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REMI > SEC Filings for REMI > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for REMEDENT, INC.

Form 10-Q for REMEDENT, INC.


14-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The discussion contained herein is for the six months ended September 30, 2012 and September 30, 2011. The following discussion should be read in conjunction with the Company's consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012. In addition to historical information, this section contains "forward-looking" statements, including statements regarding the growth of product lines, optimism regarding the business, expanding sales and other statements. Words such as expects, anticipates, intends, plans, believes, sees, estimates and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Actual results could vary materially from the description contained herein due to many factors including continued market acceptance of our products. In addition, actual results could vary materially based on changes or slower growth in the oral care and cosmetic dentistry products market; the potential inability to realize expected benefits and synergies; domestic and international business and economic conditions; changes in the dental industry; unexpected difficulties in penetrating the oral care and cosmetic dentistry products market; changes in customer demand or ordering patterns; changes in the competitive environment including pricing pressures or technological changes; technological advances; shortages of manufacturing capacity; future production variables impacting excess inventory and other risk factors. Factors that could cause or contribute to any differences are discussed in "Risk Factors" and elsewhere in the Company's annual report on Form 10-K filed on July16, 2012 with the Securities and Exchange Commission. Except as required by applicable law or regulation, the Company undertakes no obligation to revise or update any forward-looking statements contained in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012. The information contained in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 is not a complete description of the Company's business or the risks associated with an investment in the Company's common stock. Each reader should carefully review and consider the various disclosures made by the Company in this Quarterly Report on Form 10-Q and in the Company's other filings with the Securities and Exchange Commission.

Overview

We specialize in the research, development, and manufacturing of oral care and cosmetic dentistry products. We are one of the leading manufacturers of cosmetic dentistry products in Europe. Leveraging our knowledge of regulatory requirements regarding dental products and management's experience in the needs of the professional dental community, we design, develop, manufacture and distribute our cosmetic dentistry products, including a full line of professional dental products that are distributed in Europe, Asia and the United States. We distribute our products using both our own internal sales force and through the use of third party distributors.

  Result of Operations



Comparative detail of results as a percentage of sales, is as follows:



                                           For the three months ended             For the six months ended
                                                  September 30,                         September 30,
                                             2012                2011              2012                2011

NET SALES                                       100.00 %           100.00 %           100.00 %          100.00 %
COST OF SALES                                    59.88 %            24.06 %            60.63 %           25.57 %
GROSS PROFIT                                     40.12 %            75.94 %            39.37 %           74.43 %
OPERATING EXPENSES
Research and development                          4.21 %             3.53 %             3.47 %            3.70 %
Sales and marketing                              40.03 %            22.59 %            40.81 %           22.40 %
General and administrative                      123.86 %            43.54 %           138.10 %           41.08 %
Depreciation and amortization                    19.24 %             5.74 %            20.40 %            5.84 %
TOTAL OPERATING EXPENSES                        187.34 %            75.40 %           202.79 %           73.02 %
INCOME (LOSS) FROM OPERATIONS                  (147.22 )%            0.54 %          (163.41 )%           1.41 %
Other income (expense)                          126.70 %            (2.10 )%           49.21 %           (2.05 )%
NET INCOME (LOSS)                               (20.52 )%           (1.56 )%         (114.20 )%          (0.64 )%
INCOME TAXES                                      0.00 %            (3.71 )%            0.00 %           (3.31 )%
Net income (loss) attributable
toNon-controlling interest                        0.00 %             7.55 %             0.00 %            8.08 %
LOSS ATTRIBUTABLE TO REMEDENT
SHAREHOLDERS                                    (20.52 )%          (12.82 )%         (114.20 )%         (12.03 )%

*Note that above figures are not comparable due to the equity method used because:

A. Remedent OTC BV and its subsidiaries are accounted for using the equity method for the period September 2011 through June 30, 2012 while previously the financials of Remedent OTC BV and its subsidiaries were fully included in the financial statements of Remedent Inc., Further, at the beginning of July 2012, the Company sold its 100 % interest in the share capital of Remedent OTC B.V. and consequently the Company's financial results for the three month period ended September 30, 2012 do not include an equity portion of the results of operations for Remedent OTC B.V.; and

B. GlamSmile Asia and its subsidiaries are accounted for using the equity method since February 2012, while previously the financials of GlamSmile Asia and its subsidiaries were fully included in the financial statements of Remedent Inc.

Net Sales

We experienced a sales decrease for the three months ended September 30, 2012 of $2,875,276 or 86.9% to $434,025 as compared to $3,309,301 for the three months ended September 30, 2011.

