REMEDENT, INC.

FORM 10-Q INDEX

		Page Number
PART I – FINANCIAL INFORMATION
Item 1.  Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2010 (Unaudited) and March 31, 2010		1
Condensed Consolidated Statements of Operations for the Three and Nine Months  Ended December 31, 2010 and December 31, 2009 (Unaudited)		2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months  Ended December 31, 2010 and December 31, 2009 (Unaudited)		3
Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended December 31, 2010 and December 31, 2009 (Unaudited)		4
Notes to Condensed Consolidated Financial Statements (Unaudited)		5
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.    Quantitative and Qualitative Disclosures About Market Risk		23
Item 4T.  Controls and Procedures		23
PART II – OTHER INFORMATION
Item 1.     Legal Proceedings		24
Item 1A.  Risk Factors		24
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds		24
Item 3.     Defaults Upon Senior Securities		24
Item 4.     [Removed and Reserved].		24
Item 5.     Other Information		24
Item 6.     Exhibits		25
Signature Page		26

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REMEDENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

		For the three months ended December 31,								For the nine months ended December 31,
		2010				2009				2010				2009
Net sales		$	3,248,396			$	1,834,021			$	9,786,708			$	5,775,125
Cost of sales			911,197				972,247				2,619,476				3,370,491
Gross profit			2,337,199				861,774				7,167,232				2,404,634
Operating Expenses
Research and development			141,687				150,225				319,226				231,345
Sales and marketing			629,654				403,171				1,536,644				891,182
General and administrative			1,176,078				1,065,114				3,584,387				3,210,512
Depreciation and amortization			178,288				206,923				562,515				558,281
TOTAL OPERATING EXPENSES			2,125,707				1,825,433				6,002,772				4,891,320
INCOME (LOSS) FROM OPERATIONS			211,492				(963,659	)			1,164,460				(2,486,686	)
OTHER INCOME (EXPENSES)
Warrants issued			—				(8,350	)			—				(168,238	)
Interest expense			(52,768	)			(56,915	)			(142,105	)			(120,768	)
Interest income			11,218				24,179				123,065				115,337
TOTAL OTHER INCOME (EXPENSES)			(41,550	)			(41,086	)			(19,040	)			(173,669	)
NET INCOME (LOSS) BEFORE INCOME TAXES AND  NON-CONTROLLING INTEREST			169,942				(1,004,745	)			1,145,420				(2,660,355	)
PROVISION FOR INCOME TAXES			91,393				—				140,568				—
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE NON-CONTROLLING INTEREST, NET OF TAX			78,549				(1,004,745	)			1,004,852				(2,660,355	)
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST			61,808				(168,624	)			474,696				(436,020	)
NET INCOME (LOSS) ATTRIBUTABLE TO REMEDENT, INC. Common Stockholders		$	16,741			$	(836,121	)		$	530,156			$	(2,224,335	)
INCOME (LOSS) PER SHARE
Basic		$	0.00			$	(0.04	)		$	0.03			$	(0.11	)
Fully diluted		$	0.00			$	(0.04	)		$	0.02			$	(0.11	)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic			19,995,969				19,995,969				19,995,969				19,995,969
Fully diluted			30,108,762				33,789,738				33,989,738				33,789,738

The accompanying notes are an integral part of these consolidated financial statements.

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REMEDENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

		For the three months ended December 31,								For the nine months ended December 31,
		2010				2009				2010				2009
Net Income (Loss) Attributable to Remedent Common Stockholders		$	16,741			$	(836,l21	)		$	530,156			$	(2,224,335	)
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment			(59,479	)			(24,844	)			(81,239	)			93,485
Total Other Comprehensive income (loss)			(42,738	)			(860,965	)			448,917				(2,130,850	)
LESS: COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST			(21,759	)			(6,331	)			(24,902	)			49,753
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO REMEDENT Common Stockholders		$	(64,497	)		$	(867,296	)		$	424,015			$	(2,081,097	)

The accompanying notes are an integral part of these consolidated financial statements.

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REMEDENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

		For the nine months ended December 31,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period		$	1,004,852			$	(2,660,355	)
Adjustments to reconcile net income (loss) to net cash used by operating activities
Depreciation and amortization			562,515				558,281
Inventory reserve			(60,487	)			190
Allowance for doubtful accounts			(32,695	)			3,016
Value of stock options issued to employees and consultants			100,657				304,350
Warrants issued			—				168,238
Changes in operating assets and liabilities:
Accounts receivable			(1,285,166	)			2,061,261
Inventories			120,596				(478,031	)
Prepaid expenses			(150,936	)			(201,681	)
Accounts payable			(132,374	)			464,120
Accrued liabilities			248,092				(869,273	)
Due to related parties			(173,130	)			—
Income taxes payable			—				(1,873	)
Net cash provided  by operating activities			201,924				(651,757	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of patents			(51,233	)			—
Purchases of equipment			(284,451	)			(550,974	)
Net cash used by investing activities			(335,684	)			(550,974	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments of) proceeds from capital lease note payable			(128,516	)			163,630
Proceeds from line of credit			1,462,360				525,903
Net cash provided by financing activities			1,333,844				689,533
NET (DECREASE) INCREASE IN CASH			1,200,084				(513,198	)
Effect of exchange rate changes on cash and cash equivalents			(76,240	)			92,158
CASH AND CASH EQUIVALENTS, BEGINNING			613,466				1,807,271
CASH AND CASH EQUIVALENTS, ENDING		$	1,737,310			$	1,386,231
Supplemental Information:
Interest paid		$	82,216			$	50,413
Income taxes paid		$	91,393			$	—

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (unaudited)

1.	DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION

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, Asia and the United States. The Company manufactures many of its products in its facility in Deurle, Belgium as well as outsourced manufacturing in its facility in Beijing, China and in France.  The Company distributes its products using both its own internal sales force and through the use of third party distributors.

