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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-QSB





xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





FOR THE QUARTER ENDED DECEMBER 31, 2001





or





 ̈ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





Commission
File Number





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REMEDENT USA, INC.


(Name of small business issuer as specified in its charter)





Nevada (State or other jurisdiction of incorporation or organization)

86-0837251 (I.R.S. Employer Identification Number)





1220 Birch Way Escondido, California (Address of principal executive offices)

92027 (Zip code)





(760) 781-3333


(Issuers telephone number, including area code)





Check whether the Issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No  ̈





Number of shares of issuers common stock outstanding as of February 12, 2002:16,081,558





Transitional Small Business Disclosure Format (check one).    Yes  ̈ No  x





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REMEDENT USA, INC.





TABLE OF CONTENTS





FORM 10-QSB REPORT





December 31, 2001





PAGEPART IFINANCIAL INFORMATIONItem 1.    Interim Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheet as of December 31, 2001 and March 31, 2001

3Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended December 31, 2001 and 2000

4Condensed Consolidated Statements of Cash Flows For the Nine Month Periods Ended December 31, 2001 and 2000

5Notes to Interim Condensed Consolidated Financial Statements

7Item 2.    Managements Discussion and Analysis or Plan of Operation

13PART II  OTHER INFORMATIONItem 1.    Legal Proceedings

17Item 2.    Changes in Securities and Use of Proceeds

17Item 3.    Defaults upon Senior Securities

17Item 4.    Submission of Matters to Vote of Security Holders

17Item 5.    Other Information

17Item 6.    Exhibits and Reports on Form 8-K

17(a)    Exhibits

17(b)    Reports on Form 8-K

17Signatures

18







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PART IFINANCIAL INFORMATION





ITEM 1INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





REMEDENT USA, INC.
AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEET


(Unaudited)





December 31, 2001


March 31, 2001ASSETSCURRENT ASSETSCash and cash equivalents

$
38,118


$
7,686Accounts receivable, net


27,130



21,262Inventories, net


148,810



82,905Prepaid expense


35,562



3,422TOTAL CURRENT ASSETS


249,620



115,275Property & equipment, net


74,805



21,488Patents, net of accumulated amortization


25,528



25,969Other assets


8,863



4,187TOTAL ASSETS

$
358,836


$
166,919LIABILITIES AND SHAREHOLDERS DEFICITCURRENT LIABILITIESAccounts payable

$
550,606


$
412,756Due to related parties


223,460



102,291Accrued liabilities


814,087



443,173Note payable


239,189



134,000TOTAL CURRENT LIABILITIES


1,827,341



1,092,220Commitments and contingenciesSHAREHOLDERS DEFICITCommon stock


16,081



13,187Additional paid in capital


2,479,137



1,768,302Accumulated deficit


(3,964,879
)


(2,706,790
)Cumulative translation adjustment


1,156



TOTAL SHAREHOLDERS DEFICIT


(1,468,505
)


(925,301
)TOTAL LIABILITIES AND SHAREHOLDERS DEFICIT

$
358,836


$
166,919








The accompanying notes are an integral part of
the financial statements.




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REMEDENT USA, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000


(Unaudited)








For the quarter ended


For the nine months endedDecember 31, 2001


December 31, 2000


December 31, 2001


December 31, 2000NET SALES

$
280,315


$
139,349


$
452,473


$
381,663COST OF SALES


152,167



45,847



253,372



122,130GROSS PROFIT


128,148



93,502



199,101



259,533OPERATING EXPENSESResearch and development


32,885



15,075



167,348



45,320Sales and marketing


20,609



150,482



31,800



396,941General and administrative


495,480



65,878



1,181,394



194,680Depreciation and amortization


4,233



3,329



11,815



9,986TOTAL OPERATING EXPENSES


553,206



234,764



1,392,356



646,627LOSS FROM OPERATIONS


(425,058
)


(141,262
)


(1,193,255
)


(387,394
)OTHER INCOME (EXPENSES)Interest income






31







168Interest expense


(40,231
)


(18,635
)


(79,244
)


(140,216
)Other income (expense)


7,150



2,866



14,410



(222
)TOTAL OTHER INCOME (EXPENSES)


(33,081
)


(15,738
)


(64,834
)


(140,270
)LOSS BEFORE INCOME TAXES


(458,139
)


(157,000
)


(1,258,089
)


(527,664
)Income tax benefit (expense)














NET (LOSS)

$
(458,139
)

$
(157,000
)

$
(1,258,089
)

$
(527,664
)LOSS PER SHARE

$
(0.03
)

$
(0.01
)

$
(0.08
)

$
(0.04
)WEIGHTED AVERAGE SHARES OUTSTANDING


16,081,558



12,993,732



15,401,864



12,989,470





The accompanying notes are an integral part of the financial statements.




