms of the options range from immediately to
five years.
|
|
|
|
Pursuant to an Information Statement on Schedule 14C mailed on May 9, 2005 to all stockholders
of record as of the close of business on February 1, 2005 and became effective June 3, 2005, the
Company authorized the implementation of a 2004 Incentive and Nonstatutory Stock Option Plan
(2004 Plan) reserving 800,000 shares of common stock for issuance to employees, directors and
consultants of the Company or any subsidiaries. This plan became effective as of June 3, 2005
after the Company had completed a one for twenty reverse split.
|
|
|
|
On August 17, 2007, pursuant to the terms of the Companys 2004 Plan, the Company granted to an
employee 100,000 options to purchase the Companys common stock at a price of $1.50 per share.
These options will vest over the next 3 years and are exercisable for a period of 5 years. The
Company valued the foregoing options using the Black Scholes option pricing model using the
following assumptions: no dividend yield; expected volatility rate of 115%; risk free interest
rate of 4.75% and an average life of 5 years resulting in a value of $1.24 per option granted.
The value of these options will be recognized on a straight-line basis over the next three years
and accordingly a value of $28,780 has been recorded in the year ended March 31, 2008.
|
|
|
|
On September 21, 2007 the Company granted to employees and directors a total of 570,000 options
to purchase the Companys common stock at a price of $1.75 per share. These options will vest
over the next 3 years and are exercisable for a period of 10 years. The Company valued the
foregoing options using the Black Scholes option pricing model using the following assumptions:
no dividend yield; expected volatility rate of 115%; risk free interest rate of 4.75% and an
average life of 7 years resulting in a value of $1.47 per option granted. The value of these
options will be recognized on a straight-line basis over the next three years and accordingly a
value of $88,425 has been recorded in the three months ended June 30, 2008 (2007 $nil).
|
14
|
|
A summary of the option activity for the three months ended June 30, 2008 pursuant to the terms
of the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Plan
|
|
|
2004 Plan
|
|
|
Other
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
Outstanding
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
Options outstanding , March 31, 2008
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
730,666
|
|
|
$
|
4.46
|
|
|
|
150,000
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, June 30, 2008
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
730,666
|
|
|
$
|
2.17
|
|
|
|
150,000
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable June 30, 2008
|
|
|
222,500
|
|
|
$
|
1.29
|
|
|
|
210,666
|
|
|
$
|
4.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price range
|
|
$
|
1.00 to $4.00
|
|
|
|
|
|
|
$
|
1.50 to $4.00
|
|
|
|
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining life
|
|
3.8 years
|
|
|
|
|
|
|
7.8 years
|
|
|
|
|
|
|
9.23 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares available for future issuance
|
|
|
27,500
|
|
|
|
|
|
|
|
69,334
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Companys equity compensation plans approved and not approved by shareholders
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Number of securities
|
|
|
|
securities to be
|
|
|
|
|
|
|
remaining available for
|
|
|
|
issued upon
|
|
|
|
|
|
|
future issuance under
|
|
|
|
exercise of
|
|
|
Weighted-average
|
|
|
equity compensation
|
|
|
|
outstanding
|
|
|
exercise price of
|
|
|
plans (excluding
|
|
|
|
options, warrants
|
|
|
outstanding options
|
|
|
securities reflected
|
|
Plan Category
|
|
and right
|
|
|
warrants and rights
|
|
|
in column (a))
|
|
Equity Compensation Plans approved by security holders
|
|
|
1,103,166
|
|
|
$
|
1.93
|
|
|
|
96,834
|
|
Equity Compensation Plans not approved by security holders
|
|
|
297,298
|
|
|
$
|
1.50
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,400,464
|
|
|
$
|
1.84
|
|
|
|
96,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to January 1, 2006, the Company accounted for employee stock-based compensation under the
recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees, and related Interpretations, as permitted by SFAS
No. 123, Accounting for Stock-Based Compensation. Under the recognition principles of APB No.