The Company’s financial statements have been prepared on an accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America.

In these notes, the terms “Remedent”, “Company”, “we”, “us” or “our” mean Remedent, Inc. and all of its subsidiaries, whose operations are included in these consolidated financial statements.

The Company has conducted a subsequent events review through the date the financial statements were issued, and has concluded that there were no subsequent events requiring adjustments or additional disclosures to the Company's financial statements at December 31, 2010.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of: Remedent N.V. (incorporated in Belgium) located in Ghent, Belgium, Remedent Professional, Inc. (incorporated in California), Glamtech-USA, Inc. (a Delaware corporation acquired effective August 24, 2008) and its 50.98% owned subsidiary, Glamsmile Asia Ltd.(with its subsidiaries, a GlamSmile Studio in Hong Kong, a GlamSmile Studio in Mainland China (Beijing) and our GlamSmile production Lab, also located in China (Beijing)) , Remedent OTC B.V. (a Dutch Holding company) and a 50% owned subsidiary, Sylphar Holding B.V. (a Dutch holding company), a 37.50% owned and controlled subsidiary of Remedent Inc., Sylphar N.V., a 100% owned company by Sylphar Holding BV, Sylphar USA, a 100% owned Nevada corporation by Sylphar Holding BV. And Sylphar Asia Pte, a 100% owned Asian company owned by Sylphar Holding BV (collectively, the “Company”).

Remedent, Inc. is a holding company with headquarters in Ghent, Belgium. Remedent Professional, Inc. and Remedent Professional Holdings, Inc. have been dormant since inception.

For all periods presented, all significant inter-company accounts and transactions have been eliminated in the consolidated financial statements and corporate administrative costs are not allocated to subsidiaries.

Interim Financial Information

The interim consolidated financial statements of Remedent, Inc. and Subsidiaries (the “Company”) are condensed and do not include some of the information necessary to obtain a complete understanding of the financial data. Management believes that all adjustments necessary for a fair presentation of results have been included in the unaudited consolidated financial statements for the interim periods presented. Operating results for the nine months ended December 31, 2010, are not necessarily indicative of the results that may be expected for the year ended March 31, 2011. Accordingly, your attention is directed to footnote disclosures found in the Annual Report on Form 10-K for the year ending March 31, 2010, and particularly to Note 2, which includes a summary of significant accounting policies.

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Pervasiveness of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates estimates and judgments, including those related to revenue, bad debts, inventories, fixed assets, intangible assets, stock based compensation, income taxes, and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes reasonable in the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Goodwill impairment

The Company performs impairment tests related to goodwill annually and whenever events or changes in circumstances suggest that it is more likely than not that the fair value of the reported unit is below its carrying value. To December 31, 2010, management has not identified any impairment of goodwill.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, line of credit and long-term debt. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values because of the short maturities of those instruments. The Company’s long-term debt consists of its revolving credit facility and long-term capital lease obligations. The carrying value of the revolving credit facility approximates fair value because of its variable short-term interest rates.  The fair value of the Company’s long-term capital lease obligations is based on current rates for similar financing.

Computation of Earnings (Loss) per Share

In accordance with FASB ASC 260-10-15, the Company presents both basic and diluted earnings per share (“EPS”).  Basic EPS excludes dilution and is computed by dividing net income (loss) allocable to common stockholders by the weighted average number of shares outstanding for the period.  Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS amount.  

Liquidity and Management Plans

 

Historically, the Company has relied on a combination of fundraising from the sale and issuance of equity securities and cash generated from product and service revenues to provide funding for its operations. As of December 31, 2010, the Company had cash and cash equivalents of $1,737,310. The Company believes that these balances, along with its line of credit, will provide sufficient financing in order to fund its working and other capital requirements over the course of the next twelve months. The Company will continue to review its expected cash requirements, make all efforts to collect any aged receivables, and take appropriate cost reduction measures to ensure that it has sufficient working capital to fund its operations. In the event additional needs for cash arise, the Company 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 the Company, or at all. Any additional financing activity could be dilutive to the Company's current stockholders. If adequate funds are not available or are not available on acceptable terms, the Company's ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited.

 

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Recent Accounting Pronouncements

 

With the exception of those discussed below, there are no unadopted accounting pronouncements and there have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months ended December 31, 2010, as compared to the recent accounting pronouncements described in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2010, that are of significance, or potential significance, to the Company.

 

In January 2010, the Financial Accounting Standards Board ("FASB") issued additional guidance on fair value disclosures. The new guidance clarifies two existing disclosure requirements and requires two new disclosures as follows: (1) a "gross" presentation of activities (purchases, sales, and settlements) within the Level 3 rollforward reconciliation, which will replace the "net" presentation format; and (2) detailed disclosures about the transfers in and out of Level 1 and 2 measurements. This guidance is effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods thereafter. The Company adopted the amended fair value disclosures guidance on April 1, 2010, except for the gross presentation of the Level 3 rollforward information, which the Company is not required to adopt until April 1, 2011.  The adoption of this standard has had no impact upon the Company’s consolidated financial statements.