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REMEDENT USA, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


THE NINE MONTH PERIODS ENDED DECEMBER 31, 2001 AND 2000


(Unaudited)





For the nine months endedDecember 31, 2001


December 31, 2000CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(1,258,089
)

$
(527,664
)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization


11,815



9,908Inventory reserve


57,353



Stock for services


195,990



13,483Options for bonuses


52,000



Beneficial conversion feature






113,200Changes in operating assets and liabilities:Accounts receivable


(5,443
)


31,764Inventories


(121,367
)


38,221Prepaid expenses


(31,689
)


(210
)Accounts payable


167,086



137,563Accrued liabilities


370,614



94,829Deposits






(8,892
)NET CASH USED IN OPERATING ACTIVITIES


(561,731
)


(97,798
)CASH FLOWS FROM INVESTING ACTIVITIESPurchases of equipment


(63,228
)


Other assets


(5,965
)


(3,510
)Notes to related parties


121,169



(29,081
)NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES


51,976



(32,591
)CASH FLOWS FROM FINANCING ACTIVITIESLease payments






(1,025
)Proceeds from notes and debentures


120,000



131,066Proceeds from sale of common stock


423,500



Note payments


(4,811
)


(4,966
)NET CASH PROVIDED BY FINANCING ACTIVITIES


538,689



125,075NET INCREASE IN CASH


28,934



(5,314
)Effect of exchange rate changes on cash and cash equivalents


1,498



CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR


7,686



8,125CASH AND CASH EQUIVALENTS, END OF YEAR

$
38,118


$
2,811Supplemental Non Cash Investing and Financing Activities:During the quarter ended September 30, 2001, the Company issued 126,600 shares of common stock for the repayment of $31,650 in accounts payable
indebtedness.During the quarter ended June 30, 2001, the Company issued 148,642 shares of common stock upon the conversion of a debenture for full settlement of the $10,000 face
amount and $589 in accrued interest.During the quarter ended December 31, 2000, the Company issued 12,648 shares of common stock for the repayment of $9,000 in accounts payable
indebtedness.Supplemental Information:Interest paid

$
1,829


$
1,990Taxes paid

$



$






The accompanying notes are an integral part of the financial statements.




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REMEDENT USA, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


FOR THE THREE AND NINE MONTH PERIODS ENDED DECEMBER 31,
2001 AND 2000


(Unaudited)





Three months ended Dec. 31,


Nine months ended Dec. 31,2001


2000


2001


2000Net loss

$
(458,139
)

$
(157,000
)

$
(1,258,089
)

$
(527,664
)Other comprehensive income (loss):Foreign currency translation adjustment


1,156







1,156



Comprehensive loss

$
(456,983
)

$
(157,000
)

$
(1,256,933
)

$
(527,664
)











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




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REMEDENT USA, INC. AND SUBSIDIARIES





NOTES TO ITERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





(Unaudited)





1.    General





The
accompanying unaudited interim condensed consolidated financial statements include the accounts of Remedent USA, Inc. and subsidiaries (collectively, the Company). All significant inter-company accounts and transactions have been
eliminated in the consolidated financial statements. The interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-QSB
and Item 10 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended December 31, 2001 are not necessarily indicative of the results that may be expected for the
fiscal year ending March 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys annual report on Form 10-KSB for the fiscal year ended March 31, 2001.





2.    Summary of Significant Accounting Policies





Basis for Presentation





The Companys financial statements have been prepared on an
accrual basis of accounting, in conformity with generally accepted accounting principles as a going concern. 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 generally accepted accounting principles 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. The financial statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.





Principles of Consolidation





The consolidated financial statements include the accounts of Remedent USA, Inc. and its wholly owned subsidiaries. All inter-company balances and
transactions have been eliminated.





Revenue Recognition





Sales are recorded when products are shipped to customers. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in
the same period that related sales are recorded.





The Company is currently evaluating the impact of the Staff Accounting
Bulletin (SAB) 101 regarding revenue recognition. However, management does not believe that SAB 101 will have a material effect on the Companys past or present financial results.





Impairment of Long-Lived Assets





Long-lived assets consist primarily of property and equipment and patents. 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 December 31, 2001, management believes there was no impairment of the
Companys long-lived assets.




