** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

| **ý**                                         | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|----------------------------------------------------|----------------------------------------------------------------------------------------------|
|                                               |                                                                                         |
|  **FOR THE QUARTER ENDED SEPTEMBER 30, 2001** |
| ** **

**or**

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

 

**CommissionFile Number**

 

**REMEDENT USA, INC.**

 

----

 

(Name of small businessissuer as specified in its charter)

 

| **Nevada**                                |   | **86-0837251**         |
|-------------------------------------------|--------|------------------------|
| (State or other  jurisdiction of          |   | (I.R.S. Employer       |
| incorporation or  organization)           |   | Identification Number) |
|                                      |   |                   |
| **1220 Birch Way**                        |   |                   |
| **Escondido, California**                 |   | **92027**              |
| (Address of principal  executive offices) |   | (Zip code)             |
|                                      |   |                   |

**(760)781-3333**

(Issuer's telephonenumber, including area code)

 

 

Check whether the Issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the issuer was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes ýNo o

 

 

Number of shares of issuer's common stock outstanding as of November 9,2001: **16,081,558**

 

 

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

 

 

**REMEDENT USA, INC.**

 

TABLE OF CONTENTS

 

FORM 10-QSB REPORT

 

September 30, 2001

 
| **PART I - FINANCIAL  INFORMATION**                                             |
|---------------------------------------------------------------------------------|
|                                                                            |
| Item  1.  Interim Condensed Consolidated  Financial Statements (Unaudited) |
|                                                                            |   |
|                                                                            | Condensed  Consolidated Balance Sheet as of September 30, 2001 and March 31, 2001 |
|                                                                            |   |
|                                                                            | Condensed  Consolidated Statements of Operations for the Three and Six Month Periods Ended  September 30, 2001 and 2000 |
|                                                                            |   |
|                                                                            | Condensed  Consolidated Statements of Cash Flows For the Six Month Periods Ended September  30, 2001 and 2000 |
|                                                                            |   |
|                                                                            | Notes  to Interim Condensed Consolidated Financial Statements |
|                                                                            |   |
| Item  2.  Management's Discussion and  Analysis or Plan of Operation       |
|                                                                            |   |
| **PART II – OTHER  INFORMATION**                                           |
|                                                                            |   |
| Item 1.  Legal Proceedings                                                 |
| Item  2.  Changes in Securities and Use of  Proceeds                       |
| Item 3.  Defaults upon Senior Securities                                   |
| Item  4.  Submission of Matters to Vote of  Security Holders               |
| Item 5.  Other Information                                                 |
| Item 6.  Exhibits and Reports on Form 8-K                                  |
|                                                                            |   |
| (a)  Exhibits                                                              |
| (b)  Reports on Form 8-K                                                   |
|                                                                            |   |
| Signatures                                                                      |
|                                                                                 |  |  |

 

 

**PARTI - FINANCIAL INFORMATION**

 

**ITEM1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

 

REMEDENT USA, INC. ANDSUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

 
| **ASSETS**                                        |   | **September 30,  2001** |    | **March 31,  2001** |   |
|---------------------------------------------------|--------|-------------------------|---------|---------------------|--------|
| CURRENT ASSETS                                    |   |                    |    |                |   |
| Cash and cash  equivalents                        |   | $                       | 85,883  |                | $      | 7,686 |   |
| Accounts  receivable, net                         |   | 54,373                  |    | 21,262              |   |
| Inventories, net                                  |   | 220,938                 |    | 82,905              |   |
| Prepaid expense                                   |   | 41,375                  |    | 3,422               |   |
| TOTAL CURRENT  ASSETS                             |   | 408,568                 |    | 115,275             |   |
| Property &  equipment, net                    |   | 71,862                  |    | 21,488              |   |
| Patents, net of  accumulated amortization         |   | 25,069                  |    | 25,969              |   |
| Other assets                                      |   | 9,654                   |    | 4,187               |   |
| TOTAL ASSETS                                      |   | $                       | 515,154 |                | $      | 166,919 |   |
| LIABILITIES AND  SHAREHOLDERS’ DEFICIT       |   |                    |    |                |   |
| CURRENT  LIABILITIES                              |   |                    |    |                |   |
| Accounts payable                                  |   | $                       | 598,301 |                | $      | 412,756 |   |
| Due to related  parties                           |   | 153,992                 |    | 102,291             |   |
| Accrued  liabilities                              |   | 584,162                 |    | 443,173             |   |
| Note payable                                      |   | 239,189                 |    | 134,000             |   |
| TOTAL CURRENT  LIABILITIES                        |   | 1,575,644               |    | 1,092,220           |   |
|                                              |   |                    |    |                |   |
| Commitments and  contingencies                    |   |                    |    |                |   |
| SHAREHOLDERS’ DEFICIT                        |   |                    |    |                |   |
| Common stock                                      |   | 16,081                  |    | 13,187              |   |
| Additional paid  in capital                       |   | 2,427,137               |    | 1,768,302           |   |
| Accumulated  deficit                              |   | (3,506,740              | )       | (2,706,790          | )      |
| Cumulative  translation adjustment                |   | 3,032                   |    | -                   |   |
|                                              |   |                    |    |                |   |
| TOTAL  SHAREHOLDERS’ DEFICIT                 |   | (1,060,490              | )       | (925,301            | )      |
| TOTAL  LIABILITIES AND SHAREHOLDERS’ DEFICIT |   | $                       | 515,154 |                | $      | 166,919 |   |

 

***The accompanying notes are an integral part of the financialstatements.***

 