 

In October 2009, the FASB issued new standards for revenue recognition with respect to multiple-deliverable arrangements. As a result of the new standards, multiple-deliverable arrangements will be separated in more circumstances than under existing revenue recognitions standards. The new standards establish a selling price hierarchy for determining the selling price of a deliverable. Such selling price for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. The new standards also replaces the term fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. The new standards are effective for revenue arrangements that begin or are changed in fiscal years starting after June 15, 2010 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its revenue recognition policies as well as the impact on its financial statements.

3.	ACQUISITION OF GLAMSMILE ASIA LTD.

Effective January 1, 2010 the Company acquired 50.98% of the issued and outstanding shares of Glamsmile Asia Ltd. (“Glamsmile Asia”), a private Hong Kong company, with subsidiaries in Hong Kong and Mainland China, in exchange for the following consideration:

1.

325,000 Euro (US$466,725).  As of March 31, 2010, the Company owed a balance of $71,885 on its purchase of the shares of Glamsmile Asia. The amount of $ 71,885 was paid on October 22, 2010.

2.

250,000 shares of common stock to be issued during the fiscal year ended March 31, 2011 ($97,500 was recorded as an obligation to issue shares as at December 31, 2010 and March 31, 2010);

3.

100,000 options on closing (issued);

4.

100,000 options per opened store at closing (issued);

5.

100,000 options for each additional store opened before the end of 2011 at the price of the opening date of the store;

6.

Assumption of Glamsmile’s January 1, 2010 deficit of $73,302. The non-controlling interest is non-participating until such time as the net profit from Glamsmile Asia exceeds prior losses of $73,302; and

 

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7.

Repayment of the founding shareholder’s original advances in the amount of $196,599.  The balance of $196,599, recorded as due to related parties as at December 31, 2010 and March 31, 2010, is unsecured, non-interest bearing and has no specific terms of repayment other than it will be paid out of revenues from Glamsmile, as working capital allows.

All options reside under the Company’s option plan and are five year options.

Also pursuant to the agreement, the Company has granted irrevocable right to Glamsmile Asia to use the Glamsmile trademark in Greater China.

In connection with this acquisition the Company has recorded goodwill of $699,635.  If new information is received by the Company during the measurement period, the goodwill recorded may be subject to change.

During the nine months ended December 31, 2010, the Company recorded $313,294 as due to the Glamsmile non-controlling interest, net of the assumption of prior losses, as described in point 6 above.

During the period ended December 31, 2010, the Company paid $1,359 for 10,400 Glamsmile shares.

4.	DISTRIBUTION AGREEMENTS

Den-Mat Distribution Agreement

On August 24, 2008, the Company entered into a distribution agreement (the “Distribution Agreement”) with Den-Mat Holdings, LLC, a Delaware limited liability company (“Den-Mat”).   Under the Distribution, the Company appointed Den-Mat to be the sole and exclusive distributor to market, license and sell certain products relating to the Company’s GlamSmile tray technology, including, but not limited to, its GlamSmile veneer products and other related veneer products (the “Products”), throughout the world, with the exception of Australia, Austria, Belgium, Brazil, France (including all French overseas territories “Dom-Tom”), Germany, Italy, New Zealand, Oman, Poland, Qatar, Saudi Arabia, Singapore, Switzerland, Thailand, and United Arab Emirates (collectively the “Excluded Markets”) and the China Market (the “Territory”).

 

As consideration for such distribution, licensing and manufacturing rights, Den-Mat will pay the Company:

(i)

an initial payment of $2,425,000;

(ii)

a payment of $250,000 for each of the first three contract periods in the initial Guaranty Period, subject to certain terms and conditions;

(iii)

certain periodic payments as additional paid-up royalties in the aggregate amount of $500,000;

(iv)

a payment of $1,000,000 promptly after Den-Mat manufactures a limited quantity of products at a facility owned or  leased by Den-Mat;

(v)

a payment of $1,000,000 promptly upon completion of certain training of Den-Mat’s personnel;

(vi)

a payment of $1,000,000 upon the first to occur of (a) February 1, 2009 or (b) the date thirty (30) days after Den-Mat sells GlamSmile Products incorporating twenty thousand (20,000) Units/Teeth to customers regardless of whether Den-Mat has manufactured such Units/Teeth in a Den-Mat facility or has purchased such Units/Teeth from the Company;

(vii)

certain milestone payments; and

(viii)

certain royalty payments.

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Further, as consideration for Den-Mat’s obligations under the Distribution Agreement, the Company agreed to, among other things:

(i)

issue to Den-Mat or an entity to be designated by Den-Mat, warrants to purchase up to 3,378,379 shares of the Corporation’s common stock, par value $0.001 per share (the “Warrant Shares”) at an exercise price of $1.48 per share, exercisable for a period of five years (the “Den-Mat Warrant”) (issued in the period ended September 30, 2008);

(ii)

execute and deliver to Den-Mat a registration rights agreement covering the registration of the Warrant Shares (the “Registration Rights Agreement”) which as of December 31, 2010 has not yet been filed; and

(iii)

cause its Chairman of the Board, Guy De Vreese, to execute and deliver to Den-Mat a non-competition agreement.