Net sales decreased by approximately 86.6% to $848,559 for the six months ended September 30, 2012 as compared to $6,311,272 for the six months ended September 30, 2011. The decrease in sales is primarily due to the deconsolidation of our OTC division at the quarter ending September 2011 as described above and secondly, the deconsolidation of our Asian Division at the end of January 2012, resulting in decreased revenue. For our Asian Division, the equity method is currently being used in calculating the monthly results, whereas, in the six months ended September 30, 2011, we reported a full quarter of revenue for all divisions. Additionally, we received a non recurring fee in connection with the First Fit Distribution agreement and Royalty fees in reference to the Distribution agreement which were included in the quarter ending September 30, 2011.

Cost of Sales

Our cost of sales decreased for the three months ended September 30, 2012 by $536,226 or 67.4% to $259,890 as compared to $796,116 for the three months ended September 30, 2011. Cost of sales, as a percentage of net sales, has increased to 59.88% in the quarter ended September 30, 2012 as compared to 24% in the quarter ended September 30, 2011.

Cost of sales decreased approximately 68.1% to $514,445 for the six months ended September 30, 2012 as compared to $1,613,513 for the six months ended September 30, 2011. The decrease in cost of sales is primarily due to the deconsolidation of our OTC division at the quarter ending September 2011 as described above and secondly, the deconsolidation of our Asian Division at the end of January 2012, resulting in decreased cost of sales. Cost of sales as a percentage of sales has increased because of the deconsolidation of our Asian division at the end of January 2012, known for its higher margins due to direct selling, the deconsolidation of our OTC Division and the non-recurring Royalty fees in reference to the DenMat distribution agreement and the non-recurring fees in reference to the First Fit Agreement, both included in the quarter ending September 30, 2011.

Gross Profit

Our gross profit decreased by $2,339,050 or 93.1%, to $174,135 for the three month period ended September 30, 2012 as compared to $2,513,185 for the three month period ended September 30, 2011. Our gross profit as a percentage of sales decreased to 40.12% in the three months ended September 30, 2012 as compared to 75.94% for the three months ended September 30, 2011.

Our gross profit decreased by $4,363,645 or 92.9%, to $334,114 for the six months ended September 30, 2012 as compared to $4,697,759 for the six months ended September 30, 2011 as a result of the deconsolidation of our OTC division at the quarter ending September 2011 as described above and secondly, the deconsolidation of our Asian Division at the end of January 2012, resulting in decreased gross profit. For our Asian Division, the equity method is currently being used in calculating the monthly results, whereas, in the quarter ended September 30, 2011 we reported gross profit for all divisions. Our gross profit as a percentage of sales decreased to 39.37% in the six months ended September 30, 2012 as compared to 74.43% for the six months ended September 30, 2011. The decrease in gross profit is the result of the sales of the OTC Division and our Asian Division, combined with the non-recurring royalty fees in reference to the DenMat Distribution agreement and the non-recurring fee in connection with the first Fit Distribution agreement which were included in the quarter ending September 30, 2011.

Operating Expenses

Research and Development . Our research and development costs decreased by $98,624 or 84.4% to $18,262 for the three months ended September 30, 2012 as compared to $116,686 for the three months ended September 30, 2012. Our research and development expenses decreased $203,943 to $29,439 for the six months ended September 30, 2012 as compared to$233,382 for the six months ended September 30, 2011, a decrease of 87.4%. Research and development expenses have decreased primarily due to the deconsolidation of our OTC division at the quarter ending September 2011 as described above and secondly, the deconsolidation of our Asian Division at the end of January 2012. For our Asian Division, the equity method is currently being used in calculating the monthly results, whereas, in the six months ended September 30, 2011, we reported a full quarter of Research and Development Expenses for all divisions.

Sales and marketing costs. Our sales and marketing costs decreased by $573,895 or 76.8% to $173,745 for the three months ended September 30, 2012 as compared to $747,640 for the three months ended September 30, 2011.

Our sales and marketing costs decreased by $1,067,319 or 75.5% to $346,299 for the six months ended September 30, 2012 as compared to $1,413,618 for the six months ended September 30, 2011.

The decrease in sales and marketing costs as compared to the six months ended September 30, 2011 is a result of the deconsolidation of our OTC division at the quarter ending September 2011 as described above and secondly, the deconsolidation of our Asian Division at the end of January 2012, resulting in a decreased sales and marketing cost. For our Asian Division, the equity method is currently applicable, whereas, for the six months ending September 30, 2011, we reported sales and marketing costs for a full quarter for all divisions.

General and administrative costs. Our general and administrative costs for the three months ended September 30, 2012 and 2011 were $537,576 and $1,440,954 respectively, representing a decrease of $903,378, or 62.7%. Our general and administrative costs for the six months ended September 30, 2012 and 2011 were $1,171,899 and $2,592,961 respectively, representing a decrease of $1,421,062 or 54.8%. The decrease in general and administrative costs as compared to the six months ended September 30, 2011 is a result of the deconsolidation of our OTC division at the quarter ending September 2011 as described above and the deconsolidation of our Asian Division at the end of January 2012, resulting in a decreased general and administrative cost. For our Asian Division, the equity method is currently applicable, whereas, for the six months ending September 30, 2011, we reported general and administrative costs for a full quarter for all divisions.