REMEDENT USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000

(Unaudited)

 
|                                 |   | **For the quarter ended** |     | **For the six months ended** |   |
|--------------------------------------|--------|---------------------------|----------|------------------------------|--------|
|                                 |   | **September 30,  2001**   |     | **September 30,  2000**      |   | **September 30,  2001** |   | **September 30,  2000** |   |
| NET SALES                            |   | $                         | 150,855  |                         | $      | 42,261 |   | $ | 172,158 |   | $ | 242,314 |   |
|                                 |   |                      |     |                         |   |   |   |   |   |
| COST OF SALES                        |   | 87,951                    |     | 11,763                       |   | 101,205 |   | 76,283 |   |
|                                 |   |                      |     |                         |   |   |   |   |   |
| GROSS PROFIT                         |   | 62,904                    |     | 30,498                       |   | 70,953 |   | 166,031 |   |
|                                 |   |                      |     |                         |   |   |   |   |   |
| OPERATING  EXPENSES                  |   |                      |     |                         |   |   |   |   |   |
| Research and  development            |   | 87,614                    |     | 15,160                       |   | 134,463 |   | 30,245 |   |
| Sales and  marketing                 |   | 19,668                    |     | 34,818                       |   | 11,191 |   | 233,382 |   |
| General and  administrative          |   | 365,111                   |     | 66,440                       |   | 685,914 |   | 141,879 |   |
| Depreciation and  amortization       |   | 4,253                     |     | 3,328                        |   | 7,582 |   | 6,657 |   |
|                                 |   |                      |     |                         |   |   |   |   |   |
| TOTAL OPERATING  EXPENSES            |   | 476,646                   |     | 119,746                      |   | 839,150 |   | 412,163 |   |
|                                 |   |                      |     |                         |   |   |   |   |   |
| LOSS  FROM OPERATIONS                |   | (413,742                  | )        | (89,248                      | )      | (768,197 | ) | (246,132 | ) |
|                                 |   |                      |     |                         |   |   |   |   |   |
| OTHER INCOME  (EXPENSES)             |   |                      |     |                         |   |   |   |   |   |
| Interest income                      |   | 942                       |     | 69                           |   | 7260 |   | 137 |   |
| Interest expense                     |   | (24,138                   | )        | (59,363                      | )      | (39,013 | ) | (121,581 | ) |
| Other income  (expense)              |   | -                         |     | 2,254                        |   | - |   | (3,090 | ) |
|                                 |   |                      |     |                         |   |   |   |   |   |
| TOTAL OTHER  INCOME (EXPENSES)       |   | (23,196                   | )        | (57,040                      | )      | (31,753 | ) | (124,534 | ) |
|                                 |   |                      |     |                         |   |   |   |   |   |
| LOSS  BEFORE INCOME TAXES            |   | (436,938                  | )        | (146,288                     | )      | (799,950 | ) | (370,666 | ) |
|                                 |   |                      |     |                         |   |   |   |   |   |
| Income tax  benefit (expense)        |   | -                         |     | -                            |   | - |   | - |   |
|                                 |   |                      |     |                         |   |   |   |   |   |
| NET (LOSS)                           |   | $                         | (436,938 | )                            | $      | (146,288 | ) | $ | (799,950 | ) | $ | (370,666 | ) |
|                                 |   |                      |     |                         |   |   |   |   |   |
| LOSS PER SHARE                       |   | $                         | (0.03    | )                            | $      | (0.01 | ) | $ | (0.05 | ) | ($0.03 | ) |
|                                 |   |                      |     |                         |   |   |   |   |   |
| WEIGHTED AVERAGE  SHARES OUTSTANDING |   | 15,561,065                |     | 12,989,470                   |   | 15,062,018 |   | 12,738,050 |   |

 

***The accompanying notes are an integral part of the financialstatements.***

 

REMEDENT USA, INC. ANDSUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000

(Unaudited)

 
|                                                                                                                                                                                                                       |   | **For the six months ended** |     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                                                                                                                                                                       |   | **September 30,  2001** |     | **September 30,  2000** |   |
| CASH FLOWS FROM OPERATING  ACTIVITIES                                                                                                                                                                                      |   |                         |     |   |   |
|                                                                                                                                                                                                                       |   |                         |     |   |   |
| Net loss                                                                                                                                                                                                                   |   | $                            | (799,950 | ) | $ | (370,666 | ) |
| Adjustments to reconcile  net loss to net cash provided by operating activities:                                                                                                                                           |   |                         |     |   |   |
| Depreciation and  amortization                                                                                                                                                                                             |   | 7,582                        |     | 6,657 |   |
| Inventory  reserve                                                                                                                                                                                                         |   | 7,425                        |     | - |   |
| Stock for  services                                                                                                                                                                                                        |   | 195,990                      |     | 12,983 |   |
| Beneficial  conversion feature                                                                                                                                                                                             |   | -                            |     | 103,200 |   |
|                                                                                                                                                                                                                       |   |                         |     |   |   |
| Changes in operating  assets and liabilities:                                                                                                                                                                              |   |                         |     |   |   |
| Accounts  receivable                                                                                                                                                                                                       |   | (32,110                      | )        | 24,643 |   |
| Inventories                                                                                                                                                                                                                |   | (140,984                     | )        | 41,118 |   |
| Prepaid expenses                                                                                                                                                                                                           |   | (43,228                      | )        | (675 | ) |
| Accounts payable                                                                                                                                                                                                           |   | 209,136                      |     | 63,061 |   |
| Accrued  liabilities                                                                                                                                                                                                       |   | 141,257                      |     | 60,720 |   |
| Deposits                                                                                                                                                                                                                   |   | -                            |     | (8,892 | ) |
| NET  CASH USED IN OPERATING ACTIVITIES                                                                                                                                                                                     |   | (454,882                     | )        | (67,851 | ) |
|                                                                                                                                                                                                                       |   |                         |     |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES                                                                                                                                                                                      |   |                         |     |   |   |
|                                                                                                                                                                                                                       |   |                         |     |   |   |
| Purchases of  equipment                                                                                                                                                                                                    |   | (56,451                      | )        | - |   |
| Other assets                                                                                                                                                                                                               |   | (5,707                       | )        | (3,510 | ) |
| Notes to related  parties                                                                                                                                                                                                  |   | 51,701                       |     | (28,874 | ) |
| NET  CASH (USED) PROVIDED BY INVESTING ACTIVITIES                                                                                                                                                                          |   | (10,457                      | )        | (32,384 | ) |
|                                                                                                                                                                                                                       |   |                         |     |   |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES                                                                                                                                                                                      |   |                         |     |   |   |
|                                                                                                                                                                                                                       |   |                         |     |   |   |
| Lease payments                                                                                                                                                                                                             |   | -                            |     | (1,054 | ) |
| Proceeds from  notes and debentures                                                                                                                                                                                        |   | 120,000                      |     | 116,024 |   |
| Proceeds from  sale of common stock                                                                                                                                                                                        |   | 423,500                      |     | - |   |
| Note payments                                                                                                                                                                                                              |   | (4,811                       | )        | (3,006 | ) |
| NET CASH  PROVIDED BY FINANCING ACTIVITIES                                                                                                                                                                                 |   | 538,689                      |     | 111,964 |   |
|                                                                                                                                                                                                                       |   |                         |     |   |   |
| NET  INCREASE IN CASH                                                                                                                                                                                                      |   | 73,350                       |     | 11,729 |   |
| Effect of  exchange rate changes on cash and cash equivalents                                                                                                                                                              |   | 4,847                        |     | - |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF YEAR                                                                                                                                                                              |   | 7,686                        |     | 8,125 |   |
| CASH AND CASH  EQUIVALENTS, END OF YEAR                                                                                                                                                                                    |   | $                            | 85,883   |   | $ | 19,854 |   |
|                                                                                                                                                                                                                       |   |                         |     |   |   |
| Supplemental 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.      |
|                                                                                                                                                                                                                       |   |                         |     |   |   |
| Supplemental  Information:                                                                                                                                                                                                 |   |                         |     |   |   |
| Interest paid                                                                                                                                                                                                              |   | $                            | 1,783    |   | $ | 479 |   |
| Taxes paid                                                                                                                                                                                                                 |   | $                            | -        |   | $ | - |   |
|                                                                                                                                                                                                                       |   |                         |     |   |   |
|                                                                                                                                                                                                                            |        |                              |          |  |  |  |  |  |  |  |  |  |  |  |