On June 3, 2009, the Distribution Agreement was amended and restated (the “Amended Agreement”). The Amended Agreement modifies and clarifies certain terms and provisions which among other things includes:

(1)

the expansion of the list of Excluded Markets to include Spain, Japan, Portugal, South Korea and South Africa for a period of time;

(2)

clarification that Den-Mat’s distribution and license rights are non-exclusive to market, sell and distribute the Products directly to consumers through retail locations (“B2C Market”) in the Territory and an undertaking to form a separate subsidiary to and to issue warrants to Den-Mat in the subsidiary in the event that the Company decides to commercially exploit the B2C Market in North America after January 1, 2010;

(3)

subject to certain exceptions, a commitment from the Company to use Den-Mat as its supplier to purchase all of its, and its licensee’s, GlamSmile products in the B2C Market from Den-Mat, with reciprocal commitment from Den-Mat to sell such products;

(4)

modification of certain defined terms such as “Guaranty Period,” “Exclusivity Period” and addition of the term “Contract Period”; and

(5)

the “Guaranty Period” (as defined therein) is no longer a  three year period but has been changed to the first three “Contract Periods”.  The first Contract Period commences on the first day of the Guaranty Period (which the Parties agreed has commenced as of April 1, 2009), and continues for fifteen (15) months or such longer period that would be necessary in order for Den-Mat to purchase a certain minimum number of Units/Teeth as agreed upon in the Amended Agreement (“Minimum Purchase Requirement”) in the event that the Company’s manufacturing capacity falls below a certain threshold.  The second and each subsequent GlamSmile Contract Period begins on the next day following the end of the preceding “Contract Period” and continues for twelve (12) months or such longer period that would be necessary in order for Den-Mat to meet its Minimum Purchase Requirement in the event that the Company’s manufacturing capacity falls below a certain threshold.

In August 2009, the Distribution Agreement was further amended (the “August Amendment”). The August Amendment expands the Company’s products covered under the Distribution Agreement to include the Company’s new Prego System Technology (“Prego System”), also commonly known as “Glamstrip”. Under the Amendment, the $250,000 payment which was originally due upon the expiration of the first Contract Period (as defined in the Distribution Agreement) was paid as of December 31, 2010.

 

The August Amendment also provides for (a) the royalty rate for products manufactured and sold by Den-Mat using the Prego System after the Guaranty Period (as defined in the Distribution Agreement), (b) Den-Mat’s right to elect to manufacture or purchase from a third party manufacturer any or all portion of the minimum purchase requirements under the Distribution Agreement provided however, that if Den-Mat fails to purchase the minimum number of Units/Teeth as required during any month, Den-Mat may cure such default by paying the Company a certain royalty on the difference between the minimum purchase requirement and the amount actual purchased by Den-Mat during such month, with such royalties accruing and being due and payable upon the earlier occurrence of either (1) one hundred twenty days from August 11, 2009 or (2) the successful performance of the Company’s live patient demonstration of the First Fit Technology licensed to Den-Mat pursuant to the First Fit-Crown Distribution and License Agreement, to be performed at Den-Mat’s reasonable satisfaction; and all shortfall payments thereafter being due and payable within 15 days after the end of the month in which shortfall occurred, and (c) Den-Mat’s option to purchase a certain number of Prego Systems in lieu of Trays during each of the first three Contract Periods pursuant to the terms, including price and conditions, set forth in the Amendment so long as such option is exercised during the period commencing on August 11, 2009 and ending on the later of either 91 days or 31 days after the Company demonstrates to Den-Mat that it has the capacity to produce a certain number of Prego System per Contract Period. Furthermore under the Amendment, if Den-Mat fails to purchase the required minimum Trays during any Contract Period, such failure may be cured by payment equal to the difference between the aggregate purchase price that would have been paid had Den-Mat purchased the required minimum and the aggregate purchase price actually paid for such Contract Year within 30 days after the end of such Contract Period. With the exception of the provisions amended by the Amendment, the Distribution Agreement remains in full force and effect.

 

First Fit Distribution Agreement

On June 3, 2009, the Company entered into the First Fit-Crown Distribution and License Agreement (the “First Fit Distribution Agreement”) with Den-Mat.  Under the terms of the First Fit Distribution Agreement, the Company appointed Den-Mat to be its sole and exclusive distributor to market, license and sell certain products relating to the Company’s proprietary First Fit technology (the “First Fit Products”), in the United States, Canada and Mexico (the “First Fit Territory”).  In connection therewith, the Company also granted Den-Mat certain non-exclusive rights to manufacture and produce the First Fit Products in the First-Fit Territory; and a sole and exclusive transferable and sub-licensable right and license to use the Company’s intellectual property rights relating to the First Fit Products to perform its obligations as a distributor (provided the Company retains the right to use and license related intellectual property in connection with the manufacture of the First Fit Products for sale outside of the  First Fit Territory).

Consummation of the First Fit Distribution Agreement is subject to: completion of Den-Mat’s due diligence; execution and delivery of Non-Competition Agreements; and the delivery of the Development Payment and first installment of the License Payment (the “Development Payment” and License Payment” are defined below).