25, compensation expense related to restricted stock and performance units was recognized in the
financial statements. However, APB No. 25 generally did not require the recognition of
compensation expense 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 three
months ended June 30, 2008 the Company recognized $88,425 (2007 $nil) in compensation expense
in the consolidated statement of operations.
|
15
16.
|
|
COMMON STOCK WARRANTS AND OTHER OPTIONS
|
|
|
|
As of June 30, 2008, the Company has 7,260,026 warrants to purchase the Companys common stock
outstanding that were not granted under shareholder approved equity compensation plans at prices
ranging between $1.20 and $3.00 per share with expiration dates between August 2007 and
September 2012 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Average Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Warrants and options outstanding , March 31, 2008
|
|
|
7,260,026
|
|
|
$
|
1.67
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable March 31, 2008
|
|
|
7,260,026
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
Exercise price range
|
|
$
|
1.20 to $3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining life
|
|
3.16 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.
|
|
SEGMENT INFORMATION
|
|
|
|
The Companys only operating segment consists of dental products and oral hygiene products sold
by Remedent Inc., Remedent N.V., Sylphar N.V. and Remedent Asia Ltd.. Since the Company only has
one segment, no further segment information is presented.
|
|
|
|
Customers Outside of the United States
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
U.S. sales
|
|
$
|
2,158,900
|
|
|
$
|
33,777
|
|
Foreign sales
|
|
|
1,476,579
|
|
|
|
1,210,880
|
|
|
|
|
|
|
|
|
|
|
$
|
3,635,479
|
|
|
$
|
1,244,657
|
|
|
|
|
|
|
|
|
18.
|
|
COMMITMENTS
|
|
|
|
Real Estate Lease
|
|
|
|
The Company leases its 26,915 square feet office and warehouse facility in Deurle, Belgium from
an unrelated party pursuant to a nine year lease commencing December 20, 2001 at a base rent of
$6,838 per month ($11,097 per month at June 30, 2008). The minimum aggregate rent to be paid
over the remaining lease term based upon the conversion rate for the
at March 31, 2008 is
$359,773.
|
|
|
|
Minimum monthly lease payments for real estate, and all other leased equipment for the next
three years are as follows based upon the conversion rate for the (Euro) at June 30, 2008.
|
|
|
|
|
|
March 31, 2009
|
|
$
|
240,734
|
|
March 31, 2010
|
|
$
|
76,896
|
|
March 31, 2011
|
|
$
|
42,143
|
|
Total:
|
|
$
|
359,773
|
|
|
|
Factoring Agreement
|
|
|
|
On April 24, 2008, the Company entered into a Factoring Agreement (Agreement) with First
Community Financial, a division of Pacific Western Bank (First Community) whereby First
Community may purchase, from time to time, on a limited recourse basis such of the Companys
accounts now existing or hereafter created and arising out of the sale of goods or service by
the Company. The factoring credit facility limit is $1,000,000 and amounts factored are subject
to an interest rate of prime plus 2%. Security for the factoring credit facility is a first
charge over all the assets of the Company. The Agreement shall remain in effect until October
16, 2008 and may be renewed for successive six month periods unless terminated under certain
conditions.
|
16
OEM Agreement
On June 30, 2008, the Company entered into an OEM Agreement (Agreement) with SensAble
Technologies, Inc., a corporation under the laws of Delaware (SensAble) whereby the Company
will integrate SensAble products and technology into the Companys system. The Agreement
provides the Company with the exclusive right to distribute certain SensAble products throughout
the world for a period of twelve (12) months from the date of the Agreement. The Company has the
option and right to extend the initial twelve (12) month exclusivity period for another twelve
(12) months. The term of the Agreement will be for two years and began on June 30, 2008.
