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**SECURITIES AND EXCHANGECOMMISSION****Washington, D.C. 20549**

**FORM 10-QSB**

ý**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 **FOR THEQUARTER ENDED JUNE 30, 2001**oro**TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**
| Commission File Number                                       |
|--------------------------------------------------------------|
| **REMEDENT USA, INC.**                                       |
| ****                                                         |
| (Name of small  business issuer 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  telephone number, including area code) |

Check whetherthe Issuer (1) filed all reports required to be filed by Section 13 or 15(d) ofthe Exchange Act during the past 12 months (or for such shorter period that theissuer was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý No o

Number of sharesof issuer's common stock outstanding as of August 3, 2001: 15,412,958

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

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**REMEDENT USA, INC.**

TABLEOF CONTENTS

FORM10-QSB REPORT

June30, 2001

 

| **PART I - FINANCIAL  INFORMATION**                                             |                                                                         |   |
|---------------------------------------------------------------------------------|------------------------------------------------------------------------------|--------|
|                                                                            |                                                                         |   |
| Item  1.  Interim Condensed Consolidated  Financial Statements (Unaudited) |                                                                         |   |
|                                                                            |                                                                         |   |
|                                                                            | Condensed Consolidated  Balance Sheet as of June 30, 2001 and March 31, 2001 |   |   |
|                                                                            |                                                                         |   |
|                                                                            | Condensed Consolidated Statements  of Operations                             |   |   |
|                                                                            | For the Three Month Periods Ended  June 30, 2001 and 2000                    |   |   |
|                                                                            |                                                                         |   |
|                                                                            | Condensed Consolidated Statements of Cash  Flows                             |   |   |
|                                                                            | For the Three Month Periods Ended June  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                                                                      |                                                                         |   |
|                                                                                 |                                                                              |        |  |  |

**PART I - FINANCIAL INFORMATION**

**ITEM 1 -INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

REMEDENT USA,INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEET(Unaudited)

|                                      | ASSETS                                            | June  30, 2001 |    | March  31, 2001 |   |
|-------------------------------------------|---------------------------------------------------|----------------|---------|-----------------|--------|
|                                      |                                              |                |    |                 |   |
| CURRENT ASSETS                            |                                              |           |    |            |
|                                      | Cash and cash  equivalents                        | $              | 163,706 |            | $      | 7,686 |   |
|                                      | Accounts receivable,  net                         | 13,720         |    | 21,262          |   |
|                                      | Due from related party                            | -              |    | -               |   |
|                                      | Inventories, net                                  | 77,771         |    | 82,905          |   |
|                                      | Prepaid expense                                   | 275            |    | 3,422           |   |
|                                      |                                              |                |    |                 |   |
|                                      | TOTAL CURRENT ASSETS                              | 255,472        |    | 115,275         |   |
|                                      |                                              |           |    |            |   |
| Property &  equipment, net            | 23,162                                            |           | 21,488  |            |
|                                      |                                              |           |    |            |
| Patents, net of  accumulated amortization | 25,400                                            |           | 25,969  |            |
|                                      |                                              |           |    |            |
| Other assets                              | 6,054                                             |           | 4,187   |            |
|                                      |                                                   |           |         |            |
|                                      | TOTAL ASSETS                                      | $              | 310,088 |            | $      | 166,919 |   |
|                                      |                                              |                |    |                 |   |
|                                      | LIABILITIES AND  SHAREHOLDERS’ DEFICIT       |           |    |            |   |
|                                      |                                              |           |    |            |   |
| CURRENT LIABILITIES                       |                                              |           |    |            |
|                                      |                                              |           |    |            |
|                                      | Accounts payable                                  | $              | 370,922 |            | $      | 412,756 |   |
|                                      | Due to related parties                            | 152,104        |    | 102,291         |   |
|                                      | Accrued liabilities                               | 477,552        |    | 443,173         |   |
|                                      | Customer deposits                                 | -              |    | -               |   |
|                                      | Current portion  capital lease                    | -              |    | -               |   |
|                                      | Note payable                                      | 121,734        |    | 134,000         |   |
|                                      |                                              |                |    |                 |   |
|                                      | TOTAL CURRENT  LIABILITIES                        | 1,122,312      |    | 1,092,220       |   |
|                                      |                                              |                |    |                 |   |
| Commitments and  contingencies            |                                              |           |    |            |
|                                      |                                              |           |    |            |
| SHAREHOLDERS’ DEFICIT                |                                              |           |    |            |
|                                      |                                              |           |    |            |
|                                      | Common stock                                      | 15,412         |    | 13,187          |   |
|                                      | Additional paid in  capital                       | 2,242,166      |    | 1,768,302       |   |
|                                      | Accumulated deficit                               | (3,069,802     | )       | (2,706,790      | )      |
|                                      |                                              |                |    |                 |   |
|                                      | TOTAL SHAREHOLDERS’  DEFICIT                 | (812,304       | )       | (925,301        | )      |
|                                      |                                              |                |    |                 |   |
|                                      | TOTAL LIABILITIES AND  SHAREHOLDERS’ DEFICIT | $              | 310,088 |            | $      | 166,919 |   |
|                                      |                                              |                |    |                 |   |
|                                           |                                                   |                |         |                 |        |  |  |  |