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Use of Estimates





The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The significant estimates made in the preparation of the consolidated financial statements
relate to the assessment of the carrying value of accounts receivable, inventories and estimated provision for returns. Actual results could differ from those estimates.





Cash and Cash Equivalents





The Company considers all
highly liquid investments with maturities of three months or less to be cash or cash equivalents.





Accounts Receivable





The Company sells premium toothbrushes to various companies, primarily to retail chains located throughout the United
States. The terms of sales are 2% 10 days, net 30 days. Accounts receivable is reported at net realizable value and net of allowance for doubtful accounts. As of December 31, 2001 and March 31, 2001 the allowance for doubtful accounts was $1,000.
During the nine months ended December 31, 2001 and fiscal year ended March 31, 2001, the Company had written off a nominal amount of uncollectable accounts. The Company uses the allowance method to account for uncollectable accounts receivable. The
Companys estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Companys estimate of the allowance for doubtful accounts will change.





Computation of Earnings 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
antidilutive.





Common shares related to stock options and stock warrants that are antidilutive amounted to 4,803,000 and 0 for
the three and nine month periods ended December 31, 2001 and 2000, respectively.





3.    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:





December 31, 2001


March 31, 2001Inventory-Supplies

$
23,305


$
23,593Displays and Raw Materials


118,835



45,436Finished Goods


64,119



13,876Less: Inventory reserve


(57,450
)


Inventories, net

$
148,810


$
82,905




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4.    Patents





Patent costs are amortized using straight-line method over 15 years. Patent values and accumulated amortization are listed below as follows:





December 31, 2001

March 31, 2001Patent

$
35,468

$
34,199Accumulated amortization

$
9,940

$
8,230Patents, net

$
25,528

$
25,969





5.    Property and Equipment





Property and equipment are summarized as follows:








December 31, 2001


March 31, 2001Machinery and equipment

$
54,468


$
50,436Tooling

$
48,414


$
Furniture and fixtures

$
19,239


$
8,236Leasehold improvements

$
|779


$
779Less accumulated depreciation

$
(48,095
)

$
(37,963
)Property and equipment, net

$
74,805


$
21,488





6.    Capital Transactions





On September 14, 2001, the Company completed a $110,500 private placement, selling an aggregate of 442,000 shares of common stock at $0.25 a share, and
warrants to purchase 442,000 shares of common stock at an exercise price of $0.25 per share for 5 years.





On September 13, 2001,
the Company entered into an Investment Banking Agreement with a firm to provide investment banking services including, but not limited to, providing ongoing research coverage, identifying and introducing the Company to potential investors and
preparing and maintaining research reports on the Company. The terms of the agreement included non-refundable consideration of 100,000 shares of common stock and 200,000 stock options for the execution of the agreement, with a monthly retainer of
$2,500.





On August 24, 2001, the Company agreed to a repayment plan for its indebtedness to Southwest Multimedia, an advertising
placement agent retained by the Company in August 1999. The indebtedness of $35,675 was to be repaid with $4,025 paid in cash on October 15, 2001 with the remainder paid with 126,600 shares of common stock.





On June 20, 2001, the Company entered into a Business Consulting Agreement with a business acquisition advisory firm to provide consulting services
including, but not limited to, the identification and completion of acquisition targets and general consulting needs as expressed by the Company. The terms of the agreement included non-refundable consideration of 300,000 shares of common stock for
the execution of the agreement, with future fees calculated as a percentage of the value of each acquisition completed by the Company. These fees are payable in the same ratio of cash to stock as the transaction.





On April 25, 2001, the Company completed a $313,000 private placement, selling an aggregate of 1,252,000 shares of common stock at $0.25 a share, and
warrants to purchase 1,252,000 shares of common stock at an exercise price of $0.25 per share for five years.





On April 1, 2001,
the Company entered into a Retainer Agreement with its former legal counsel for legal services including the review of SEC documents, preparation of other documents as needed, and general advisory services on any matters which arise in the ordinary
course of business. In connection with this agreement, the Company issued 250,000 shares of common stock for the initial $20,000 in legal services.




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7.    Segment Information





The Companys reportable operating segments consist of professional dental products and oral hygiene products. The Other segment column below includes centralized
services including corporate consulting, legal, accounting, investor relations and unallocated corporate payroll and interest. The chief operating decision making group for the Companys reportable operating segments is comprised of the
Companys Chief Executive Officer, Chief Financial Officer, and the lead executives of each of the Companys two primary operating segments. The operating segments are managed separately as each operating segment represents a business unit
with a distinctive marketing strategy, distribution method and target customer. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.