19. SUBSEQUENT EVENTS
None
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The discussion contained herein is for the three months ended June 30, 2008 and 2007. The
following discussion should be read in conjunction with the Companys condensed consolidated
financial statements and the notes to the condensed consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008. In
addition to historical information, this section contains forward-looking statements, including
statements regarding the growth of product lines, optimism regarding the business, expanding sales
and other statements. Words such as expects, anticipates, intends, plans, believes, sees, estimates
and variations of such words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and involve certain risks and
uncertainties that are difficult to predict. Actual results could vary materially from the
description contained herein due to many factors including continued market acceptance of our
products. In addition, actual results could vary materially based on changes or slower growth in
the oral care and cosmetic dentistry products market; the potential inability to realize expected
benefits and synergies; domestic and international business and economic conditions; changes in the
dental industry; unexpected difficulties in penetrating the oral care and cosmetic dentistry
products market; changes in customer demand or ordering patterns; changes in the competitive
environment including pricing pressures or technological changes; technological advances; shortages
of manufacturing capacity; future production variables impacting excess inventory and other risk
factors. Factors that could cause or contribute to any differences are discussed in Risk Factors
and elsewhere in the Companys annual report on Form 10-KSB filed on July 15, 2008 with the
Securities and Exchange Commission. Except as required by applicable law or regulation, the
Company undertakes no obligation to revise or update any forward-looking statements contained in
this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008. The information
contained in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008 is not
a complete description of the Companys business or the risks associated with an investment in the
Companys common stock. Each reader should carefully review and consider the various disclosures
made by the Company in this Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2008 and in the Companys other filings with the Securities and Exchange Commission.
17
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 its facility in Deurle, Belgium as well
as outsourced manufacturing in China. We distribute our products using both its own internal sales
force and through the use of third party distributors. As a result of this approach, in just four
years we have established dealers in 35 countries encompassing, Europe, Asia, Latin America, the
Pacific Rim and the Middle East.
For the quarter ending June 30, 2008, 73% of our revenue has been generated by our Belgian
Subsidiaries, Remedent NV and Sylphar NV, 23% by our US organization and 4 % by our Asian
Subsidiary.
Our products can be generally classified into the following categories: professional dental
products and Over-The Counter tooth whitening products. In the fall of 2006, we launched a
proprietary veneer technology product line called GlamSmile. GlamSmile veneers are ultra thin
claddings made from a mixture of a hybrid composite and porcelain materials which are attached to
the front of the patients teeth. Because GlamSmile veneers are so thin, the dentist does not need
to remove healthy tooth structure leaving the patients healthy tooth structure intact results in
several important benefits: (i) no local anesthesia is required to prepare the teeth; (ii) reduced
(if any) tooth sensitivity post-procedure; and (iii) the process is reversible. In addition, in the
three months ended March 31, 2006, a variation of our MetaTray
®
product named iWhite
®
was
introduced to our global retail distribution network. We introduced MetaTray in August 2005, our
next generation of products targeted for the professional dentist market. MetaTray is a completely
self-contained whitening system that can be administered by dentists.
Our products are distributed utilizing our Distributor Assisted Marketing programs. As a
result of this approach, in just four years we have established dealers in 35 countries
encompassing, Europe, Asia, Latin America, the Pacific Rim and the Middle East.
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 $5,771,192, net of costs.
We also received net proceeds of $15,900 on the exercise of 10,000 warrants.
On February 19, 2008, the Company entered into a formal debt conversion and Registration
Rights Agreement with a former investor of the Company. The debt was in the amount of $50,536 and
was for past services and obligations attributable to the operations of the Company and its
California subsidiaries. In exchange for the debt the Company issued 31,558 common shares of its
capital stock.
Our Critical Accounting Policies
The discussion and analysis of the Companys financial condition and results of operations is
based upon the Companys consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America. The preparation of
these financial statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates,
including those related to bad debts, intangible assets, income taxes, and contingencies and
litigation, among others. The Company bases its estimates on historical experience and on various
other assumptions that it believes to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
18
estimates under different assumptions or conditions. The Company believes that certain critical
accounting policies affect its more significant judgments and estimates used in the preparation of
its consolidated financial statements: revenue recognition, inventory valuation, research and
development costs, stock-based compensation, impairment of long-lived assets and conversion of
foreign currencies. These accounting policies are discussed in ITEM 6 MANAGEMENTS DISCUSSION
AND ANALYSIS OR PLAN OF OPERATION contained in the Companys Annual Report on Form 10-KSB for the
fiscal year ended March 31, 2008, as well as in the notes to the March 31, 2008 consolidated
financial statements. There have not been any significant changes to these accounting policies
since they were previously reported at March 31, 2008.
