<PAGE>

               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934

For the Fiscal Year Ended: December 29, 2001

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

Commission File Number: 1-11064

                               BRITESMILE, INC.
                               ----------------
       (Exact name of small business issuer as specified in its charter)

                        UTAH                             87-0410364
      ----------------------------------------      ---------------------
            (State or other jurisdiction                (IRS employer
         of incorporation or organization)           identification no.)

                490 North Wiget Lane
              Walnut Creek, California                      94598
      ----------------------------------------      ---------------------
      (Address of principal executive offices)           (Zip Code)

                                (925) 941-6260
                                --------------
               (Issuer's telephone number, including area code)

         Securities registered pursuant to          Name of each exchange
             Section 12(b) of the Act:              on which registered:
      ----------------------------------------      ---------------------
                       None                            Not Applicable

   Securities registered pursuant to Section 12(g) of the Act:
   -----------------------------------------------------------
                 common stock, par value $0.001

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

The aggregate market value of the registrant's common stock held by non-
affiliates as of April 8, 2002 was approximately $83,959,173 based on the
closing sale price of the issuer's stock as reported by the NASDAQ NMS on such
date.

The number of shares of common stock of the registrant outstanding as of March
26, 2002 was 36,404,461. DOCUMENTS INCORPORATED BY REFERENCE: The registrant
incorporates information required by Part III (Items 10, 11, 12 and 13) of this
report by reference to the registrant's definitive proxy statement to be filed
pursuant to Regulation 14A.
<PAGE>

                       BRITESMILE, INC. AND SUBSIDIARIES

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                     <C>
PART I.
------

Item 1.      Business..................................................................   3

Item 2.      Properties................................................................   9

Item 3.      Legal Proceedings.........................................................  10

Item 4.      Submission of Matters to a Vote of Security Holders.......................  11


PART II.
-------

Item 5.      Market for Registrant's Common Equity and Related Stockholder Matters.....  11

Item 6.      Selected Financial Data...................................................  14

Item 7.      Management's Discussion and Analysis of Financial Condition
             and Results of Operations.................................................  16

Item 8.      Financial Statements and Supplementary Data...............................  31

Item 9.      Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure..................................................  31


PART III.
--------

Item 10.     Directors and Executive Officers of the Registrant........................  31

Item 11.     Executive Compensation....................................................  31

Item 12.     Security Ownership of Certain Beneficial Owners and Management............  32

Item 13.     Certain Relationships and Related Transactions............................  32

PART IV.
-------

Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K..........  32
</TABLE>

                                       2
<PAGE>

PART I.

ITEM 1.  DESCRIPTION OF BUSINESS

THIS ANNUAL REPORT ON FORM 10-K CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTANTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED BY
THE COMPANY AND DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED BELOW IN THE SECTION
ENTITLED "FORWARD-LOOKING STATEMENTS" AND ELSEWHERE IN THIS ANNUAL REPORT. THE
FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH OUR FINANCIAL STATEMENTS AND
RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS DOCUMENT.

During the fourth quarter of the Company's fiscal year ended April 1, 2000, the
Company adopted a 52/53-week (4 week - 4 week - 5 week quarter) fiscal calendar.
In addition, the Company changed its year end from March to December.  Data in
this Report reflects the consolidated results of the Company for the audited 52
week period ended December 29, 2001 ("Fiscal 2001"), the audited 39 week
transition period ended December 30, 2000 (the "Transition Period"), the audited
52 week period ended April 1, 2000 ("Fiscal 2000"), and the unaudited 39 week
period ended December 30, 1999.

Introduction

BriteSmile, Inc., a Utah corporation (the "Company" or "BriteSmile"), and its
affiliates develop, produce, sell and lease advanced teeth whitening products,
services and technology.  BriteSmile's operations include the development of
technologically advanced teeth whitening processes that are distributed in
professional salon-like settings dedicated solely to providing the Company's
teeth whitening services and products and which are known as BriteSmile
Professional Teeth Whitening Centers ("Centers"), and also in existing
independent dental offices known as BriteSmile Professional Teeth Whitening
Associated Centers ("Associated Centers").