*** ***

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

REMEDENTUSA, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE THREE MONTH PERIODS ENDED JUNE 30, 2001 AND 2000(Unaudited)

|                                 | For  the quarter ended         |    |     |
|--------------------------------------|--------------------------------|---------|----------|
|                                 | June  30, 2001                 |    |     | June  30, 2000 |   |   |
|                                 |                                |    |     |  |   |   |
| NET SALES                            | $                              | 21,303  |     |   | $ | 200,053 |   |   |
|                                 |                           |    |     |   |   |   |
| COST OF SALES                        | 13,254                         |    |     | 69,865 |   |   |
|                                 |                                |    |     |  |   |   |
|                                 | GROSS PROFIT                   | 8,049   |     |   | 130,188 |   |   |
|                                 |                           |    |     |   |   |   |
|                                 |                           |    |     |   |   |   |
| OPERATING EXPENSES                   |                           |    |     |   |   |   |
|                                 | Research and  development      | 46,849  |     |   | 15,085 |   |   |
|                                 | Sales and marketing            | 11,523  |     |   | 198,165 |   |   |
|                                 | General and  administrative    | 300,803 |     |   | 75,134 |   |   |
|                                 | Depreciation and  amortization | 3,329   |     |   | 3,329 |   |   |
|                                 |                                |    |     |  |   |   |
|                                 | TOTAL OPERATING  EXPENSES      | 362,504 |     |   | 291,713 |   |   |
|                                 |                                |    |     |  |   |   |
| LOSS FROM OPERATIONS                 | (354,455                       | )       |     | (161,525 | ) |   |
|                                 |                           |    |     |   |   |   |
| OTHER INCOME  (EXPENSES)             |                           |    |     |   |   |   |
|                                 | Interest income                | 6,318   |     |   | 68 |   |   |
|                                 | Interest expense               | (14,875 | )        |   | (2,677 | ) |   |
|                                 |                                |    |     |  |   |   |
|                                 | TOTAL OTHER INCOME  (EXPENSES) | (8,557  | )        |   | (2,609 | ) |   |
|                                 |                                |    |     |  |   |   |
| LOSS BEFORE INCOME  TAXES            | (363,012                       | )       |     | (164,134 | ) |   |
|                                 |                           |    |     |   |   |   |
|                                 | Income tax benefit  (expense)  | -       |     |   | - |   |   |
|                                 |                                |    |     |  |   |   |
|                                 | NET (LOSS)                     | $       | (363,012 | ) |   | $ | (164,134 | ) |   |
|                                 |                                |    |     |  |   |   |
| LOSS PER SHARE                       | $                              | (0.02   | )        |   | $ | (0.01 | ) |   |
|                                 |                                |    |     |  |   |   |
| WEIGHTED AVERAGE  SHARES OUTSTANDING | 14,562,970                     |    |     | 12,578,637 |   |   |
|                                 |                                |    |     |  |   |   |
|                                      |                                |         |          |  |  |  |  |  |  |  |  |  |