 

***The accompanying notes are an integral part of the financialstatements.***

 

REMEDENT USA, INC. ANDSUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVELOSS

FOR THE THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000

(Unaudited)

 

 
|                                           |   | **Three  months ended  Sept. 30,** |     | **Six  months ended  Sept. 30,** |   |
|------------------------------------------------|--------|-----------------------------------------|----------|---------------------------------------|--------|
|                                           |   | **2001**                                |     | **2000**                              |   | **2001** |   | **2000** |   |
|                                           |   |                                    |     |                                  |   |   |   |   |   |
| Net loss                                       |   | $                                       | (436,938 | )                                     | $      | (146,288 | ) | $ | (799,950 | ) | $ | (370,666 | ) |
| Other  comprehensive income (loss):            |   |                                    |     |                                  |   |   |   |   |   |
| Foreign currency   translation adjustment |   | 3,032                                   |     | -                                     |   | 3,032 |   | - |   |
| Comprehensive loss                             |   | $                                       | (433,906 | )                                     | $      | (146,288 | ) | $ | (796,918 | ) | $ | (370,666 | ) |

 

 

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

 

 

REMEDENT USA, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIALSTATEMENTS

 (Unaudited)

 

1.  General

 

The accompanyingunaudited interim condensed consolidated financial statements include the accountsof Remedent USA, Inc. and subsidiaries (collectively, the"Company").  All significantinter-company accounts and transactions have been eliminated in theconsolidated financial statements.  Theinterim consolidated financial statements have been prepared in accordance withgenerally accepted accounting principles for interim financial information andwith 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 generallyaccepted accounting principles for complete financial statements. In theopinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.Operating results for the three and six month periods ended September 30, 2001are not necessarily indicative of the results that may be expected for thefiscal year ending March 31, 2002. For further information, refer to theconsolidated financial statements and footnotes thereto included in theCompany'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 financialstatements have been prepared on an accrual basis of accounting, in conformitywith generally accepted accounting principles as a going concern.  These principles contemplate the realizationof assets and liquidation of liabilities in the normal course of business.  The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and reported amounts of revenues and expenses duringthe reporting periods.  Actual resultscould differ from those estimates.  Thefinancial statements do not include any adjustments that might be necessary ifthe Company is unable to continue as a going concern.

 

Principles ofConsolidation

 

The consolidated financial statements include theaccounts of Remedent USA, Inc. and its wholly owned subsidiaries. Allinter-company balances and transactions have been eliminated.

 

Revenue Recognition

 

Sales are recorded whenproducts are shipped to customers. Provisions for discounts and rebates to customers, estimated returns andallowances, and other adjustments are provided for in the same period thatrelated sales are recorded.

The Company is currentlyevaluating the impact of the Staff Accounting Bulletin (“SAB”) 101 regardingrevenue recognition. However, management does not believe that SAB 101 willhave a material effect on the Company’s past or present financial results.

Impairment of Long-LivedAssets

 

Long-livedassets consist primarily of property and equipment and patents.  The recoverability of long-lived assets isevaluated by an analysis of operating results and consideration of othersignificant events or changes in the business environment.  If impairment exists, the carrying amount ofthe long-lived assets is reduced to its estimated fair value, less any costsassociated with the final settlement. As of September 30, 2001, management believes there was no impairment ofthe Company’s long-lived assets.

 

Use of Estimates

 

The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities at thedate of the financial statements and the reported amounts of revenues andexpenses during the reporting period. The significant estimates made in thepreparation of the consolidated financial statements relate to the assessmentof the carrying value of accounts receivable, inventories and estimatedprovision for returns. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

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

 

Accounts Receivable

 

The Company sells premium toothbrushes to various companies, primarilyto retail chains located throughout the United States.  The terms of sales are 2% 10 days, net 30days.  Accounts receivable is reportedat net realizable value and net of allowance for doubtful accounts.  As of September 30, 2001 and March 31, 2001the allowance for doubtful accounts was $1,000.  During the six months ended September 30, 2001 and fiscal yearended March 31, 2001, the Company had written off a nominal amount ofuncollectable accounts.  The Companyuses the allowance method to account for uncollectable accountsreceivable.  The Company’s estimate isbased on historical collection experience and a review of the current status oftrade accounts receivable.  It isreasonably possible that the Company’s estimate of the allowance for doubtfulaccounts will change.

Computation of Earnings Per Share

 

Basic net income (loss) per common share is computedby dividing net income (loss) attributable to common stockholders by theweighted average number of shares of common stock outstanding during theperiod.  Net income (loss) per commonshare attributable to common stockholders assuming dilution is computed bydividing net income by the weighted average number of shares of common stockoutstanding plus the number of additional common shares that would have beenoutstanding if all dilutive potential common shares had been issued.  Potential common shares related to stockoptions and stock warrants are excluded from the computation when their effectis antidilutive.

 

Common shares related to stock options and stockwarrants that are antidilutive amounted to 3,344,000 and 0 for the three andsix month periods ended September 30, 2001 and 2000, respectively.