BriteSmile offers consumers a new, simple and safe way to return teeth to their
optimal natural whiteness in just one visit to a BriteSmile Center or BriteSmile
Associated Center.  The BriteSmile teeth whitening system utilizes a combination
of proprietary gas plasma light or LED technology and wavelength specific gel.
The power level is well below that used in other bleaching systems, resulting in
greater comfort to consumers without sacrificing the speed of the whitening
process.  The unique fiberoptic delivery arm of the BriteSmile device permits
blue-green light to reach all 16 front teeth simultaneously, whitening the teeth
by activating the wavelength specific gel, which is applied to the teeth during
three consecutive twenty-minute sessions.  Including the time necessary for
initial customer evaluation and consultation, prep work and clean up, the
customer can complete an entire teeth whitening visit in approximately 90
minutes.  The result is immediate superior teeth whitening -- a clinically
proven average of 8-9 shades whiter -- and a patient satisfaction rate of over
98%.

BriteSmile developed its light-activated teeth whitening ("LATW") technology in
the fiscal year ended March 31, 1999 ("Fiscal 1999"), and in February 1999 began
placement of its BS2000 LATW system (the "BS2000") in both Centers and
Associated Centers. Currently, the BS2000 is used exclusively in Centers.  In
November 1999, BriteSmile introduced its mobile BS3000 LATW keycard system
("BS3000") into Associated Centers, and in May 2001, commenced shipping to
Associated Centers its state-of-the-art BS3000PB LATW system (the "BS3000PB"),
representing the latest refinements to the mobile LATW device used in Associated
Centers.  The BS3000 and BS3000PB can be installed more quickly than the BS2000
and provides the flexibility and mobility required in dental offices.  A dentist
at an Associated Center activates the BS3000 device by inserting a key card
which has been programmed to allow the device to perform the number of whitening
procedures purchased by the Associated Center.  The Company ships key cards via
regular or express mail to an Associated Center after receiving a key card order
via phone or fax or over the Internet.  The BS3000PB device incorporates a code
number system, which enables the dentist to program the device with a numerical
code to perform whitening procedures based upon the number of such procedures
purchased from the Company.  The Company provides the Associated Center dentist
with the code numbers to program the BS3000PB via fax or e-mail, thus,
eliminating the need to ship key cards to Associated

                                       3
<PAGE>

Centers. The Company is continuing its research and development efforts to
improve its current LATW systems in order to maintain and strengthen its
competitive advantage.

Centers are located in major metropolitan areas nationwide.  Centers offer
customers a salon-like environment dedicated solely to the business of teeth
whitening and are staffed by licensed dentists and trained dental assistants.
Alternatively, consumers can visit an Associated Center, where a local dentist
supervises the BriteSmile procedure in his or her dental office.

As of March 1, 2002, BriteSmile had 14 Centers operating in the following
locations:  Beverly Hills, Irvine, Walnut Creek, Palo Alto and La Jolla, CA;
Chicago, IL; Phoenix, AZ; Boca Raton, FL; Honolulu, HI; Atlanta, GA; Houston,
TX; Denver, CO; Boston, MA; and New York, NY. The Centers serve as the anchor in
12 major U.S. markets, with the geographically contiguous Associated Centers
providing consumers with multiple location options.  This "cluster" of
Associated Centers surrounding a BriteSmile Center allows the Company to have
maximum advertising impact and visibility in a market by leveraging marketing
and advertising dollars, and optimizing consumer exposure to the BriteSmile
brand.

As of March 1, 2002, BriteSmile has contracted with dentists to operate
approximately 4,109 Associated Centers, of which 4,050 were in operation
throughout the United States and around the world in 35 countries.  BriteSmile
plans to open additional Associated Centers in the United States and in select
foreign locations in the future.

The Company also sells BriteSmile brand post-whitening maintenance products,
including toothpaste, mouthwash, whitening chewing gum and electric
toothbrushes, to consumers in Centers, Associated Centers, and on its Internet
site.  The Company is currently developing other BriteSmile brand post-whitening
products.