Depreciation and amortization . Our depreciation and amortization expense decreased by $106,432 or56% to $83,523 for the three months ended September 30, 2012 as compared to $189,955 for the three months ended September 30, 2011. Our depreciation and amortization decreased $195,708 or 53.1%, to $173,117 for the six months ended September 30, 2012 as compared to $368,825 for the six months ended September 30, 2011. The decrease is largely due to the deconsolidation of both entities, as described above.

Other income (expense). Our other income (expense) was $549,909 for the three months ended September 30, 2012 as compared to $(69,437) for the three months ended September 30, 2011, an increase of $619,346 or 892% primarily because of the $521,159 gain we recognized on the sale of our OTC division.

Our other income (expense) was $417,592 for the six months ended September 30, 2012 as compared to $(129,310) for the six months ended September 30, 2011, an increase in other income of $546,902. The increase in other income is largely because of the $521,159 gain we recognized on the sale of our OTC Division, and the $142,149 in equity income we earned from our investment in GlamSmile Dental Technology Ltd., offset by an equity loss of $ (149,064) for our portion of the loss recorded by Remedent OTC B.V. in the quarter ended June 30, 2012.

Internal and External Sources of Liquidity

As of September 30, 2012, we had current assets of $3,346,785 compared to $3,268,854 at March 31, 2012. This increase of $77,931 was primarily due to an increase in accounts and other receivable of $444,016, offset by a decrease in cash and cash equivalents of $178,591, decrease in inventories of $3,684, and a decrease in prepaid expense of $183,810. Current liabilities at September 30, 2012 were $4,118,180 as compared to $3,607,361 at March 31, 2012. The increase in current liabilities of $510,819 was primarily as a result of increases in our line of credit, current portion of long-term debt, and deferred revenue of $488,212, $221,907 and $106,438 respectively, offset by a decrease in accounts payable, accrued liabilities and due related parties of $60,639, $228,528 and $16,571 respectively.

As of September 30, 2012, we had cash and cash equivalents of $24,993. In July 2012 we received $667,300 ( 500,000) as 50% payment for the sale of our 100% interest in the share capital of Remedent OTC B.V. We anticipate that an additional 250,000 will be received by the end of December 2012 and a final payment of 250,000 by the end of March 2013. We also anticipate that we will need to raise additional funds to satisfy our work capital requirements and implement our business strategy to expand our direct to consumer business model. We intend to continue to look for opportunities to expand the number of GlamSmile Studios in China and Europe. We will continue to review our expected cash requirements, make all efforts to collect any aged receivables, and take appropriate cost reduction measures to ensure that we have sufficient working capital to fund our operations. In the event additional needs for cash arise, we may seek to raise additional funds from a combination of sources including issuance of debt or equity securities. Additional financing may not be available on terms favorable to us, or at all. Any additional financing activity could be dilutive to our current stockholders. If adequate funds are not available or are not available on acceptable terms, our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited.

Cash and Cash equivalents

Our balance sheet at September 30, 2012 reflects cash and cash equivalents of $24,993 as compared to $203,584 as of March 31, 2012, a decrease of $178,591.

Operations

Net cash (used by) operations was $1,110,410 for the six months ended September 30, 2012 as compared to net cash provided by operations of $1,006,508 for the six months ended September 30, 2011. The increase in net cash used by operations for the six months ended September 30, 2012 as compared to the six months ended September 30, 2011 is primarily as a result of the deconsolidation of Remedent OTC BV at the quarter ending September 2011 and the deconsolidation of our Asian division at the end of January 2012.

Investing activities

Net cash provided by investing activities totaled $580,366 for the six months ended September 30, 2012 as compared to net cash used in investing activities of $82,973 for the six months ended September 30, 2011. We received $667,300 in cash from the sale of our Remedent OTC B.V. division. Cash used in the six months ended September 30, 2012 was mainly for additional equipment. Cash used in the six months ended September 30, 2011 was mainly for equipment for our new planned GlamSmile Studios.

Financing activities

Net cash provided by financing activities totaled $417,652 for the six months ended September 30, 2012, as compared to $958,689 for the six months ended September 30, 2011. The decrease in the net cash provided by financing activities in the six month period ended September 30, 2012 of $541,037 was primarily as a result of our increased use of our line of credit offset by last year's increased long term debt of $1,000,000.

During the six months ended September 30, 2012 and September 30, 2011, we recognized and increase (decrease) in cash and cash equivalents of $(66,199) and $(287,469), respectively, from the effect of exchange rates between the Euro and the US Dollar.

Off-Balance Sheet Arrangements

At September 30, 2012, we did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

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