 

 

**3.  Inventories**

 

Inventoriesare stated at the lower of cost (weighted average) or market.  Inventory costs include material, labor andmanufacturing overhead.  Individualcomponents of inventory are listed below as follows:

 
|                       |   | **September  30,** |    | **March  31,** |   |
|----------------------------|--------|--------------------|---------|----------------|--------|
|                       |   | **2001**           |    | **2001**       |   |
|                       |   |               |    |           |   |
| Inventory-Supplies         |   | $                  | 23,314  |           | $      | 23,593 |   |
| Displays and Raw Materials |   | 85,169             |    | 45,436         |   |
| Finished Goods             |   | 120,050            |    | 13,876         |   |
|                       |   |               |    |           |   |
| Less:  Inventory reserve   |   | (7,595             | )       | -              |   |
| Inventories, net           |   | $                  | 220,938 |           | $      | 82,905 |   |

 

 

4.  Patents

 

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

 
|                     |   | **September 30,** |   | **March  31,** |   |
|--------------------------|--------|-------------------|--------|----------------|--------|
|                     |   | **2001**          |   | **2001**       |   |
| Patent                   |   | $                 | 34,439 |           | $      | 34,199 |   |
| Accumulated amortization |   | $                 | 9,370  |           | $      | 8,230 |   |
| Patents,  net            |   | $                 | 25,069 |           | $      | 25,969 |   |

5.  Property and Equipment

 

Property and equipment are summarized as follows:
|                          |   | **September 30,** |    | **March  31,** |   |
|-------------------------------|--------|-------------------|---------|----------------|--------|
|                          |   | **2001**          |    | **2001**       |   |
| Machinery and equipment       |   | $                 | 54,468  |           | $      | 50,436 |   |
| Tooling                       |   | $                 | 41,475  |           | $      | - |   |
| Furniture and fixtures        |   | $                 | 19,569  |           | $      | 8,236 |   |
| Leasehold improvements        |   | $                 | 779     |           | $      | 779 |   |
|                          |   |              |    |           |   |
| Less accumulated depreciation |   | $                 | (44,429 | )              | $      | (37,963 | ) |
| Property and equipment, net   |   | $                 | 71,862  |           | $      | 21,488 |   |

 

6.   Capital Transactions

 

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

 

On September 13, 2001 the Company entered into an Investment BankingAgreement with a firm to provide investment banking services including, but notlimited to, providing ongoing research coverage, identifying and introducingthe Company to potential investors and preparing and maintaining researchreports on the Company.  The terms ofthe agreement included non-refundable consideration of 100,000 shares of commonstock and 200,000 stock options for the execution of the agreement, with amonthly retainer of $2,500.

 

On August 24, 2001, the Company agreed to a repayment plan for itsindebtedness to Southwest Multimedia, an advertising placement agent retainedby the Company in August 1999.  Theindebtedness of $35,675 was to be repaid with $4,025 paid in cash on October15, 2001 with the remainder paid with 126,600 shares of common stock.

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

 

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, andwarrants 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 itslegal counsel for legal services including the review of SEC documents,preparation of other documents as needed, and general advisory services on anymatters which arise in the ordinary course of business.  In connection with this agreement, theCompany issued 250,000 shares of common stock for the initial $20,000 in legalservices.

 

7.  Segment Information

 

The Company’s reportableoperating segments consist of professional dental products and oral hygieneproducts.  The  “Other” segment column below includes centralized services includingcorporate consulting, legal, accounting, investor relations and unallocatedcorporate payroll and interest.  Thechief operating decision making group for the Company’s reportable operatingsegments is comprised of the Company’s Chief Executive Officer, Chief FinancialOfficer, and the lead executives of each of the Company’s two primary operatingsegments.  The operating segments aremanaged separately as each operating segment represents a business unit with adistinctive marketing strategy, distribution method and target customer.  The accounting policies of the operatingsegments are the same as those described in the summary of significantaccounting policies.

 

The following are segmentinformation for the three and six month periods ended September 30, 2001 and2000:

 
|                          |   | **For  the Three Months Ended** |     | **For  the Six Months Ended** |   |
|-------------------------------|--------|---------------------------------|----------|-------------------------------|--------|
|                          |   | **September  30,**              |     | **September  30,**            |   |
|                          |   | **2001**                        |     | **2000**                      |   | **2001** |   | **2000** |   |
| Revenues:                     |   |                            |     |                          |   |   |   |   |   |
| Professional  Dental Products |   | $                               | 127,234  |                          | $      | - |   | $ | 127,234 |   | $ | - |   |
| Oral Hygiene  Products        |   | $                               | 23,621   |                          | $      | 42,261 |   | $ | 44,924 |   | $ | 242,314 |   |
| Total                         |   | $                               | 150,855  |                          | $      | 42,261 |   | $ | 172,158 |   | $ | 242,314 |   |
|                          |   |                            |     |                          |   |   |   |   |   |
| Net Loss:                     |   |                            |     |                          |   |   |   |   |   |
| Professional  Dental Products |   | $                               | (186,060 | )                             | $      | - |   | $ | (314,877 | ) | $ | - |   |
| Oral Hygiene  Products        |   | $                               | (28,844  | )                             | $      | (52,972 | ) | $ | (47,747 | ) | $ | (186,841 | ) |
| Other                         |   | $                               | (222,034 | )                             | $      | (93,316 | ) | $ | (437,326 | ) | $ | (183,825 | ) |
| Total                         |   | $                               | (436,938 | )                             | $      | (146,288 | ) | $ | (799,950 | ) | $ | (370,666 | ) |

 

The Company ships products from its operations in theUS and Europe.  The following are salesby its US and European locations for the three and six month periods endedSeptember 30, 2001 and 2000:

 
|                           |   | **For  the Three Months Ended** |    | **For  the Six Months Ended** |   |
|--------------------------------|--------|---------------------------------|---------|-------------------------------|--------|
|                           |   | **September  30,**              |    | **September  30,**            |   |
|                           |   | **2001**                        |    | **2000**                      |   | **2001** |   | **2000** |   |
| Revenues – United States: |   |                            |    |                          |   |   |   |   |   |
| Professional  Dental Products  |   | $                               | -       |                          | $      | - |   | $ | - |   | $ | - |   |
| Oral Hygiene  Products         |   | $                               | 23,621  |                          | $      | 42,261 |   | $ | 44,924 |   | $ | 242,314 |   |
| Total                          |   | $                               | 23,621  |                          | $      | 42,261 |   | $ | 44,924 |   | $ | 242,314 |   |
|                           |   |                            |    |                          |   |   |   |   |   |
| Revenues - Europe:             |   |                            |    |                          |   |   |   |   |   |
| Professional  Dental Products  |   | $                               | 127,234 |                          | $      | - |   | $ | 127,234 |   | $ | - |   |
| Oral Hygiene  Products         |   | $                               | -       |                          | $      | - |   | $ | - |   | $ | - |   |
| Total                          |   | $                               | 127,234 |                          | $      | - |   | $ | 127,234 |   | $ | - |   |
|                           |   |                            |    |                          |   |   |   |   |   |
|                           |   | $                               | 150,855 |                          | $      | 42,261 |   | $ | 172,158 |   | $ | 242,314 |   |