***The accompanying notes are an integral partof the financial statements.***

REMEDENT USA,INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTH PERIODS ENDED JUNE 30, 2001 AND 2000(Unaudited)

|                                                       | For  the quarter ended              |     |
|------------------------------------------------------------|-------------------------------------|----------|
|                                                       | June 30,  2001                 |     | June 30,  2000 |   |
|                                                       |                                     |     |  |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES                      |                                |     |   |   |
|                                                       |                                |     |   |   |
| Net  loss                                                  | $                                   | (363,012 | ) | $ | (164,134 | ) |
| Adjustments to  reconcile net loss to net cash             |                                |     |   |   |
| provided by operating  activities:                         |                                |     |   |   |
|                                                       | Depreciation  and amortization      | 3,328    |   | 3,328 |   |
|                                                       | Stock  for services                 | 152,500  |   | 12,983 |   |
| Changes in operating  assets and liabilities:              |                                |     |   |   |
|                                                       | Accounts  receivable                | 7,542    |   | (13,525 | ) |
|                                                       | Inventories                         | 5,134    |   | 44,069 |   |
|                                                       | Prepaid  expenses                   | 3,147    |   | 198 |   |
|                                                       | Accounts  payable                   | (41,834  | ) | 71,439 |   |
|                                                       | Accrued  liabilities                | 34,968   |   | 21,992 |   |
|                                                       | Deposits                            | (1,867   | ) | (11,892 | ) |
|                                                       |                                |          |   |  |   |
| NET CASH USED IN  OPERATING ACTIVITIES                     | (200,094                            | )        | (35,542 | ) |
|                                                       |                                |     |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES                      |                                |     |   |   |
|                                                       |                                |     |   |   |
|                                                       | Purchases  of equipment             | (4,433   | ) | - |   |
|                                                       | Notes  to related parties           | 49,813   |   | (18,251 | ) |
|                                                       |                                     |     |  |   |
| NET CASH (USED)  PROVIDED BY INVESTING ACTIVITIES          | 45,380                              |     | (18,251 | ) |
|                                                       |                                |     |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES                      |                                |     |   |   |
|                                                       | Lease  payments                     | -        |   | (521 | ) |
|                                                       | Proceeds  from notes and debentures | -        |   | 62,249 |   |
|                                                       | Proceeds  from sale of common stock | 313,000  |   | - |   |
|                                                       | Note  payments                      | (2,266   | ) | (1,191 | ) |
|                                                       |                                     |     |  |   |
| NET  CASH PROVIDED BY FINANCING ACTIVITIES                 | 310,734                             |     | 60,537 |   |
|                                                       |                                     |     |  |   |
|                                                       | NET INCREASE IN CASH                | 156,020  |   | 6,744 |   |
| CASH  AND CASH EQUIVALENTS, BEGINNING OF YEAR              | 7,686                               |     | 8,125 |   |
|                                                       |                                     |     |  |   |
| CASH  AND CASH EQUIVALENTS, END OF YEAR                    | $                                   | 163,706  |   | $ | 14,869 |   |
|                                                       |                                     |     |  |   |
| Supplemental Non Cash  Investing and Financing Activities: |                                |     |   |   |
|                                                            |                                     |          |  |  |  |  |  |  |

During thequarter ended June 30, 2001, the Company issued 148,642 shares of common stockupon the conversion of a debenture for full settlement of the $10,000 faceamount and $589 in accrued interest. 

| Supplemental  Information: |           |   |   |   |
|----------------------------|----------------|--------|--------|--------|
|                       | Interest  paid | $      | 1,031  |   | $ | 493 |   |
|                       | Taxes  paid    | $      | -      |   | $ | - |   |

 

***Theaccompanying notes are an integral part of the financial statements.***

              REMEDENT USA, INC. AND SUBSIDIARIES             NOTES TO INTERIM CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. General

Theaccompanying unaudited interim condensed consolidated financial statementsinclude the accounts of 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-month period ended June 30, 2001 are notnecessarily indicative of the results that may be expected for the fiscal yearending March 31, 2002. For further information, refer to the consolidatedfinancial statements and footnotes thereto included in the Company's annualreport 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 havebeen prepared on an accrual basis of accounting, in conformity with generallyaccepted accounting principles as a going concern.  These principles contemplate the realization of assets andliquidation 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 of Consolidation

The consolidated financial statementsinclude 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 areshipped to customers.  Provisions fordiscounts and rebates to customers, estimated returns and allowances, and otheradjustments are provided for in the same period that related sales arerecorded.

The Company is currently evaluating theimpact of the Staff Accounting Bulletin (“SAB”) 101 regarding revenuerecognition. However, management does not believe that SAB 101 will have amaterial effect on the Company’s past or present financial results.