Under the First Fit Distribution Agreement, the Company granted such distribution rights, licensing rights and manufacturing rights, in consideration for the following:  (i) a non-refundable development fee of Four Hundred Thousand Dollars ($400,000) (the “Development Payment”) payable in two installments of $50,000 each, one within seven days after the effective date of the First Fit Distribution Agreement, and another $350,000 payment within twenty one days after the Effective Date ($400,000 received as at June 30, 2009); (ii) a non-refundable license fee of $600,000 payable in three equal installments of $200,000 each, with the first installment payable on the Closing Date, and with the second and third installments payable on the 30 th and 60 th day, respectively, after the Closing Date (received); (iii) certain royalty payments based on the sales of the First Fit Products by Den-Mat or its sub-licensees; and (iv) certain minimum royalty payments to maintain exclusivity.

Den-Mat’s rights as an exclusive distributor and licensee will continue at least through the first Contract Period (defined below) and until the termination of the First Fit Distribution Agreement.  Den-Mat’s exclusivity ends at the end of any Contract Period in which Den-Mat fails to make certain minimum royalty payments.  In the event that such exclusivity is terminated, Den-Mat has the option to either terminate the First Fit Distribution Agreement upon ninety (90) days written notice, or become a non-exclusive distributor and licensee, in which event Den-Mat’s obligation to pay certain agreed upon royalties would continue.  “Contract Period”  means the following periods: (A) the first eighteen months beginning on the first day of the month following the month in which the Closing occurs, provided that if Den-Mat is not fully operational within sixty days after the Closing Date, the first Contract Period will be extended by one day for each day after the sixtieth day until Den-Mat becomes fully operational; (B) the subsequent twelve months; and (C) each subsequent twelve month period thereafter, in each case during which the First Fit Distribution Agreement is in effect.

On March 29, 2010, a certain Amendment No. 1 was made to the First Fit Distribution Agreement dated June 3, 2009.  The terms of Amendment No. 1 are as follows:

 

The total purchase price for the First Fit IP consists of installment payments and royalty payments.  The cash component of the purchase price of the First Fit IP is $2,850,000 to be paid in the form of cash in the following installments: (a) $50,000 upon delivery by Remedent to Den-Mat of a working prototype of the First Fit crown (received); (b) $525,000 on or before March 15, 2010 (received); (c) $700,000 on June 30, 2010  (received); and (d) $500,000 on December 31, 2010 (received during January 2011), June 30, 2011 and December 31, 2011. In connection with the execution of the First Fit Agreement, Den-Mat also agreed to make an advance cash payment of $75,000 to the Company towards the purchase price (received).  In addition to the cash component, Den-Mat agreed to pay Remedent a capital payment equal to a certain percent of Den-Mat’s net revenues generated by the sale of the First Fit products.

Concurrently with the execution of the First Fit Amendment, the Company and Den-Mat entered into Amendment No. 2 to the Amended and Restated Distribution, License and Manufacturing Agreement (“Glamsmile Amendment”) with Den-Mat pursuant to which certain provisions of a certain Amended and Restated Distribution, License and Manufacturing Agreement previously entered into by the Company and Den-Mat on June 3, 2009 and subsequently amended on August 11, 2009, were amended.  The Glamsmile Amendment became effective concurrently with the effectiveness of the First Fit Amendment on February 16, 2010 (the “Amendment No. 2 Effective Date”).  Among other things, the Glamsmile Amendment (1) permits the Company to purchase its requirements for GlamSmile Products from another party, other than Den-Mat,  provided the Company pays Den-Mat a royalty payment on net revenues received by the Company per unit/tooth, (2) decreases the percentage of securities to be covered in a warrant to purchase securities of B2C Market Subsidiary and the exercise price of such warrant to be issued to Den-Mat  in the event a B2C Market Subsidiary is formed under the terms set forth in such agreement, (3) expands the definition of “Excluded Market” to include Australia, Belgium, France and United Arab Emirates, and (4) provides a consulting fee, equal to a percentage of net revenues received by Den-Mat from the Sale of unit/teeth and trays, to the Company for its services, support  and certain additional consideration, (5) terminates certain provisions relating to minimum requirement obligations and rights, and (6) amends the formula for calculation of a certain exit fee in the event of a change of control.  The Amendment became binding within the period ended September 30, 2010. 

5.	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 Company’s customer base and their dispersion across different geographic areas.  At December 31, 2010, five customers accounted for 66% of the Company’s trade accounts receivables, and one customer accounted for 30% and another customer accounted for 16%.  At December 31, 2009, five customers accounted for a total of 47% of the Company’s 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 Company’s operations.  For the nine months ended December 31, 2010 the Company had five suppliers who accounted for 26% of gross purchases. For the nine months ended December 31, 2009 the Company had five suppliers who accounted for 34% of gross purchases.  

Revenues — For the nine months ended December 31, 2010 the Company had five customers that accounted for 39% of total revenues and one customer accounted for 19% of total revenues.  For the nine months ended December 31, 2009 the Company had five customers that accounted for 51% of total revenues.

 

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10.	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 acquired a 10% equity interest in IMDS, LLC in consideration for $300,000 which was converted against IMDS receivables.

The agreement stipulates certain exclusive worldwide 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.

As of December 31, 2010 the Company has written off its investment in IMDS.  

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 was paid through the issuance of 220,588 common shares of the Company’s common stock. The final agreement is currently being negotiated.

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11.	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 $40,625 of accumulated amortization for this patent as of December 31, 2010. The Company accrues this royalty when it becomes payable to inventory therefore no provision has been made for this obligation as of December 31, 2010.  

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 Company’s 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.