 

The following islong-lived asset information by geographic area as of September 30, 2001:

 
| United States |   | $ | 62,066 |   |
|---------------|--------|---|--------|--------|
| Europe        |   | $ | 9,796  |   |
|          |   | $ | 71,862 |   |

 

 

8.  Impact of Recently Issued AccountingStandards

 

Issue00-14 (Coupons and Others Sales Incentives) addresses the accounting for salesincentives offered voluntarily by a vendor without charge to customers.  This issue addresses both the recognitionand income statement classification of sales incentives.  Generally, the cost of the incentive shouldbe recognized at the date of sale.  Ifthe sales incentive results in a loss, the loss should be recognized at thedate of sale.  However, the Task Forcenoted the sales incentive might indicate that prior to the sale there has beenan impairment of existing inventory. Companies should now apply the guidance in Issue 00-14 no later than inannual or interim financial statements for periods beginning after December 15,2001.

The Company adopted SFAS 130 (Reporting Comprehensive Income) whichestablishes standards for reporting comprehensive loss and its components inthe financial statements.  To date, theCompany’s comprehensive loss equals its net loss.

In June 1998, the FASB issued Statement of Financial AccountingStandards (SFAS) No. 133 (Accounting for Derivative Instruments and HedgingActivities), which establishes accounting and reporting standards forderivative instruments.  This Statementrequires that an entity recognize all derivatives as either assets orliabilities in the statement of financial position and measure those instrumentsat fair value.  In June 1999, the FASBissued SFAS No. 137 (Accounting for Derivative Instruments and HedgingActivities-Deferral of the Effective Date of FASB Statement No. 133) whichpostponed the adoption date of SFAS No. 133. The Company will adopt the new Statement beginning the first quarter ofthe fiscal year ending March 31, 2002.

9.     GoingConcern

 

TheCompany has incurred substantial net losses since inception, and as ofSeptember 30, 2001 maintained a working capital and shareholders’ deficit of($1,167,076) and ($1,060,490), respectively, raising substantial doubt aboutthe Company’s ability to continue as a going concern.  The Company has reassessed its operations and business structureand has implemented a complete corporate reorganization plan.

The plan includes the ceasing of direct sales and marketing of theRemedent Toothbrush, and acquisition of and expansion into diversified businessventures.

To reduce overhead and operating costs, the Company will cease thedirect sales and marketing of its Remedent Toothbrush, and license the productand related technology to a third party marketer and distributor.  This would eliminate all cash requirementsfor this product as the licensor would support the requisitioning, marketingand distribution.  The Company iscurrently in negotiations with a well-established oral care distributingcompany, and is attempting to finalize an agreement prior to the beginning ofthe second quarter of 2002.

The Company will continue to develop additional products fordistribution within the oral hygiene market, and will analyze whether tolicense the related technology or manufacture and distribute in-house, on acase-by-case basis.

On July 1, 2001, the Company began developing, manufacturing, marketingand distributing high-technology dental equipment.  The Company has retained 14 additional personnel, 7 engineers and7 operations and finance, with strong backgrounds in the business ofhigh-technology dental equipment, and will market dental curing and whiteninglamps, interoral cameras and hand-held penlights.  The Company has previewed its first offering within this marketat dental shows around the world in October 2001, and plans to begin shipmentsof initial units during the fourth quarter of 2001.

Additionally, the Company is in negotiations for the acquisition of aProfessional Employer Organization (“PEO”) and is attempting to finalize thatacquisition by the first quarter of 2002. PEO firms manage payroll and human resource functions as well as providehealth, unemployment and workers compensation insurance for small and mid-sizebusinesses.  These firms allow thesesmaller businesses to shift legal risk, lower administrative costs, and obtainlower insurance rates as part of the firm’s group of customers.

The Company plans to complete additional PEO acquisitions within thenext twelve months, and attempt to improve on industry operating resultsthrough the introduction of additional products and services, and efficientconsolidation and integration of these entities.

The Company’s first target is a family owned and operated firm withgrowing revenues and current-year profitable operations.  The proposed acquisition will be entirelyfor stock and will require minimal capital investment as current managementwill remain intact.

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

 

10.   NotesPayable

 

Since the commencement of operations, the Company has borrowed variousamounts from shareholders to provide working capital and fund operations.  These borrowings are in the form ofunsecured convertible debentures, due on demand and bearing an interest rate of10%.  In addition, at the solediscretion of the holder, the debenture is convertible into common stock at apercentage between 30% and 37.5% of the average trading price for the stock forthe 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 PromissoryNote for $50,000 with a bank, bearing interest at 10.25% annually.  On April 26, 2000, the Company refinancedthe debt by converting the original note into a five-year variable PromissoryNote, payable on demand.  The Note issecured 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 workingcapital loan in the amount of $20,000. The loan will mature in sixty days from date of funding, with theprincipal and interest of $30,000 to be repaid in either cash or stock, at theCompany’s discretion.

On September 21, 2001, the Company entered into a short-term workingcapital loan in the amount of $100,000. The loan will mature in ninety days from date of funding, with theprincipal and interest of $150,000 to be repaid in either cash or stock, at theCompany’s discretion.