The following are segment information for the three and nine month periods ended December 31, 2001 and 2000:





For the Three Months Ended December 31,


For the Nine Months Ended December 31,2001


2000


2001


2000Revenues:Professional Dental Products

$
274,969


$



$
402,203


$
Oral Hygiene Products

$
5,346


$
139,349


$
50,270


$
381,663Total

$
280,315


$
139,349


$
452,473


$
381,663Net Loss:Professional Dental Products

$
(132,587
)

$



$
(447,464
)

$
Oral Hygiene Products

$
(53,665
)

$
(97,378
)

$
(101,412
)

$
(284,217
)Other

$
(271,887
)

$
(59,622
)

$
(709,213
)

$
(243,447
)Total

$
(458,139
)

$
(157,000
)

$
(1,258,089
)

$
(527,664
)





The Company ships products from its operations in the US and Europe. The
following are sales by its US and European locations for the three and nine month periods ended December 31, 2001 and 2000:





For the Three Months Ended December 31,

For the Nine Months Ended December 31,2001

2000

2001

2000RevenuesUnited States:Professional Dental Products

$


$


$


$
Oral Hygiene Products

$
5,346

$
139,349

$
50,270

$
381,663Total

$
5,346

$
139,349

$
50,270

$
381,663RevenuesEurope:Professional Dental Products

$
274,969

$


$
402,203

$
Oral Hygiene Products

$


$


$


$
Total

$
274,969

$


$
402,203

$
$
280,315

$
139,349

$
452,473

$
381,663





The following is long-lived asset information by geographic area as of December
31, 2001:





United States

$
65,951Europe

$
8,854$
74,805





8.    Impact of Recently Issued Accounting Standards





Issue 00-14 (Coupons and Others Sales Incentives) addresses the accounting for sales incentives offered voluntarily by a vendor without charge to
customers. This issue addresses both the recognition and income statement classification of sales incentives. Generally, the cost of the incentive should be recognized at the date of sale. If the sales incentive results in a loss, the loss should be
recognized at the date of sale. However, the Task Force noted the sales incentive might indicate that prior to the sale there has been an impairment of existing inventory. Companies should now apply the guidance in Issue 00-14 no later than in
annual or interim financial statements for periods beginning after December 15, 2001.




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The Company adopted SFAS 130 (Reporting Comprehensive Income) which establishes
standards for reporting comprehensive loss and its components in the financial statements.





In June 1998, the FASB issued
Statement of Financial Accounting Standards (SFAS) No. 133 (Accounting for Derivative Instruments and Hedging Activities), which establishes accounting and reporting standards for derivative instruments. This Statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137 (Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133) which postponed the adoption date of SFAS No. 133. The Company will adopt the new Statement beginning the first quarter of the fiscal year ending March 31, 2002.





9.    Going Concern





The Company has incurred substantial net losses since inception, and as of December 31, 2001 maintained a working capital and shareholders deficit of ($1,577,721) and ($1,468,505), respectively, raising substantial doubt about the
Companys ability to continue as a going concern. The Company has reassessed its operations and business structure and has implemented a complete corporate reorganization plan.





The plan includes the ceasing of direct sales and marketing of the Remedent Toothbrush, and acquisition of and expansion into diversified business ventures.





To reduce overhead and operating costs, the Company will cease the direct sales and marketing of its Remedent Toothbrush, and is attempting to license
the product and related technology to a third party marketer and distributor. This would eliminate all cash requirements for this product, as the licensor would support the requisitioning, marketing and distribution. The Company is currently in
negotiations with a well-established oral care distributing company, and is attempting to finalize an agreement by the second quarter of 2002. The Company will continue to develop additional products for distribution within the oral hygiene market,
and will analyze whether to license the related technology or manufacture and distribute in-house, on a case-by-case basis.





On
July 1, 2001, the Company began developing, manufacturing, marketing and distributing high-technology dental equipment. The Company has retained 14 additional personnel, 7 engineers and 7 operations and finance, with strong backgrounds in the
business of high-technology dental equipment, and will market dental curing and whitening lamps, interoral cameras and hand-held penlights. The Company has previewed its first offering within this market at dental shows around the world in October
2001, and plans to begin shipments of initial units during the first quarter of 2002. Additionally, the Company is in negotiations for the acquisition of a Professional Employer Organization (PEO) and is attempting to finalize that
acquisition by the first quarter of 2002. PEO firms manage payroll and human resource functions as well as provide health, unemployment and workers compensation insurance for small and mid-size businesses. These firms allow these smaller businesses
to shift legal risk, lower administrative costs, and obtain lower insurance rates as part of the firms group of customers.