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On December 12, 2005, the Company exercised the option and the Company and the patent holder agreed to revise the assignment agreement whereby the Company agreed to pay €50,000 additional compensation in the form of prepaid royalties instead of the €100,000 previously agreed, €25,000 of which was paid by the Company in September 2005 and the remaining €25,000 is to be paid upon the Company’s first shipment of a product covered by the patent. As of December 31, 2010 the Company has not yet received the final Product. The patent is being amortized over five (5) years and accordingly, the patent was fully amortized by the end of December 31, 2010.

12.	LINE OF CREDIT

The Company has a mixed-use line of credit facility with BNP Paribas Fortis’ Bank, a Belgian bank (the “Facility”) which is secured by a first lien on the assets of Remedent N.V.  The latest amendment to the Facility, dated June 7, 2010, amended and split the line of credit to €1,250,000, to be used by Remedent NV and €1,000,000 to be used Sylphar NV. Each line of credit carries its own interest rates and fees as provided in the Facility and vary from the current prevailing bank rate of approximately 3.9%, for draws on the credit line, to 9.4% for advances on accounts receivable concerning Remedent N.V. and similar for Sylphar N.V. Remedent N.V and Sylphar NV are currently only utilizing two lines of credit, advances based on account receivables and the straight loan. As of December 31, 2010 and March 31, 2010, Remedent N.V. and Sylphar N.V. had in aggregate, $1,469,160 and $667,800 in advances outstanding, respectively, under the mixed-use line of credit facilities.

13.	LONG TERM DEBT

On October 24, 2006, the Company entered into a five year capital lease agreement for manufacturing equipment totaling €123,367 (US $164,769). On May 15, 2008, the Company entered into an additional capital lease agreement over a three year period for additional manufacturing equipment totaling € 63,395 (US $84,670). On August 18, 2009, the Company entered into another capital lease agreement over a three year period for additional manufacturing equipment totaling € 170,756 (US $228,062). On January 15, 2010, the Company entered into an additional capital lease agreement over a 5 year period for veneer manufacturing equipment totaling € 251,903 (US $336,442). On June 16, 2010, the Company entered into a further capital lease agreement over a 5 year period for additional veneer manufacturing equipment totaling € 30,248 (US $40,399).

The net book value as of December 31, 2010 and March 31, 2010 of the equipment subject to the foregoing leases are $306,072 and $641,371 respectively.

14.	DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS

Transactions with related parties not disclosed elsewhere in these financial statements consisted of the following:

Compensation:

During the nine month periods ended December 31, 2010 and 2009 the Company incurred $560,207 and $559,238 respectively, as compensation for all directors and officers.

Sales Transactions:

One of the Company’s directors owns a minority interest in a client company, IMDS Inc. (“IMDS”) Accounts receivable at period end with this customer totaled $0 and $31,895 as at December 31, 2010 and March 31, 2010 respectively.

As of December 31, 2010 the Company has written off its investment in IMDS.

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.

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15.	ACCRUED LIABILITIES

Accrued liabilities are summarized as follows:

		December 31, 2010				March 31, 2010
Accrued employee benefit taxes and payroll		$	192,535			$	182,137
Accrued travel			10,877				31,891
Advances and deposits			217,545				116,687
Commissions			21,684				21,597
Accrued audit and tax preparation fees			11,762				11,152
Reserve for warranty costs			20,034				20,238
Accrued interest			—				168
Accrued consulting fees			69,175				47,382
Other accrued expenses			196,016				60,284
		$	739,628			$	491,536

16.	EQUITY COMPENSATION PLANS

As of December 31, 2010, the Company had three equity compensation plans approved by its stockholders (1) the 2001 Incentive and Non-statutory Stock Option Plan (the “2001 Plan”), (2) the 2004 Incentive and Non-statutory Stock Option Plan (the “2004 Plan”); and (3) the 2007 Equity Incentive Plan (the “2007 Plan”). The Company’s stockholders approved the 2001 Plan reserving 250,000 shares of common stock of the Company pursuant to an Information Statement on Schedule 14C filed with the Commission on August 15, 2001. In addition, the Company’s stockholders approved the 2004 Plan reserving 800,000 shares of common stock of the Company pursuant to an Information Statement on Schedule 14C filed with the Commission on May 9, 2005.  Finally, the Company’s stockholders approved the 2007 Plan reserving 1,000,000 shares of common stock of the Company pursuant to a Definitive Proxy Statement on Schedule 14A filed with the Commission on October 2, 2007.

  In addition to the equity compensation plans approved by the Company’s stockholders, the Company has issued options and warrants to individuals pursuant to individual compensation plans not approved by our stockholders.  These options and warrants have been issued in exchange for services or goods received by the Company.

The following table provides aggregate information as of December 31, 2010 with respect to all compensation plans (including individual compensation arrangements) under which equity securities are authorized for issuance.

A summary of the option activity for the nine month period ended December 31, 2010 pursuant to the terms of the plans is as follows:

 

										Exercise Price
		2001 Plan								2004 Plan								2007 Plan								Other
		Outstanding Options				Weighted Average Exercise Price				Outstanding Options				Weighted Average Exercise Price				Outstanding Options				Weighted Average Exercise Price				Outstanding Options				Weighted Average Exercise Price
Options outstanding, March 31, 2010			250,000				1.20				668,166				0.89				1,000,000				1.20				350,000				0.87
Options expired			-				-				(110,666	)			4.00				-				-				-				-
Options outstanding, December 31, 2010			250,000				1.20				557,500				0.89				1,000,000				1.20				350,000				0.87
Options exercisable, December 31, 2010			231,667				1.20				555,666				1.00				1,000,000				1.20				300,000				0.70
Exercise price range		$	0.50 - $2.39							$	0.50 - $2.46							$	0.50 - $1.75							$	.39 - 1.75
Weighted average remaining life		2.01 years								6.27 years								7.37 years								4.38 years

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During the nine month period ended December 31, 2010, a total of 3,263,678 warrants expired unexercised.