Results of Operations
Results of Operations for the three months ended June 30, 2008 compared with the three months
ended June 30, 2007.
The following table presents our consolidated statements of loss, as a percentage of sales,
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
June 30,
|
|
|
2008
|
|
2007
|
NET SALES
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
COST OF SALES
|
|
|
34.92
|
%
|
|
|
53.46
|
%
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
65.08
|
%
|
|
|
46.54
|
%
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
3.44
|
%
|
|
|
2.36
|
%
|
Sales and marketing
|
|
|
18.47
|
%
|
|
|
8.29
|
%
|
General and administrative
|
|
|
31.09
|
%
|
|
|
59.81
|
%
|
Depreciation and amortization
|
|
|
2.51
|
%
|
|
|
5.27
|
%
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
55.50
|
%
|
|
|
75.74
|
%
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
9.58
|
%
|
|
|
(29.21
|
)%
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(0.49
|
)%
|
|
|
(2.20
|
)%
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
9.09%
|
|
|
(31.41
|
)%
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
9.09
|
%
|
|
|
(31.41
|
)%
|
|
|
|
Net Sales
We experienced a sales increase for the three months ended June 30, 2008 of $2,390,822, or
192.1%, to $3,635,479 as compared to $1,244,657 for the three months ended June 30, 2007. The
increase in sales was due to the increased sales of the GlamSmile Product Group, an increase by
$1,206,366 or 337,8% as well as increased sales of OTC products, more specifically the iWhite and
Remesense product lines by $1,184,456 or 260,7%.
Cost of Sales
Our cost of sales increased for the three months ended June 30, 2008 by $603,996, or 90.8%, to
$1,269,424 as compared to $665,428 for the three months ended June 30, 2007. Accordingly, cost of
19
sales, as a percentage of net sales, decreased from 53.5% for the quarter ended June 30, 2007 to
34.9% for the quarter ended June 30, 2008. Cost of sales has decreased both because of increased
sales of higher margin products and improved cost efficiencies.
We have re-organized our production process and have increased our in-house manufacturing
resulting in lower costs than our previously outsourced third party manufacturing. We continue to
closely monitor and look for new strategies to optimize and improve our current processes in order
to decrease our costs.
Gross Profit
Our gross profit increased by $1,786,826 or 308.5%, to $2,366,055 for the three month period
ended June 30, 2008 as compared to $579,229 for the three month period ended June 30, 2007. Our
gross profit as a percentage of sales increased from 46.5% in the three months ended June 30, 2007
to 65% for the three months ended June 30, 2008. The increase in gross profit is the result of the
increased sales of higher margin products and the decrease in cost of sales as discussed above.
Operating Expenses
Research and Development
. Our research and development expenses increased to $124,958 for the
three months ended June 30, 2008 as compared to $29,389 for the three months ended June 30, 2007,
an increase of 325%. The principal reason for this increase is the ongoing efforts to develop new
products and improve existing products to meet the highest standards on the market.
Sales and marketing costs
. Our sales and marketing costs increased $568,058 or 550%, to
$671,299 for the three months ended June 30, 2008 as compared to $103,241 for the three months
ended June 30, 2007. The increase is largely due to increased provisions for commissions in
relation to our sales people and increased marketing costs to promote our products in new acquired
markets into different countries.
General and administrative costs
. Our general and administrative costs for the three months
ended June 30, 2008 and 2007 were $1,130,313 and $744,481, respectively, representing an increase
of $385,832 or 51.8%. The increase in general and administrative costs as compared to the prior
year is the result of our investments made to increase customer support concurrent with the launch
of our GlamSmile veneers product line in both Europe and the US.
Depreciation and amortization
. Our depreciation and amortization increased $25,627 or 39%, to
$91,261 for the three months ended June 30, 2008 as compared to $65,634 for the three months ended
June 30, 2007. The increase is mostly due to the investment in a semi-automatic production machine
for the production of our foam strips, which will allow us to significantly increase our production
capacity. This investment allowed us to streamline and improve production significantly with
resultant increases in capacity and quality as well as decreased costs. Secondly, investments are
being made in software and related hardware to bring the design of veneers to the next level which
will allow the dentist to modify the design of the final product, gaining substantial time in the
production process.