In an effort to provide additionalexposure of the Company’s unique product, the Company does provide, to certainfirst time buyers, all dental professional customers, and all internationalcustomers, an opportunity to acquire the product with certain special marketingdiscounts.  The Company views thesediscounts not as sales discounts but as a method of marketing its products tocustomers that may not otherwise purchase the product.  For the fiscal year ending March 31,2001, international promotional discounts totaled $151,363 and all otherdiscounts totaled $59,481 compared to fiscal year ending March 31, 2000where international discounts totaled $35,158 and all other discounts totaled$21,455.  These discounts should bededucted from sales to evaluate the exact sales number.  Beginning April 1, 2001, the accountingprocedure for posting sales reflects the actual sales price and not theCompany’s standard blanket cost to all buyers. It is understood that all promotional discounts for international sales,dental and other, will be subtracted from revenue and sales and marketing forall comparable periods after April 1, 2001.

 

Impairment of Long-Lived Assets

Long-lived assets consist primarily ofproperty and equipment and patents.  Therecoverability of long-lived assets is evaluated by an analysis of operatingresults and consideration of other significant events or changes in the businessenvironment.  If impairment exists, thecarrying amount of the long-lived assets is reduced to its estimated fairvalue, less any costs associated with the final settlement.  As of June 30, 2001, management believesthere was no impairment of the Company’s long-lived assets.

Use of Estimates

The preparation of financial statementsin conformity with generally accepted accounting principles requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. The significantestimates made in the preparation of the consolidated financial statementsrelate to the assessment of the carrying value of accounts receivable,inventories and estimated provision for returns. Actual results could differfrom those estimates.

Cash and Cash Equivalents

The Company considers all highly liquidinvestments with maturities of three months or less to be cash or cashequivalents.

Accounts Receivable

The Company sellspremium toothbrushes to various companies, primarily to retail chains locatedthroughout the United States.  The termsof sales are 2% 10 days, net 30 days. Accounts receivable is reported at net realizable value and net ofallowance for doubtful accounts.  As ofJune 30, 2001 and March 31, 2001 the allowance for doubtful accounts was$1,000.  During the quarter ended June30, 2001 and fiscal year ended March 31, 2001, the Company had written off anominal amount of uncollectable accounts. The Company uses the allowance method to account for uncollectableaccounts receivable.  The Company’sestimate is based on historical collection experience and a review of thecurrent status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowancefor doubtful accounts will change.

Computation of Earnings Per Share

Basic net income (loss) per common shareis computed by dividing net income (loss) attributable to common stockholdersby the weighted 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.

As of June 30, 2001, there were no stockoptions outstanding under the Company’s 2001 Stock Option Plan.  Common shares related to stock warrants thatare antidilutive amounted to 1,252,000 and 0 for the three month periods endedJune 30, 2001 and 2000, respectively.

 

3. Inventories

Inventories are stated at the lower ofcost (weighted average) or market. Inventory costs include material, labor and manufacturing overhead.  Individual components of inventory arelisted below as follows:
 June March  30, 2001 31, 2001     Inventory-Supplies$23,570 $23,593  Displays and Raw Materials45,494 45,436  Finished Goods8,707 13,876      Total$77,771 $82,905 
4. Patents

Patent costs are amortized usingstraight-line method over 15 years. Patent values and accumulated amortization are listed below as follows:
 June March  30, 2001 31, 2001     Patent$34,199 $34,199  Accumulated amortization$8,799 $8,230        Patents,  net$25,400 $25,969 
5. Property and Equipment

Property and equipment are summarized asfollows:
 June March  30, 2001 31, 2001    Machinery and  equipment$53,984 $50,436 Furniture and fixtures$9,121 $8,236 Leasehold  improvements$779 $779      Less  accumulated depreciation$(40,722)$(37,963)   Property  and equipment, net$23,162 $21,488 
6. . Capital Transactions

On April 25, 2001, the Company completeda $313,000 private placement, selling an aggregate of 1,252,000 shares ofcommon stock at $0.25 a share, and warrants to purchase 1,252,000 shares ofcommon stock

On April 1, 2001 the Company entered intoa Retainer Agreement with its legal counsel for legal services including thereview of SEC documents, preparation of other documents as needed, and generaladvisory services on any matters which arise in the ordinary course ofbusiness.  In connection with thisagreement, the Company issued 250,000 shares of common stock for the initial$20,000 in legal services.