The Company plans to complete additional PEO acquisitions within the next twelve months, and attempt to improve on industry operating results through the introduction of additional products and services, and efficient consolidation and
integration of these entities.





The Companys first target maintains growing revenues and current-year profitable
operations. The proposed acquisition will be entirely for stock and will require minimal capital investment as current management will remain intact.





Management believes that if the Company can complete its restructuring plan, the Company can generate sufficient revenues and cash flows to sustain operations. There can be no assurance that the Company will be
successful in its efforts and if unsuccessful in its efforts, it may be necessary to undertake other actions to preserve asset value. The financial statements do not include adjustments that might result from the outcome of this uncertainty.




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10.    Notes Payable





Since the commencement of operations, the Company has borrowed various amounts from shareholders to provide working capital and fund
operations. These borrowings are in the form of unsecured convertible debentures, due on demand and bearing an interest rate of 10%. In addition, at the sole discretion of the holder, the debenture is convertible into common stock at a percentage
between 30% and 37.5% of the average trading price for the stock for the 30 day period immediately prior to the maturity date. As of September 30 and March 31, 2001, $6,084 and $2,489, respectively, was accrued for unpaid interest.





On December 11, 1998, the Company entered into a one-year Promissory Note for $50,000 with a bank, bearing interest at 10.25% annually. On
April 26, 2000, the Company refinanced the debt by converting the original note into a five-year variable Promissory Note, payable on demand. The Note is secured by all of the Companys assets. The Note does not contain any restrictive
financial covenants.





On September 9, 2001, the Company entered into a short-term working capital loan in the amount of $20,000.
The loan will mature in sixty days from date of funding, with the principal and interest of $30,000 to be repaid in either cash or stock, at the Companys discretion. The Company is currently negotiating for the extension and modification of
the loans repayment terms.





On September 21, 2001, the Company entered into a short-term working capital loan in the
amount of $100,000. The loan will mature in ninety days from date of funding, with the principal and interest of $150,000 to be repaid in either cash or stock, at the Companys discretion. The Company is currently negotiating for the extension
and modification of the loans repayment terms.





Notes payable are summarized as follows:





December 31, 2001

March 31, 2001Promissory Note at 8.00% (Prime + 2.5%), due on demand, principal and interest payable in monthly installments of $1,099, final
maturity April 2005

$
39,189

$
44,000Convertible debentures at 10%, due on demand


80,000


90,000Working capital loan, due on demand


20,000


Working capital loan, final maturity December 2001


100,000


Notes payable

$
239,189

$
134,000








11.    Related Party Transactions





Due to related parties are summarized as follows:





December 31, 2001

March 31, 2001Advances from Rebecca Inzunza, an officer, through the use of a personal credit card for business expenses.

$
26,245

$
18,226Advances from a company operated by Kenneth Hegemann, an officer, of $8,000 and $11,500 for the fiscal nine months ended December
31, 2001 and the fiscal year ended 2001, respectively. No repayments were made for the fiscal nine months ending December 31, 2001 while $4,000 was repaid during the fiscal year ended March 31, 2001. As of December 31, 2001, $2,947 is accrued for
unpaid interest.


23,063


15,063Borrowings from a director in the form of convertible debentures.


69,002


69,002Borrowings from employees in the form of working capital loans.


105,150


Due to related parties

$
223,460

$
102,291





The convertible debentures issued to the director are due
on demand, bearing interest at 10% per annum, and convertible into common stock at the sole discretion of the holder. The debentures are convertible into common stock at percentages between 30% and 37.5% of the average trading price for the stock
for the 30 day period immediately prior to the maturity date. In connection with this conversion feature, the Company recorded a charge of $59,002 and $10,000 to interest expense during the fiscal years ended March 31, 2001 and 2000, respectively.
These amounts were calculated on the 30 day period prior to the dates of the notes, and are subject to change based on the 30 day period prior to the maturity dates. As of December 31, 2001, $19,945 was accrued for unpaid interest.





The Company leases approximately 1,000 square feet of office space, which serves as the Companys corporate headquarters, within Rebecca
M. Inzunzas primary residence. The rental agreement with Ms. Inzunza, an officer and shareholder, is a month to month agreement, with monthly payments of $650. The Company also utilizes approximately 300 square feet of office and warehouse
space, within Robert E. Hegemanns primary residence. There is no rental agreement with Mr. Hegemann, an officer and shareholder.