  

18.	SEGMENT INFORMATION

The Company’s only operating segment consists of dental products and oral hygiene products sold by Remedent Inc., Remedent N.V., Sylphar N.V., GlamSmile Beijing Dental Clinic Co. Ltd.  and Remedent Asia Ltd. Since the Company only has one segment, no further segment information is presented.

 

Customers Outside of the United States

		December 31, 2010				December 31, 2009
U.S. sales		$	2,030,788			$	1,881,142
Foreign sales			7,755,920				3,893,983
		$	9,786,708			$	5,775,125

19.	COMMITMENTS

Real Estate Lease

The Company leases its 26,915 square feet office and warehouse facility in Deurle, Belgium from an unrelated party pursuant to a nine year lease commencing December 20, 2001 at a base rent of € 7,266 per month ($9,704 per month at December 31, 2010). At December 31, 2010 the lease was ended. Sylphar NV negotiated a new lease contract on a yearly renewal base at a base rent of € 7,266 per month ($9,704 per month) commencing January 1, 2011.

The Company leases a smaller office facility of 2,045 square feet in Gent, Belgium to support the sales and marketing division of our veneer business, from an unrelated party pursuant to a nine year lease commencing September 1, 2008. Additionally, to support and house our Research and Development Division, as of October 15, 2009, an additional 2,290 square feet are being leased from the same unrelated party from which we lease our sales and marketing division, at a base rent of € 4,930 per month for the total location ($6,584 per month at December 31, 2010).

Minimum monthly lease payments for real estate, and all other leased equipment are as follows based upon the conversion rate for the (Euro) at December 31, 2010:

March 31, 2011		$	134,894
March 31, 2012			465,408
March 31, 2013			282,619
March 31, 2014			231,609
March 31, 2015			92,525
After five years			217,278
Total:		$	1,424,333

 

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 Company’s system. The Agreement provides the Company with the exclusive right to distribute certain SensAble products throughout the world for a period of twelve months from the date of the Agreement. The Company has the option and right to extend the initial twelve month exclusivity period for another twelve months. The term of the Agreement will be for two years and began on June 30, 2008. On July 2009, the Company renewed the first half of the second year.  The Company is currently in negotiation with SensAble for the development of new enhanced software.

 

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20.	FINANCIAL INSTRUMENTS

The FASB ASC topic 820 on fair value measurement and disclosures establishes three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), observable inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2), and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).

 

The carrying values and fair values of our financial instruments are as follows:

			December 31, 2010								March 31, 2010
			Carrying				Fair				Carrying				Fair
	Level		value				value				value				value
Cash	1		$	1,737,310			$	1,737,310			$	613,466			$	613,466
Accounts receivable	2		$	2,092,097			$	2,092,097			$	811,009			$	811,009
Line of credit	2		$	2,136,960			$	2,136,960			$	674,600			$	674,600
Accounts payable	2		$	1,767,618			$	1,767,618			$	1,932,683			$	1,932,683
Accrued liabilities	2		$	739,628			$	739,628			$	1,016,220			$	1,016,220
Due to related parties	2		$	95,354			$	95,354			$	268,484			$	268,484
Long term debt	2		$	458,236			$	458,236			$	641,371			$	641,371

 

The following method was used to estimate the fair values of our financial instruments:

The carrying amount approximates fair value because of the short maturity of the instruments.

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

Forward Looking Statements

The discussion contained herein is for the three and nine months ended December 31, 2010 and 2009. The following discussion should be read in conjunction with the Company’s 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 December 31, 2010.  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 July 13, 2010 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 December 31, 2010. The information contained in this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2010 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 manufacture many of our products at our facility in Deurle, Belgium as well as outsourced manufacturing in China.  We distribute our products using both our own internal sales force and through the use of third party distributors.

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 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 $1,475,425 or 171.2%,  to $2,337,199 for the three month period ended December 31, 2010 as compared to $861,774 for the three month period ended December 31, 2009. Our gross profit as a percentage of sales increased to 71.95% in the three months ended December 31, 2010 as compared to 46.99% for the three months ended December 31, 2009. The increase in gross profit is the result of our sales in our Asian facilities where we sell direct instead of indirect, thereby creating higher margins. Also, the launch of new higher margin OTC products had a positive impact upon our gross profit.

Our gross profit increased by $4,762,598 or 198.1%, to $7,167,232 for the nine month period ended December 31, 2010 as compared to $2,404,634 for the nine month period ended December 31, 2009. Our gross profit as a percentage of sales increased to 73.23% in the nine months ended December 31, 2010 as compared to 41.64% for the nine months ended December 31, 2009.  As noted above, the increase in gross profit is the result of our sales in our Asian facilities where we sell direct instead of indirect, thereby creating higher margins. Also, the launch of new higher margin OTC products had a positive impact upon our gross profit.

Operating Expenses

 

Research and Development . Our research and development expenses decreased by $8,538 or 5.7% to $141,687 for the three months ended December 31, 2010 as compared to $150,225 for the three months ended December 31, 2009.   We are in the final phase of completing the protocol to optimize the functioning of the Milling Machine.  As a result, our related Research and Development costs have decreased.