Notespayable are summarized as follows:

 
|                                                                                                                                                  |   | **September  30,** |    | **March  31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|----------------|--------|
|                                                                                                                                                  |   | **2001**           |    | **2001**       |   |
| Promissory  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  |           | $      | 44,000 |   |
| Convertible  debentures at 10%, due on demand                                                                                                         |   | 80,000             |    | 90,000         |   |
| Working  capital loan, final maturity November 2001                                                                                                   |   | 20,000             |    | -              |   |
| Working  capital loan, final maturity December 2001                                                                                                   |   | 100,000            |    | -              |   |
|                                                                                                                                                  |   |               |    |           |   |
| Notes payable                                                                                                                                         |   | $                  | 239,189 |           | $      | 134,000 |   |

 

11.   RelatedParty Transactions

 

Due to related partiesare summarized as follows:
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   | **September  30,** |    | **March  31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|----------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   | **2001**           |    | **2001**       |   |
| Advances  from Rebecca Inzunza, an officer, through the use of a personal credit card  for business expenses.                                                                                                                                                                                                                                                                                                          |   | $                  | 22,927  |           | $      | 18,226 |   |
| Advances  from a company operated by Kenneth Hegemann, an officer, of $8,000 and  $11,500 for the fiscal six months ended September 30, 2001 and the fiscal  year ended 2001, respectively. No repayments were made for the fiscal six  months ending September 30, 2001 while $4,000 was repaid during the fiscal  year ended March 31, 2001.  As of  September 30, 2001, $2,337 is accrued for unpaid interest. |   | 23,063             |    | 15,063         |   |
| Borrowings  from a director in the form of convertible debentures.                                                                                                                                                                                                                                                                                                                                                     |   | 69,002             |    | 69,002         |   |
| Borrowings  from two employees in the form of working capital loans.                                                                                                                                                                                                                                                                                                                                                   |   | 39,000             |    | -              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   |               |    |           |   |
| Due to related  parties                                                                                                                                                                                                                                                                                                                                                                                                |   | $                  | 153,992 |           | $      | 102,291 |   |

 

The convertibledebentures issued to the director are due on demand, bearing interest at 10%per annum, and convertible into common stock at the sole discretion of theholder.  The debentures are convertibleinto common stock at percentages between 30% and 37.5% of the average tradingprice 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 duringthe fiscal years ended March 31, 2001 and 2000, respectively.  These amounts were calculated on the 30 dayperiod prior to the dates of the notes, and are subject to change based on the30 day period prior to the maturity dates. As of September 30, 2001, $16,179 was accrued for unpaid interest.

TheCompany leases approximately 1,000 square feet of office space, which serves asthe Company’s corporate headquarters, within Rebecca M. Inzunza’s primaryresidence.  The rental agreement withMs. Inzunza, an officer and shareholder, is a month to month agreement, withmonthly payments of $650.  The Companyalso 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 andshareholder.

TheCompany 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 theassignment of all patents to the Company. Mr. Vrignaud was an officer and director during the fiscal year endingMarch 31, 1999, and has occupied no position with the Company since that time.  Mr. Vrignaud was owed $52,212 and $50,395 asof September 30, 2001 and March 31, 2001, respectively.  Total royalty expenses incurred under thisagreement totaled $1,818 and $9,640 for the six months ended September 30, 2001and the year ended March 31, 2001, respectively.

 
| **ITEM  2.** |   | **MANAGEMENT’S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND****RESULTS OF OPERATIONS** |
|--------------|--------|----------------------------------------------------------------------------------------------------|

 

 

The discussion and financial statements contained herein are as ofSeptember 30, 2001 and for the three and six months ended September 30, 2001and 2000.  The following discussionregarding the financial statements of the Company should be read in conjunctionwith the financial statements of the Company included herewith.

 

**Overview**

 

The Company develops, markets and distributes toothbrushes and oralhygiene products.

 

**                Three Months Ended September 30,2001 as Compared to Three Months Ended September 30, 2000**

 

For the fiscal quarter ending September 30, 2001, net sales increasedby $108,594 from $42,261 in 2000 to $150,855 in 2001.  This represents a 257% increase over the comparable period endingSeptember 30, 2000.   The increase wasdue to the commencement of dental equipment sales in our European subsidiary,partially offset by the continued reduction in sales within the oral hygienemarket.  As the Company has initiatedits presence within the professional dental equipment market, our Europeansubsidiary has begun sales of after-market products, including accessories andrepair services, while the new product is nearing release.  These revenues were partially offset by thecontinued reduction in oral hygiene revenues, consistent with ourreorganization plan, as we reposition assets and resources to the professionaldental equipment market, and finalize the licensing agreement with the oralcare distributing company.

 

Cost of goods sold increased by $76,188 or 647% for the quarter endingSeptember 30, 2001 over the comparable period ended September 30, 2000.

 

Gross profit for the quarter ending September 30, 2001 decreased to 42%from 72% for the comparable period ended September 30, 2000.  This decrease was due to the change inaccounting procedure whereby promotional discounts are recorded as reductionsto the sales price.  This change wasimplemented for all fiscal periods beginning April 1, 2001.

 

Research and development expenses increased by $72,454 over the priorfiscal year, due primarily to the research and development costs incurredduring the start-up phase of the Company’s high-technology dental equipmentsegment.  These expenditures relateprimarily to the labor and materials to design and manufacture our new curinglight technology, in addition to the completion of 15 prototypes.  We expect we will continue to invest inresearch and development, and anticipate significant costs in the near futureas we continue to develop products for the dental equipment and oral hygienemarkets.

 

Sales and marketing costs for the quarters ended September 30, 2001 and2000 were $19,668 and $34,818 respectively, which represents an decrease of$15,150 or 44%.  The costs areattributed primarily to the oral hygiene products, with the decrease beingconsistent with the reduction in oral hygiene product sales caused by cash flowshortages and resource repositioning and resulting strain on inventoryavailability.  The professional dentalproduct revenues incurred minimal sales and marketing costs as these aftermarket sales are obtained through previously-established channels, and requireminimal investment to create.

 

General and administrative costs for the quarters ended September 30,2001 and 2000 were $365,111 and $66,440 respectively, an increase of $298,671or 450%.  This increase is due to theoverhead, primarily payroll and rent, associated with the professional dentalequipment which commenced operations on July 1, 2001.  Additionally, in connection with the reorganization plan, theCompany has begun intensifying fund-raising and investor relation activities,with the resulting increase in such expenses.

 

Net interest expense decreased by $35,225 during the quarter endedSeptember 30, 2001 over the comparable period ending September 30, 2000.  The decrease in interest expense was largelydue to the one-time charges to interest expense in connection with the issuanceof the convertible debentures during the quarter ended September 30, 2000.  No such issuance occurred during the currentquarter.