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

7. Segment Information

The Company currently operates in onesegment – oral hygiene products, which at June 30, 2001, comprised one mainproduct: the Remedent Toothbrush – a product combining a toothbrush, gumbrushand tongue cleaner in one unit. Accordingly, no separate segment information is provided other thanenterprise wide disclosures as required by SFAS No. 131.

However, in connection with the ongoingimplementation of the Company’s restructuring plan, the Company on July 1, 2001began operating within the high-technology dental equipment market.  Two operating subsidiaries have been formedfor marketing within the domestic and international markets, respectively,while 14 individuals with strong backgrounds in the business of high-technologydental equipment have been contractually retained as of July 1, 2001.  The Company is projecting to release itsfirst product within this market by October 2001.  As of June 30, 2001, the segment maintained no significant assetsand incurred $46,664 and $82,153 of research and development and general andadministrative expenses, respectively, for the three months ended June 30,2001.  These expenses are comprisedprimarily of consulting expenses incurred in developing this segment and otherstart-up expenses.

Also, as part of the Company’srestructuring plan, the Company plans to enter into a third distinct marketsegment:  the professional employerorganization (“PEO”) market.

Upon the occurrence of each of theseevents, the Company will begin disclosing all appropriate segment informationas required by SFAS No. 131.

8. Impact of Recently Issued Accounting Standards

Issue 00-14 (Coupons and Others SalesIncentives) addresses the accounting for sales incentives offered voluntarilyby a vendor without charge to customers. This issue addresses both the recognition and income statementclassification of sales incentives. Generally, the cost of the incentive should be recognized at the date ofsale.  If the sales incentive results ina loss, the loss should be recognized at the date of sale.  However, the Task Force noted the salesincentive might indicate that prior to the sale there has been an impairment ofexisting inventory.  Companies shouldnow apply the guidance in Issue 00-14 no later than in annual or interimfinancial statements for periods beginning after December 15, 2001.

The Company adopted SFAS 130 (ReportingComprehensive Income) which establishes standards for reporting comprehensiveloss and its components in the financial statements.  To date, the Company’s comprehensive loss equals its net loss.

SFAS No. 131 establishes standards forreporting information about operating segments in annual financial statementsissued to stockholders.  It alsoestablishes standards for related disclosures about products and services,geographic areas and major customers. Operating segments are defined as components of an enterprise aboutwhich separate financial information is available that is evaluated regularlyby the chief operating decision maker in deciding how to allocate resources andin assessing performance. The Company’s financial reporting as well as thechief operating decision-maker, does not currently provide or reviewinformation by segments.  All financialinformation is currently analyzed in the aggregate.  The Company is currently evaluating various methods of segment reportingfor the method which they believe will be most useful to management.

In June 1998, the FASB issued Statementof Financial Accounting Standards (SFAS) No. 133 (Accounting for DerivativeInstruments and Hedging Activities), which establishes accounting and reportingstandards for derivative instruments. This Statement requires that an entity recognize all derivatives aseither assets or liabilities in the statement of financial position and measurethose instruments at fair value.  InJune 1999, the FASB issued SFAS No. 137 (Accounting for Derivative Instrumentsand 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 Statementbeginning the first quarter of the fiscal year ending March 31, 2002.

9. Going Concern

The Company has incurred substantial netlosses since inception, and as of June 30, 2001 maintained a working capitaland shareholders’ deficit of ($866,840) and ($812,224), respectively, raisingsubstantial doubt about the Company’s ability to continue as a going concern.  The Company has reassessed its operationsand business structure and has implemented a complete corporate reorganizationplan.

The plan includes the ceasing of directsales and marketing of the Remedent Toothbrush, and acquisition of and expansioninto diversified business ventures.

To reduce overhead and operating costs,the Company will cease the direct sales and marketing of its RemedentToothbrush, and license the product and related technology to a third partymarketer and distributor.  This wouldeliminate all cash requirements for this product as the licensor would supportthe requisitioning, marketing and distribution.  The Company is currently in negotiations with a well-establishedoral care distributing company, and is attempting to finalize an agreementprior to the beginning of the second quarter of 2002.

The Company will continue to developadditional products for distribution within the oral hygiene market, and willanalyze whether to license the related technology or manufacture and distributein-house, on a case-by-case basis.

Additionally, the Company is innegotiations for the acquisition of a Professional Employer Organization(“PEO”) and is also attempting to finalize prior to October 2001.  PEO firms manage payroll and human resourcefunctions as well as provide health, unemployment and workers compensationinsurance for small and mid-size businesses. These firms allow these smaller businesses to shift legal risk, loweradministrative costs, and obtain lower insurance rates as part of the firm’sgroup of customers.