Our research and development expenses increased by $87,881 or 37.9% to $319,226 or 38%, for the nine months ended December 31, 2010 as compared to $231,345 for the nine months ended December 31, 2009.  Research and development has increased mainly because of work related to the new milling machine and the “First-Fit Concept”, as noted above.

Sales and marketing costs . Our sales and marketing costs increased by $226,483 or 56.2%, to $629,654 for the three months ended December 31, 2010 as compared to $403,171 for the three months ended December 31, 2010. The increase is largely due to our new Asian GlamSmile Sales Facilities.

Our sales and marketing costs increased by $645,462 or 72.4%, to $1,536,644 for the nine months ended December 31, 2010 as compared to $891,182 for the nine months ended December 31, 2009. The increase is largely due to market efforts associated with our new Asian GlamSmile Sales Facilities.

 

General and administrative costs . Our general and administrative costs for the three months ended December 31, 2010 and 2009 were $1,176,078 and $1,065,114, respectively, representing an increase of $110,964 or 10.4%. The increase is largely due to market efforts associated with our new Asian GlamSmile Sales Facilities.

Our general and administrative costs for the nine months ended December 31, 2010 and 2009 were $3,584,387 and $3,210,512 respectively, representing an increase of $373,875 or 11.6%.  Our general and administrative costs have increased primarily as a result of costs associated with our Asian GlamSmile facilities.

 

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Depreciation and amortization.   Our depreciation and amortization decreased $28,635 or 13.8%, to $178,288 for the three months ended December 31, 2010 as compared to $206,923 for the three months ended December 31, 2009.   The decrease is largely due to the complete amortization of previous investments in machinery and equipment.

Our depreciation and amortization increased $4,234 or 0.8%, to $562,515 for the nine months ended December 31, 2010 as compared to $558,281 for the nine months ended December 31, 2009.  The increase is largely because of amortization and depreciation associated with our Asian GlamSmile Production Lab in Beijing.

Other income (expense).   Our other income (expense) was $(41,550) for the three months ended December 31, 2010 as compared to $(41,086) for the three months ended December 31, 2009, an increase in expense of $464.

Our other (expense) for the nine months ended December 31, 2010 decreased by $154,629, from ($173,669) to $(19,040) primarily because no warrants were issued in the nine months ended December 31, 2010.

Internal and External Sources of Liquidity

As of December 31, 2010, we had current assets of $6,941,926 compared to $4,502,576 at March 31, 2010. This increase of $2,439,350 was primarily due to an increase in cash of $1,123,844 and an increase in accounts receivable of $1,285,166. Current liabilities at December 31, 2010 were $4,794,179 as compared to $3,582,793 at March 31, 2010.  The increase in current liabilities of $1,211,386 was primarily as a result of the increase in use of our line of credit by $1,462,360, offset by a total decrease in accounts payable, accrued liabilities and amounts due to related parties of $90,104, and a decrease in the current portion of the long term debt of $160,870.

The increase in our use of our line of credit is approximately equal to the decrease in our accounts payable and the increase in our accounts receivable.  At December 31, 2010 we believe we have approximately $868,000 available under our line of credit.   

As of December 31, 2010, we had cash and cash equivalents of $1,737,310. We believe that these balances, along with our line of credit, will provide sufficient financing in order to fund our working and other capital requirements over the course of the next twelve months. 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.

At this time, we do not expect to purchase or sell any property or equipment over the next 12 months. We do not currently expect a significant change in the number of its employees over the next 12 months.

Cash and Cash equivalents

Our balance sheet at December 31, 2010 reflects cash and cash equivalents of $1,737,310 as compared to $613,466 as of March 31, 2010, an increase of $1,123,844. The increase of cash and cash equivalents is primarily as a result of  increased sales, combined with an increase in the use of our line of credit, as described above.

 

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Operations

Net cash provided by operations was $201,924 for the nine months ended December 31, 2010 as compared to net cash used by operations of $651,757 for the nine months ended December 31, 2009. The increase in net cash provided by operations for the nine months ended December 31, 2010 as compared to the nine months ended December 31, 2009 is primarily as a result of our success in the Asian market, combined with the success of our newly launched OTC products, which have been very well received.

Investing activities

 

Net cash used in investing activities totaled $335,684 for the nine months ended December 31, 2010 as compared to net cash used in investing activities of $550,974 for the nine months ended December 31, 2009. Cash used in the nine months ended December 31, 2010 was mainly for additional equipment for the production of veneers. Cash used in the nine months ended December 31, 2009 was mainly for machinery and related software to support our increasing number of veneer designers.    

Financing activities

Net cash provided by financing activities totaled $1,333,844 for the nine months ended December 31, 2010, as compared to $689,533 for the nine months ended December 31, 2009.  The increase in the net cash provided by financing activities in the nine month period ended December 31, 2010 was primarily the result of increased use of our line of credit.

During the nine months ended December 31, 2010 and December 31, 2009, we recognized a (decrease)/ increase in cash and cash equivalents of $(76,240) and $92,158, respectively, from the effect of exchange rates between the Euro and the US Dollar.

 

Off-Balance Sheet Arrangements

 

At December 31, 2010, we did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4T.  Controls and Procedures

Disclosure Controls and Procedures

 We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the required time periods and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, 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.

 

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EXHIBIT INDEX