The Company has a royalty agreement with Jean Louis Vrignaud which provides 4.5% royalty of the net sales with a cap of $2 million on royalties for the assignment of all patents to the Company. Mr. Vrignaud was an officer and director
during the fiscal year ending March 31, 1999, and has occupied no position with the Company since that time. Mr. Vrignaud was owed $52,420 and $50,395 as of December 31, 2001 and March 31, 2001, respectively. Total royalty expenses incurred under
this agreement totaled $2,026 and $9,640 for the nine months ended December 31, 2001 and the year ended March 31, 2001, respectively.




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ITEM 2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OEPRATIONS





The discussion and financial statements contained herein are as of December 31, 2001 and for the three and nine months ended December 31, 2001 and 2000. The following discussion regarding the financial statements of
the Company should be read in conjunction with the financial statements of the Company included herewith.





Overview





The Company develops, markets and distributes toothbrushes and oral hygiene products.





Three Months Ended December 31, 2001 as Compared to Three Months Ended December 31, 2000





For the fiscal quarter ending December 31, 2001, net sales increased by $140,966 from $139,349 in 2000 to $280,315 in 2001. This represents a 101% increase over the comparable period ending December 31, 2000. The increase was due to the
commencement of dental equipment sales in our European subsidiary, partially offset by the continued reduction in sales within the oral hygiene market. As the Company has initiated its presence within the professional dental equipment market, our
European subsidiary has begun sales of after-market products, including accessories and repair services, while the new product is nearing release. These revenues were partially offset by the continued reduction in oral hygiene revenues, consistent
with our reorganization plan, as we reposition assets and resources to the professional dental equipment market, and finalize plans for the oral hygiene division.





Cost of goods sold increased by $106,320 or 232% for the quarter ending December 31, 2001 over the comparable period ended December 31,
2000.





Gross profit for the quarter ending December 31,
2001 decreased to 46% from 67% for the comparable period ended December 31, 2000. This decrease was due to the change in accounting procedure whereby promotional discounts are recorded as reductions to the sales price. This change was implemented
for all fiscal periods beginning April 1, 2001.





Research and development expenses increased by $17,810 over the prior fiscal
year, due primarily to the research and development costs incurred during the start-up phase of the Companys high-technology dental equipment segment. These expenditures relate primarily to the labor and materials to design and manufacture our
new curing light technology, in addition to the completion of 15 prototypes. We expect we will continue to invest in research and development, and anticipate significant costs in the near future as we continue to develop products for the dental
equipment and oral hygiene markets.





Sales and marketing costs for the quarters ended December 31, 2001 and 2000 were $20,609
and $150,482 respectively, which represents a decrease of $129,873 or 86%. The costs are attributed primarily to the oral hygiene products, with the decrease being consistent with the reduction in oral hygiene product sales caused by cash flow
shortages and resource repositioning and resulting strain on inventory availability. The professional dental product revenues incurred minimal sales and marketing costs as these after market sales are obtained through previously-established
channels, and require minimal investment to create.





General and administrative costs for the quarters ended December 31, 2001 and 2000 were $495,480 and $65,878 respectively, an increase of $429,602 or 652%. This increase is due to the overhead, primarily payroll and rent, associated with
the professional dental equipment which commenced operations on July 1, 2001. Additionally, in connection with the reorganization plan, the Company has begun intensifying fund-raising and investor relation activities, with the resulting increase in
such expenses.





Net interest expense increased by $21,596 during the quarter ended December 31, 2001 over the comparable period
ending December 31, 2000. The increase in interest expense was largely due to the interest accrued on the working capital loans entered into by the Company during the quarter ended September 30, 2001.





Inflation has not had a material effect on our revenue and income from continuing operations in the past three years. We do not expect inflation to have
a material future effect.





Nine Months Ended December 31, 2001 as Compared to Nine Months Ended December 31, 2000




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For the nine months ending December 31, 2001, net sales increased by $70,810 from $381,663 in
2000 to $452,473 in 2001. This represents a 19% increase over the comparable period ending December 31, 2000. The increase was due to the commencement of dental equipment sales in our European subsidiary, partially offset by the continued reduction
in sales within the oral hygiene market. As the Company has initiated its presence within the professional dental equipment market, our European subsidiary has begun sales of after-market products, including accessories and repair services, while
the new product is nearing release. These revenues were partially offset by the continued reduction in oral hygiene revenues, consistent with our reorganization plan, as we reposition assets and resources to the professional dental equipment market,
and finalize plans for the oral hygiene division.





Cost
of goods sold increased by $131,242 or 107% for the nine months ending December 31, 2001 over the comparable period ended December 31, 2000.