 

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

**SixMonths Ended September 30, 2001 as Compared to Six Months Ended September 30,2000**

 

For the six months ending September 30, 2001, net sales decreased by$70,156 from $242,314 in 2000 to $172,158 in 2001.  This represents a 29% decrease over the comparable period endingSeptember 30, 2000.  The decrease wasprimarily due to the decrease of approximately $200,000 in oral hygiene productrevenues, as cash flow shortages prevented the production of inventory and wecontinue to reposition assets and resources to the professional dentalequipment market, while finalizing the licensing agreement with the oral caredistributing company.  This decrease waspartially offset by approximately $130,000 in professional dental productsrevenue by our European subsidiary which had begun sales of after-marketproducts, including accessories and repair services, while the new product isnearing release.

 

Cost of goods sold increased by $24,922 or 33% for the six monthsending September 30, 2001 over the comparable period ended September 30, 2000.

 

Gross profit for the six months ending September 30, 2001 decreased to41% from 69% for the comparable period ended September 30, 2000.  This decrease was due to the change inaccounting procedure whereby promotional discounts are recorded as reductionsto the sales price.  This change wasimplemented for all fiscal periods beginning April 1, 2001.

 

Research and development expenses increased by $104,218 over the priorfiscal year, due primarily to the research and development costs incurred duringthe start-up phase of the Company’s high-technology dental equipment segment.These expenditures relate primarily to the labor and materials to design andmanufacturer our new curing light technology, in addition to the completion of15 prototypes.  We expect we willcontinue to invest in research and development, and anticipate significantcosts in the near future as we continue to develop products for the dentalequipment and oral hygiene markets.

 

Sales and marketing costs for the six months ended September 30, 2001and 2000 were $11,191 and $233,382 respectively, which represents a decrease of$222,191 or 95%. The costs are attributed primarily to the oral hygieneproducts, with the decrease being consistent with the reduction in oral hygieneproduct sales caused by cash flow shortages and resource repositioning andresulting strain on inventory availability. The professional dental product revenues incurred minimal sales andmarketing costs as these after market sales are obtained through previously-establishedchannels, and require minimal investment to create.

 

General and administrative costs for the six months ended September 30,2001 and 2000 were $685,914 and $141,879 respectively, an increase of $544,035or 384%. This increase is due to the overhead, primarily payroll and rent,associated with the professional dental equipment which commenced operations onJuly 1, 2001.  Additionally, inconnection with the reorganization plan, the Company has begun intensifyingfund-raising and investor relation activities, with the resulting increase insuch expenses.

 

Net interest expense decreased by $82,568 during the six months endedSeptember 30, 2001 over the comparable period ending September 30, 2000. Thedecrease in interest expense was largely due to the one-time charges tointerest expense in connection with the issuance of the convertible debenturesduring the quarter ended September 30, 2000. No such issuance occurred during the current quarter.

 

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

**Liquidityand Capital Resources**

 

OnSeptember 30, 2001, our current liabilities exceeded our current assets by$1,167,076.  Our business operationswill require substantial capital financing on a continuing basis.  The availability of that financing will beessential to our continued operation and expansion.  In addition, cash flow and liquidity is contingent upon thesuccess of our restructuring plan.  Theinability to complete the proposed PEO acquisitions or develop and markethigh-technology dental equipment will force us to raise additional capital tosupport operations by selling equity securities or incurring additional debt.

 

Since our inception in 1996, we have sustained net losses and negativecash flow, due largely to start-up costs, general and administration expenses,inventory, marketing and other expenses related to market development and newproduct launch.  As a result, we havefinanced our working capital requirements principally through loans and theprivate 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 convertibledebentures.  These debentures areunsecured, due on demand and bear interest at 10% per annum.  In addition, at the sole discretion of theholder, can be converted to stock at 37.5% of the average trading price 30 daysprior to maturity.

 

Kenneth J. Hegemann, an officer, operates CRA Labs, Inc., a relatedbusiness that advanced $8,000 during the fiscal six months ended September 30,2001.  There were no repayments of theseadvances during the fiscal six months ended September 30, 2001, leaving a balanceof $23,063 at September 30, 2001. Similar to the other working capital loans, this is an unsecured debtand bears interest at 10% per annum.

 

During the six months ended September 30, 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.

 

Weexpect to continue to experience negative cash flow through at least December2001, and may continue to do so thereafter while we implement our restructuringplan.  Unless we are able to generatesufficient revenue or acquire additional debt or equity financing to cover ourpresent and ongoing operation costs and liabilities, we may not be able tocontinue as a going concern.  Our auditorsnote that we have sustained substantial net losses since our inception inSeptember 1996.  In addition, as ofSeptember 30, 2001, we had a working capital deficit totaling $1,167,076 and ashareholders deficit of $1,060,490.

 

Frequently we have been unable to make timely payments to our trade andservice vendors.  As of September 30,2001, 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 havebeen cancelled to date.  Notes payableincreased by $105,189 due to the incurrence of $120,000 in working capitalloans, partially offset by the monthly debt commitment to the bank and theconversion of $10,000 of convertible debentures to equity during the sixmonths.   Accrued liabilities increasedby $140,989.  This amount representsaccrued salaries for officers and employees. Due to related parties increased by $51,701 due primarily to workingcapital loans provided by employees and additional advances from officersduring the six months.

 

Forthe six months ending September 30, 2001 and 2000, net cash used for operatingactivities was $454,882 and $67,851, respectively.  As of September 30, 2001 we had a working capital deficiency of$1,167,076, as compared to a working capital deficiency of $976,945 at March31, 2001.  Our business operations willrequire substantial capital financing on a continuing basis.

 

We have taken several actions, which we believe will improve ourshort-term and long-term liquidity and cash flow.  For the short term, we have improved liquidity and cash flow byobtaining short term loans, reducing expenses, reducing employee compensation,eliminating warehousing fees and reducing insurance expenses.  For the long term, we have developed andbegun implementation on a complete business restructuring plan.  In addition, our liquidity is less effected byour working capital deficit as a significant portion of our liabilities representrelated party or non-cash liabilities. Within due to related parties are payables to officers in the form ofadvances and accrued interest which will be repaid either with common stock orbe contributed to the capital of the Company, and a debenture to a director tobe repaid with common stock.  Withinaccrued liabilities, approximately $460,000 represent accrued salaries toofficers and accrued interest on debentures which could be contributed to thecapital of the Company or repaid with common stock, respectively.  Finally, within notes payable, $200,000represents indebtedness the Company can repay in the form of common stock.