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

The Company’s first target is a familyowned and operated firm with growing revenues and current-year profitableoperations.  The proposed acquisitionwill be entirely for stock and will require minimal capital investment ascurrent management will remain intact.

On July 1, 2001, the Company will alsobegin developing, manufacturing, marketing and distributing high-technologydental equipment.  The Company hasretained 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 andhand-held penlights.  The Company plansto introduce these products by October 2001.

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

10. Related Party Transactions

Due to related parties are summarized asfollows:
 June March  30, 2001 31, 2000    Advances  from Rebecca Inzunza, an officer, through the use of a personal credit card  for business expenses.$18,852 $18,226 Advances  from a company operated by Kenneth Hegemann, an officer, of $8,000 and  $11,500 for the fiscal quarter ended June 30, 2001 and the fiscal year ended  2001, respectively. No repayments were made for the fiscal quarter ending  June 30, 2001 while $4,000 was repaid during the fiscal year ended March 31,  2001.  As of June 30, 2001, $1,805 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.41,187 -    Due to related parties$152,104 $102,291    
 

Theconvertible debentures issued to the director are due on demand, bearinginterest at 10% per annum, and convertible into common stock at the solediscretion of the holder.  Thedebentures are convertible into common stock at percentages between 30% and37.5% of the average trading price for the stock for the 30 day periodimmediately prior to the maturity date. In connection with this conversion feature, the Company recorded acharge of $59,002 and $10,000 to interest expense during the fiscal years endedMarch 31, 2001 and 2000, respectively. These amounts were calculated on the 30 day period prior to the dates ofthe notes, and are subject to change based on the 30 day period prior to thematurity dates.  As of June 30, 2001,$8,832 was accrued for unpaid interest.

The Company leases approximately 1,000square feet of office space, which serves as the Company’s corporateheadquarters, within Rebecca M. Inzunza’s primary residence.  The rental agreement with Ms. Inzunza, anofficer and shareholder, is a month to month agreement, with monthly paymentsof $650.  The Company also utilizesapproximately 300 square feet of office and warehouse space, within Robert E.Hegemann’s primary residence.  There isno rental agreement with Mr. Hegemann, an officer and shareholder.

The Company has a royalty agreement withJean 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 directorduring the fiscal year ending March 31, 1999, and has occupied no position withthe Company since that time.  Mr.Vrignaud was owed $51,123 and $50,395 as of June 30, 2001 and March 31, 2001,respectively.  Total royalty expensesincurred under this agreement totaled $728 and $9,640 for the quarter endedJune 30, 2001 and the year ended March 31, 2001, respectively.

**ITEM 2.  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                 RESULTS OF OPERATIONS**

The discussion and financial statementscontained herein are as of June 30, 2001 and for the fiscal quarters ended June30, 2001 and 2000.  The followingdiscussion regarding the financial statements of the Company should be read in conjunctionwith the financial statements of the Company included herewith.

**Overview**

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

             **ThreeMonths Ended June 30, 2001 as Compared to Three Months Ended June 30, 2000**

For the fiscal quarter ending June 30,2001, net sales decreased by $178,750 from $200,053 in 2000 to $21,303 in2001.  This represents an 89% decreaseover the comparable period ending June 30, 2000.  We anticipate sales will continue to decrease in both domesticand international markets due to cash flow shortages preventing the productionof inventory, until the implementation of our restructuring plan.

Cost of goods sold decreased by $56,611or 81% for the quarter ending June 30, 2001 over the comparable period endedJune 30, 2000.

Gross profit for the quarter ending June30, 2001 decreased to 38% from 64% for the comparable period ended June 30,2000.  This decrease was due to thechange in accounting procedure whereby promotional discounts are recorded asreductions to the sales price.  Thischange was implemented for all fiscal periods beginning April 1, 2001.

Research and development expensesincreased by $31,764 over the prior fiscal year, due primarily to the researchand development costs incurred during the start-up phase of the Company’shigh-technology dental equipment segment. We expect we will continue to invest in research and development, andanticipate significant costs in the near future as we continue to developproducts for the oral hygiene market, and begin developing our base of productsfor marketing within the dental equipment market.