Gross profit for the nine months ending December 31, 2001 decreased to 44% from 68% for the comparable period ended December 31, 2000. This decrease was
due to the change in accounting procedure whereby promotional discounts are recorded as reductions to the sales price. This change was implemented for all fiscal periods beginning April 1, 2001.





Research and development expenses increased by $122,028 over the prior fiscal year, due primarily to the research and development costs incurred during the start-up phase of the
Companys high-technology dental equipment segment. These expenditures relate primarily to the labor and materials to design and manufacturer our new curing light technology, in addition to the completion of 15 prototypes. We expect we will
continue to invest in research and development, and anticipate significant costs in the near future as we continue to develop products for the dental equipment and oral hygiene markets.





Sales and marketing costs for the nine months ended December 31, 2001 and 2000 were $31,800 and $396,941 respectively, which represents a decrease of $365,141 or 92%. The costs are
attributed primarily to the oral hygiene products, with the decrease being consistent with the reduction in oral hygiene product sales caused by cash flow shortages and resource repositioning and resulting strain on inventory availability. The
professional dental product revenues incurred minimal sales and marketing costs as these after market sales are obtained through previously-established channels, and require minimal investment to
create.





General and administrative costs for the nine
months ended December 31, 2001 and 2000 were $1,181,394 and $194,680 respectively, an increase of $986,714 or 507%. This increase is due to the overhead, primarily payroll and rent, associated with the professional dental equipment which commenced
operations on July 1, 2001. Additionally, in connection with the reorganization plan, the Company has begun intensifying fund-raising and investor relation activities, with the resulting increase in such expenses.





Net interest expense decreased by $60,972 during the nine months ended December 31, 2001 over the comparable period ending December 31, 2000. The
decrease in interest expense was largely due to the one-time charges to interest expense in connection with the issuance of the convertible debentures during the quarter ended December 31, 2000. No such issuance occurred during the current
quarter.





Inflation has not had a material effect on our
revenue and income from continuing operations in the past three years. We do not expect inflation to have a material future effect.




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Liquidity and Capital Resources





On December 31, 2001, our current liabilities exceeded our current assets by $1,577,721. Our business operations will require substantial capital
financing on a continuing basis. The availability of that financing will be essential to our continued operation and expansion. In addition, cash flow and liquidity is contingent upon the success of our restructuring plan. The inability to complete
the proposed PEO acquisitions or develop and market high-technology dental equipment will force us to raise additional capital to support operations by selling equity securities or incurring additional debt.





Since our inception in 1996, we have sustained net losses and negative cash flow, due largely to start-up costs, general and administration expenses,
inventory, marketing and other expenses related to market development and new product launch. As a result, we have financed our working capital requirements principally through loans and the private placement of our common stock.





During the fiscal year ended March 31, 2001, the Company borrowed $149,002 from shareholders and a director in the form of convertible
debentures. These debentures are unsecured, due on demand and bear interest at 10% per annum. In addition, at the sole discretion of the holder, can be converted to stock at 37.5% of the average trading price 30 days prior to maturity.





Kenneth J. Hegemann, an officer, operates CRA Labs, Inc., a related business that advanced $8,000 during the fiscal nine months ended
December 31, 2001. There were no repayments of these advances during the fiscal nine months ended December 31, 2001, leaving a balance of $23,063 at December 31, 2001. Similar to the other working capital loans, this is an unsecured debt and bears
interest at 10% per annum.





During the nine months ended December 31, 2001, the Company raised $423,500 through the private
placement of its common stock and was loaned $120,000 in short-term working capital loans.





We expect to continue to experience
negative cash flow through at least February 2001, and may continue to do so thereafter while we implement our restructuring plan. Unless we are able to generate sufficient revenue or acquire additional debt or equity financing to cover our present
and ongoing operation costs and liabilities, we may not be able to continue as a going concern. Our auditors note that we have sustained substantial net losses since our inception in September 1996. In addition, as of December 31, 2001, we had a
working capital deficit totaling $1,577,721 and a shareholders deficit of $1,468,505.





Frequently we have been unable to make timely payments to our trade and service vendors. As of December 31, 2001, we had past due payables of approximately $460,000, representing a 12% increase from the prior fiscal
year end. Deferred payment terms have been negotiated with most of the vendors, which has allowed us to continue to make shipments on time and no orders have been cancelled to date. Notes payable increased by $105,189 due to the incurrence of
$120,000 in working capital loans, partially offset by the monthly debt commitment to the bank and the conversion of $10,000 of convertible debentures to equity during the nine months. Accrued liabilities increased by $370,914. This amount
represents accrued salaries for officers and employees. Due to related parties increased by $121,169 due primarily to working capital loans provided by employees and additional advances from officers during the nine months.