 

However, our business operations will require substantial capitalfinancing on a continuing basis.  Basedupon our cash flow projections, significant capital infusion is necessary tofully implement our restructuring plan and pay the existing delinquent payableswhich require repayment in cash.  Weplan to finance such through loans, equity investments and other transactions.  We reasonably believe that the net proceedsfrom our efforts, assuming the maximum amount is raised and loans are obtained,plus revenues generated from operations, will be sufficient to fund ouroperations.  However, there can be noassurance that we will be able secure the necessary financing.  In the event that we are unsuccessful incompleting financing arrangements, we would have difficulty meeting ouroperation expenses, satisfying our existing or future debt obligations, orsucceeding in implementing our restructuring plan.  Without sufficient cash flow, we are unable to satisfy our debtobligations, our ongoing growth and operations are, and will continue to be,restricted and there is substantial doubt as to our ability to continue as agoing concern.  If this were to happen,our contingency plan would be to work with existing oral care companies who donot have a premium toothbrush.  We wouldattempt to secure an agreement with them to be their premium toothbrushprovider.

 

**QuarterlyTrends**

 

We do not anticipate significant “seasonal” changes in ouroperations.  Our product is a toothbrushthat people use on a daily basis for oral hygiene and as such, we predict thatalthough sales may increase over the year, sales will not be affected byquarterly trends.

 

**DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS**

 

This filing contains statements that constitute forward-lookingstatements within the meaning of Section 21E of the Exchange Act of 1934 andSection 27A of the Securities Act of 1933. The words "plan,""expect," "estimate," "anticipate,""predict," "believe" and similar expressions and variationsthereof are intended to identify forward-looking statements. Such statementsappear in a number of places in this filing and include statements regarding ourintent, belief or current expectations regarding our strategies, plans andobjectives, our product release schedules, our ability to design, develop,manufacture and market products, our intentions with respect to strategicacquisitions, the ability of our products to achieve or maintain commercialacceptance and our ability to obtain financing for our obligations. Anyforward-looking statements are not guarantees of future performance and involverisks and uncertainties. Actual results may differ materially from thoseprojected in this filing, for the reasons, among others, described within thevarious sections. You should read the filing carefully, and should not placeundue reliance on any forward-looking statements, which speak only as of thedate of this filing. We undertake no obligation to release publicly any updatedinformation about forward-looking statements to reflect events or circumstancesoccurring after the date of this filing or to reflect the occurrence ofunanticipated events.

 

 

**PARTII - OTHER INFORMATION**

 

Item 1.    Legal Proceedings.

 

None.

 

Item 2.    Changesin Securities and Use of Proceeds.

 

On September 14, 2001, the Company completed a $110,500 privateplacement to one related party, selling an aggregate of 442,000 shares ofcommon stock at $0.25 a share, and warrants to purchase 442,000 shares ofcommon stock at an exercise price of $0.25 per share for five years.

 

On September 13, 2001, the Company entered into an Investment BankingAgreement with a firm to provide investment banking services including, but notlimited to, providing ongoing research coverage, advising the Company aboutfinancing and preparing and maintaining research reports on the Company.  The terms of the agreement included non-refundableconsideration of 100,000 shares of common stock and 200,000 stock options forthe execution of the agreement, with a monthly retainer of $2,500.

 

On August 24, 2001, the Company agreed to a repayment plan for itsindebtedness to Southwest Multimedia, an advertising placement agent retainedby the Company in August 1999.  Theindebtedness of $35,675 was to be repaid with $4,025 paid in cash on October15, 2001 with the remainder paid with 126,600 shares of common stock.

 

Item 3.    Defaultsin Senior Securities.

 

None.

 

Item 4.    Submission of Matters to a Vote of SecurityHolders.

 

On August 1, 2001, the Companyfiled a Preliminary Information Statement on Schedule 14C with theCommission.  On August 15, 2001, theCompany filed a Definitive Information Statement on Schedule 14C with the Commission.  On October 5, 2001, the Company mailed theDefinitive Information Statement to all of its shareholders of record as ofJuly 27, 2001.  The PreliminaryInformation Statement on Schedule 14C and the Definitive Information Statementon Schedule 14C are hereby incorporated by reference and referred tocollectively as the “Information Statement.” The Information Statement solicited shareholder consent in lieu of anannual meeting as to the following matters:

 

1.             Electinga board of directors for fiscal 2002 consisting of the following individuals:

Kenneth J. Hegemann, Chairman,

Rebecca M. Inzunza,

Robert E. Hegemann,

Edward E. Quincy, DDS,

Earl Moore, and

Stephen Ross;

 

2.             Authorizinga restatement of the Company's Articles of Incorporation (the "Restatement")to include all of the previous amendments to the Company’s Articles ofIncorporation in one document and to update the Articles of Incorporation toinclude the current directors, current registered agent for service of process,and the deletion of a restrictive provision;

3.             Ratifyingthe Company’s stock option plan (the "2001 Plan"); and

4.             Ratifyingthe reappointment of Siegel & Smith as the Company's independentaccountants for fiscal 2002.

 

These matters wereauthorized by majority written consent of our shareholders holding at least 51%of the total outstanding stock of the Company.

 

Item 5.    Other Information

 

None.

 

Item 6.    Exhibitsand Reports on Form 8-K

 

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

 

10.1         Loan Agreement, dated September 9, 2001

10.2         Investment Banking Agreement withLincoln Equity Research, LLC, dated September 13, 2001

10.3         Stock Purchase Agreement with DentalAdvisors, dated September 14, 2001

10.4         Warrant Agreement with Dental Advisors,dated September 14, 2001

10.5         Loan Agreement, dated September 21,2001

 

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

None.

**SIGNATURES**

 

In accordance withSection 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 itsbehalf by the undersigned, thereunto duly authorized.

 

 

 
|                            | **REMEDENT  USA, INC.** |
|---------------------------------|-------------------------|
|                            |                    |
|                            |                    |
| Dated:   November 12, 2001 |                    | /s/ Rebecca M.  Inzunza |
|                            | By:                     | Rebecca M. Inzunza |
|                            | Its:                    | Chief Executive Officer |
|                            |                    |   |
|                            |                    |   |
| Dated:   November 12, 2001 |                    | /s/ Stephen Ross |
|                            | By:                     | Stephen Ross |
|                            | Its:                    | Chief Financial Officer |