Sales and marketing costs for thequarters ended June 30, 2001 and 2000 were $11,523 and $198,168 respectively,which represents an decrease of $186,642 or 94%.  This decrease is consistent with the reduction in sales caused bycash flow shortages and resulting strain on inventory availability.

General and administrative costs for thequarters ended June 30, 2001 and 2000 were $300,803 and $75,134 respectively,an increase of $225,669 or 75%.  Thisincrease is due primarily to the charge recorded for the issuance of 300,000shares of common stock for the acceptance of the Business Consulting Agreement,and the expenses incurred during the quarter within the dental equipmentmarket, primarily consulting expense.

Net interest expense increased by $12,198during the quarter ended June 30, 2001 over the comparable period ending June30, 2000.  The increase in interestexpense was largely due to the higher loan balance consisting of the Notepayable to Union Bank and the various debentures each of which accrue interestat a rate ranging from 10% for the debentures to 11.50% for the note.

Inflation has not had a material effecton our revenue and income from continuing operations in the past threeyears.  We do not expect inflation tohave a material future effect.

Because all of our contracts have beencontemplated in US dollars, the cost of products will not be affected byexchange rate fluctuations.

**Liquidity and Capital Resources**

On June 30, 2001, our current liabilitiesexceeded our current assets by $866,840. Our business operations will require substantial capital financing on acontinuing basis.  The availability ofthat financing will be essential to our continued operation and expansion.  In addition, cash flow and liquidity iscontingent upon the success of our restructuring plan.  The inability to complete the proposed PEOacquisitions or develop and market high-technology dental equipment will forceus to raise additional capital to support operations by selling equitysecurities or incurring additional debt.

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

In January 1999, Ms. Inzunza loaned theCompany $50,000 at 7% interest which was paid throughout the year and as ofMarch 31, 2001 the principal balance was paid in full.  On December 11, 1998, Remedent received a$50,000 line of credit from Union Bank of Arizona.  We have drawn upon the full amount.  The interest rate was 10.250% with a maturity date of December31, 1999.  On April 26, 2000, the loanbalance of $49,970.55 was converted to a five-year loan with an interest rateof 11.50%, monthly payments of $1,099, and a maturity date of April 26,2005.  Monthly payments include paymentstowards both principal and interest.

During the fiscal year ended March 31,2001, the Company borrowed $149,002 from shareholders and a director in theform of convertible debentures.  Thesedebentures are unsecured, due on demand and bear interest at 10% perannum.  In addition, at the solediscretion of the holder, can be converted to stock at 37.5% of the averagetrading price 30 days prior to maturity.

Kenneth J. Hegemann, an officer, operatesCRA Labs, Inc., a related business that advanced $8,000 during the fiscalquarter ended June 30, 2001.  There wereno repayments of these advances during the fiscal quarter ended June 30, 2001,leaving a balance of $23,063 at June 30, 2001. Similar to the other working capital loans, this is an unsecured debtand bears interest at 10% per annum.

We expect to continue to experiencenegative cash flow through at least October 2001, and may continue to do sothereafter while we implement our restructuring plan.  Unless we are able to generate sufficient revenue or acquireadditional debt or equity financing to cover our present and ongoing operationcosts and liabilities, we may not be able to continue as a going concern.  Our auditors note that we have sustainedsubstantial net losses since our inception in September 1996.  In addition, as of June 30, 2001, we had aworking capital deficit totaling $866,840 and a shareholders deficit of$812,304.

Frequently we have been unable to maketimely payments to our trade and service vendors.  As of June 30, 2001, we had past due payables in the amount of$419,071, representing a 2% increase from the prior fiscal year end.  Deferred payment terms have been negotiatedwith most of the vendors, which has allowed us to continue to make shipments ontime and no orders have been cancelled to date.  Notes payable decreased by $12,266 due to the monthly debtcommitment to the bank and the conversion of $10,000 of convertible debenturesto equity during the quarter.   Accruedliabilities increased by $34,379.  Thisamount represents accrued salaries for officers and employees.  Due to related parties increased by $49,813due primarily to working capital loans provided by two employees during thequarter.

For the quarters ending June 30, 2001 and2000, net cash used for operating activities was $200,094 and $35,542,respectively.  As of June 30, 2001 wehad a working capital deficiency of $866,840, as compared to a working capitaldeficiency of $976,945 at March 31, 2001. Our business operations will require substantial capital financing on acontinuing basis.