Net interest expense
was $17,723 for the three months ended June 30, 2008 as compared to
$27,437 for the three months ended June 30, 2007, a decrease of $9,714, or 35%. Interest expense
has decreased primarily because of decreased utilization of our available bank credit line.
Liquidity and Capital Resources
20
Cash and Cash equivalents
Our balance sheet at June 30, 2008 reflects cash and cash equivalents of $1,467,692 as
compared to $1,728,281 as of March 31, 2008, a decrease of $260,589. The decrease of cash and cash
equivalents is primarily as a result of the increase in accounts receivable as at June 30, 2008.
Operations
Net cash used by operations was $135,979 for the three months ended June 30, 2008 as compared
to net cash provided by operations of $1,298,484 for the three months ended June 30, 2007. The
decrease in net cash provided by operations for the three months ended June 30, 2008 as compared to
the three months ended June 30, 2007 is primarily attributable to an increase in accounts
receivable of $541,000 and a reduction of accounts payable of $148,000.
Investing activities
Net cash used in investing activities totaled $287,613 for the three months ended June 30,
2008 as compared to net cash used in investing activities of $50,364 for the three months ended
June 30, 2007. Cash used in investing activities in the three months ended June 30, 2008 was
mainly for equipment to be used in the production process of Veneers, additional hardware equipment
in relation to support our GlamSmile product line in combination with our new designed software,
enabling the dentist to interfere in the production process, investments made for moldings
concerning the GlamSmile product group and moldings for new OTC products.
Financing activities
Net cash provided by financing activities totaled $116,897 for the three months ended June 30,
2008 as compared to $5,511,867 for the three months ended June 30, 2007. Net cash provided from
financing activities in the three month period ended June 30, 2007 was higher than in the three
months ended June 30, 2008 because of the net cash proceeds received by the Company from a Private
Placement, which took place at the end of the quarter ended June 30, 2007, with net proceeds
received in the three month period ended June 30, 2007 totaling $6,045,294 offset by the partial
repayment of our existing Credit Line in the amount of $522,226.
During the next nine months, cash raised from our recent private placement (which occurred in
June 2007) will be used to finance our current liabilities, reduce the Facility at Fortis Bank and
fund our future investments, largely related to our GlamSmile product.
During the three months ended June 30, 2008 and June 30, 2007, we recognized an increase in
cash and cash equivalents of $52,279 and $6,756, respectively, from the effect of exchange rates
between the Euro and the US Dollar.
Off-Balance Sheet Arrangements
At June 30, 2008, we did not have any transactions, obligations or relationships that could be
considered off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
21
Item 4T. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that information
required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended
(the Exchange Act), is recorded, processed, summarized, and reported within the required time
periods and that such information is accumulated and communicated to our management, including our
Chief Executive Officer and our Chief Financial Officer (our Principal Accounting Officer), as
appropriate, to allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can only provide reasonable assurance of
achieving the desired control objective, and management is required to exercise its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Management conducted an evaluation, under the supervision and with the participation of the
Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures as of June 30, 2008. Based on this
evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our
disclosure controls and procedures were effective as of June 30, 2008.
Change in Internal Control Over Financial Reporting
There have been no changes in the Companys internal controls over financial reporting
identified in connection with the evaluation of disclosure controls and procedures discussed above
that occurred during the quarter ended June 30, 2008 or subsequent to that date that have
materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting.
22
PART II OTHER INFORMATION
Item 1. Legal Proceedings
To the best knowledge of management, there are no material legal proceedings pending against
the Company.
Item 1A. Risk Factors
During the quarter ended June 30, 2008, there were no material changes to the risk factors
previously reported by the Company in its Annual Report on Form 10-KSB for the fiscal year ended
March 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission Of Matters To A Vote Of Security Holders
No matters were submitted to a vote of security holders during the quarter ended June 30,
2008.