For the nine months ending December 31, 2001 and 2000, net cash used for operating activities was $561,731 and $97,798, respectively. As of December 31,
2001 we had a working capital deficiency of $1,577,721, as compared to a working capital deficiency of $976,945 at March 31, 2001. Our business operations will require substantial capital financing on a continuing basis.





We have taken several actions, which we believe will improve our short-term and long-term liquidity and cash flow. For the short term, we have improved
liquidity and cash flow by obtaining short term loans, reducing expenses, reducing employee compensation, eliminating warehousing fees and reducing insurance expenses. For the long term, we have developed and begun implementation on a complete
business restructuring plan. In addition, our liquidity is less affected by our working capital deficit as significant portions of our liabilities are related party or non-cash liabilities. The entirety due to related parties are payables to
officers in the form of advances and accrued interest which will be repaid either with common stock or be contributed to the capital of the Company, and a debenture to a director to be repaid with common stock. Within accrued liabilities,
approximately $480,000 represents accrued salaries to officers and accrued interest on debentures which could be contributed to the capital of the Company or repaid with common stock, respectively. Finally, within notes payable, $200,000 represents
indebtedness the Company can repay in the form of common stock.




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However, our business operations will require substantial capital financing on a continuing
basis. Based upon our cash flow projections, significant capital infusion is necessary to fully implement our restructuring plan and pay the existing delinquent payables which require repayment in cash. We plan to finance such through loans, equity
investments and other transactions. We reasonably believe that the net proceeds from our efforts, assuming the maximum amount is raised and loans are obtained, plus revenues generated from operations, will be sufficient to fund our operations.
However, there can be no assurance that we will be able secure the necessary financing. In the event that we are unsuccessful in completing financing arrangements, we would have difficulty meeting our operation expenses, satisfying our existing or
future debt obligations, or succeeding in implementing our restructuring plan. Without sufficient cash flow, we are unable to satisfy our debt obligations, our ongoing growth and operations are, and will continue to be, restricted and there is
substantial doubt as to our ability to continue as a going concern. If this were to happen, our contingency plan would be to work with existing oral care companies who do not have a premium toothbrush. We would attempt to secure an agreement with
them to be their premium toothbrush provider.





DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS





This filing contains statements that constitute forward-looking statements within the meaning of Section 21E of the Exchange Act of 1934 and Section 27A
of the Securities Act of 1933. The words plan, expect, estimate, anticipate, predict, believe and similar expressions and variations thereof are intended to identify
forward-looking statements. Such statements appear in a number of places in this filing and include statements regarding our intent, belief or current expectations regarding our strategies, plans and objectives, our product release schedules, our
ability to design, develop, manufacture and market products, our intentions with respect to strategic acquisitions, the ability of our products to achieve or maintain commercial acceptance and our ability to obtain financing for our obligations. Any
forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected in this filing, for the reasons, among others, described within the various sections.
You should read the filing carefully, and should not place undue reliance on any forward-looking statements, which speak only as of the date of this filing. We undertake no obligation to release publicly any updated information about forward-looking
statements to reflect events or circumstances occurring after the date of this filing or to reflect the occurrence of unanticipated events.





Quarterly Trends





We do not anticipate significant seasonal changes in
our operations. Our product is a toothbrush that people use on a daily basis for oral hygiene and as such, we predict that although sales may increase over the year, sales will not be affected by quarterly trends.







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PART IIOTHER INFORMATION





Item 1.    Legal Proceedings.





None.





Item 2.    Changes in Securities and Use of Proceeds.





None.





Item 3.    Defaults in Senior Securities.





None.





Item 4.    Submission of Matters to a Vote of Security Holders.





None.





Item 5.    Other Information





None.





Item 6.    Exhibits and Reports on Form 8-K





(a)  Exhibits filed with this Form 10-QSB:





None.





(b)  Reports on Form 8-K filed during the period covered by this Form 10-QSB:





None.







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SIGNATURES





In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the Exchange Act) the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





| | RE | MEDENT USA, INC.
| | -- | ----------------




Dated: February 11, 2002

/S/    REBECCA M.
INZUNZABy:     Rebecca M. InzunzaIts:Chief Executive Officer





Dated: February 11, 2002

/S/     STEPHEN
ROSSBy:    Stephen RossIts:    Chief Financial Officer




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