We have taken several actions, which webelieve will improve our short-term and long-term liquidity and cash flow.  For the short term, we have improvedliquidity and cash flow by obtaining short term loans, reducing expenses,reducing employee compensation, eliminating warehousing fees and reducinginsurance expenses.  For the long term,we have developed and begun implementation on a complete business restructuringplan.

Our business operations will requiresubstantial capital financing on a continuing basis.  Based upon our cash flow projections, significant capitalinfusion is necessary to fully implement our restructuring plan and payexisting delinquent payables.  We planto 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.

**DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS**

This filing contains statements thatconstitute forward-looking statements within the meaning of Section 21E of theExchange Act of 1934 and Section 27A of the Securities Act of 1933. The words"plan," "expect," "estimate,""anticipate," "predict," "believe" and similarexpressions and variations thereof are intended to identify forward-lookingstatements. Such statements appear in a number of places in this filing andinclude statements regarding our intent, belief or current expectationsregarding our strategies, plans and objectives, our product release schedules,our ability to design, develop, manufacture and market products, our intentionswith respect to strategic acquisitions, the ability of our products to achieveor maintain commercial acceptance and our ability to obtain financing for ourobligations. Any forward-looking statements are not guarantees of futureperformance and involve risks and uncertainties. Actual results may differmaterially 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, whichspeak only as of the date of this filing. We undertake no obligation to releasepublicly any updated information about forward-looking statements to reflectevents or circumstances occurring after the date of this filing or to reflectthe occurrence of unanticipated events.

**QuarterlyTrends**

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

 

**PART II- OTHER INFORMATION**

Item1.  Legal Proceedings.

None.

Item2.  Changes in Securities and Use ofProceeds.

On April 25, 2001, the Company completeda $313,000 private placement, selling an aggregate of 1,252,000 shares ofcommon stock at $0.25 a share, and warrants to purchase 1,252,000 shares ofcommon stock.  This private placementwas exempt from the registration provisions of the Securities Act of 1933, asamended (the “Act”) by virtue of Section 4(2) of the Act, as transactions by anissuer not involving any public offering. The securities issued pursuant to the private placement were restrictedsecurities as defined in Rule 144 of the Act. All investors in the private placement were accredited investors as thatterm is defined in Rule 501 of Regulation D adopted under the Act.

On April 1, 2001 the Company entered intoa Retainer Agreement with its legal counsel for legal services including thereview of SEC documents, preparation of other documents as needed, and generallegal advisory services on any matters which arise in the ordinary course ofbusiness.  In connection with thisagreement, the Company issued 250,000 shares of common stock for the initial$20,000 in legal services.  Thesesecurities were registered on Form S-8 filed with the SEC on June 6, 2001.

On June 20, 2001 the Company entered intoa Business Consulting Agreement with a business acquisition advisory firm toprovide consulting services including 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 the advisory firm receiving a fee from eachacquisition completed by the Company, calculated as a percentage of the valueof the transaction.  These fees arepayable in the same ratio of cash to stock as the transaction.  These securities were registered on Form S-8filed with the SEC on July 24, 2001.

Item 3.  Defaults in Senior Securities.

None.

Item4.  Submission of Matters to a Vote ofSecurity Holders.

None.

Item5.  Other Information

None.
Item 6Exhibits  and Reports on Form 8-K   (a)Exhibits  filed with this Form 10-QSB:  10.1Stock  Purchase Agreement with Dental Advisors dated April 25, 2001.  10.2Retainer  Agreement with Senn Palumbo Meulemans, LLP, dated March 28, 2001,  incorporated herein by reference from Exhibit 10.1 to Registration Statement  on Form S-8 filed with the SEC on June 6, 2001.  10.3Business  Consulting Agreement with Windsor Partners, Inc., dated June 20, 2001,  incorporated herein by reference from Exhibit 10.1 to Registration Statement  on Form S-8 filed with the SEC on July 24, 2001.     (b)Reports  on Form 8-K filed during the period covered by this Form 10-QSB:  None
 

 

**SIGNATURES**

In accordance with Section 13 or 15(d) ofthe Securities Exchange Act of 1934, as amended (the "Exchange Act")the Registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
 **REMEDENT USA, INC.**       Dated:  August 3, 2001/s/  Rebecca M. Inzunza   By:   Rebecca M. Inzunza Its:    Chief Executive Officer    Dated:  August 3, 2001/s/  Stephen Ross   By:    Stephen Ross Its:    Chief Financial Officer