Item 5. Other Information
None.
23
Item 6. Exhibits
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Exhibit No
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Description
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2.1
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Stock Exchange Agreement with Resort World Enterprises, Inc. (1)
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3.1
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Articles of Incorporation of Jofran Confectioners International, Inc., a Nevada
corporation, dated July 31, 1986 (1)
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3.2
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Amendment to Articles of Incorporation changing name from Jofran Confectioners
International, Inc., a Nevada corporation, to Cliff Typographers, Inc., a Nevada
corporation, dated July 31, 1986 (1)
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3.3
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Amendment to Articles of Incorporation changing name from Cliff Typographers, Inc., a
Nevada corporation, to Cliff Graphics International, Inc., a Nevada corporation, dated
January 9, 1987 (1)
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3.4
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Amendment to Articles of Incorporation changing name from Cliff Graphics International,
Inc., a Nevada corporation, to Global Golf Holdings, Inc., a Nevada corporation, dated
March 8, 1995 (1)
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3.5
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Amendment to Articles of Incorporation changing name from Global Golf Holdings, Inc., a
Nevada corporation, to Dino Minichiello Fashions, Inc., a Nevada corporation, dated
November 20, 1997 (1)
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3.6
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Amendment to Articles of Incorporation changing name from Dino Minichiello Fashions, Inc.,
a Nevada corporation, to Resort World Enterprises, Inc., a Nevada corporation, dated
August 18, 1998 (1)
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3.7
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Amendment to Articles of Incorporation changing name from Resort World Enterprises, Inc.,
a Nevada corporation, to Remedent , Inc., dated October 5, 1998 (1)
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3.8
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Amended and Restated Articles of Incorporation changing name from Remedent, USA, Inc. to
Remedent, Inc. and to effect a one-for-twenty reverse stock split on June 3, 2005 (2)
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3.9
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Amended and Restated Bylaws (2)
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4.1
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Specimen of Stock Certificate (3)
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4.2
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Form of Subscription Agreement (4)
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4.3
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Form of Warrant for Common Stock (4)
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4.4
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Form of Registration Rights Agreement (4)
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4.5
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Form of Warrant for Unit (5)
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4.6
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Form of Warrant for Common Stock (6)
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10.1
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Distribution Agreement, dated April 10, 2008, by and between Remedent N.V. and GlamTech
USA, Inc. (7)
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10.2
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Factoring Agreement between Remedent, Inc. and First Community Financial, a division of
Pacific Western Bank, dated April 24, 2008 (8)
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10.3
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OEM Agreement between Remedent, Inc. and SensAble Technologies, Inc., dated June 30, 2008 (9)
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31.1
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Certifications of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act.*
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31.2
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Certifications of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act.*
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32.1
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Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act.*
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32.2
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Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act.*
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*
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Filed herewith.
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(1)
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Incorporated by reference from Registration Statement on Form SB-2 filed with the SEC on July
24, 2002.
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(2)
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Incorporated by reference from Form 8-K filed with the SEC on June 8, 2005.
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(3)
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Incorporated by reference from Form SB-2 filed with the SEC on August 4, 2005.
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(4)
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Incorporated by reference from Form 8-K filed with the SEC on July 11, 2005.
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(5)
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Incorporated by reference from Form SB-2/A filed with the SEC on October 26, 2005
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(6)
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Incorporated by reference from Form 8-K filed with the SEC on June 27, 2007.
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24
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(7)
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Incorporated by reference from Form 8-K filed with the SEC on April 15, 2008.
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(8)
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Incorporated by reference from Form 8-K filed with the SEC on April 30, 2008.
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(9)
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Incorporated by reference from Form 8-K filed with the SEC on July 7, 2008.
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25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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REMEDENT, INC.
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Date: August 19, 2008
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By:
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/s/ Robin List
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Name:
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Robin List
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Title:
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Chief Executive Officer
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Date: August 19, 2008
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By:
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/s/ Philippe Van Acker
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Name:
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Philippe Van Acker
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Title:
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Chief Financial Officer
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26
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