The Company operates in one reportable segment, that of teeth whitening services
and products.  The Company's chief operating decision-maker has determined the
operating segment based upon how the business is managed and operated.
Geographical segments are not material as of December 29, 2001.

Recent Business Developments

Associated Center Expansion
---------------------------

BriteSmile continues to identify and recruit dentists practicing in both Center
and non-Center markets to establish complementary Associated Centers in their
respective markets.  Currently, the Company does not plan to open additional
Centers.

To date, BriteSmile has contracted with dentists to operate over 4,109
Associated Centers, of which 4,050 were in operation as of March 1, 2002.  This
compares to only 1,383 Associated Centers in operation at the same time last
year.  During the quarter ended December 29, 2001, the Company placed into
operation 740 new Associated Centers, of which 193 were in international
locations.

International Expansion
-----------------------

In May 1999, the Company established BriteSmile International Limited
("BriteSmile International"), a Dublin, Ireland-based subsidiary, to facilitate
international distribution of the Company's LATW systems.  BriteSmile
International has since introduced the BS3000 and BS3000PB in 28 countries under
distributorship agreements.  As of March 2, 2002, the Company has contracted
with dentists to operate 745 Associated Centers outside the United States.
BriteSmile International is continuing to explore additional international
distribution opportunities in Europe, Latin America and Asia.

Internal Infrastructure
-----------------------

The Company built its internal infrastructure to provide the finest consumer
experience in teeth whitening.  In February 1999, BriteSmile established a
national Call Center in order to efficiently handle incoming consumer inquiries
and to book appointments via the Company's proprietary web-based scheduling
system (the "Scheduler").  The Call Center, located at the Company's corporate
headquarters in Walnut Creek, California, is equipped with

                                       4
<PAGE>

advanced telephone and computer equipment to service consumers calling
BriteSmile's toll free telephone numbers. The Scheduler is a custom-developed
software solution capable of tracking incoming calls as well as customer
appointments, treatments performed in Centers, and payments. The Scheduler
allows the Call Center, and each BriteSmile Center and BriteSmile Associated
Center, to view and interact on a real-time basis with dentists' schedules. It
also enables management to closely monitor performance of advertising campaigns
and sales agents, and Center and Associated Center operational and financial
results.

Year 2001 Private Placement
---------------------------

On April 30, 2001, the Company completed a private offering (the "Offering") of
its restricted common stock, par value $0.001 per share.  The Offering involved
sales of a total of 5,371,428 shares of restricted common stock (the "Shares")
to 17 accredited investors and their affiliated funds (the "April 2001
Investors").  None of the April 2001 Investors were affiliated with the Company
before the completion of the Offering, nor did they have any other relationship
with the Company.  The Company sold the Shares for $5.25 per share, yielding
gross proceeds to the Company of $28.2 million.

In connection with the Offering, the Company engaged Stonegate Securities, Inc.
of Dallas, Texas (the "Placement Agent") to act as placement agent for the
Offering.  For its services, the Company paid the Placement Agent five percent
of the gross proceeds of the Offering, or $1,410,000, and issued to the
Placement Agent warrants to purchase a total of 537,143 shares of restricted
common stock for a per share purchase price of $5.25.  The warrants have a five
year term.  The fees paid to the Placement Agent and the fair value of the
warrants of $2,239,886 were netted against the Offering proceeds.  To date, the
Placement Agent has exercised warrants to purchase 429,048 shares of common
stock.

In connection with the Offering, the Company filed with the Securities and
Exchange Commission (the "SEC") a registration statement covering the Shares and
the common stock underlying the warrants issued to the Placement Agent. The SEC
declared the registration statement effective on June 11, 2001.

In connection with the Offering, on March 14, 2001, the Company issued warrants
to purchase 100,000 shares of common stock for a per share price of $5.00 to
Pequot Partners Fund, L.P., Pequot Private Equity Fund II, L.P., Pequot
International Fund, Inc., LCO Investment Limited, P de P Tech Limited, John Reed
and Brad Peters, in exchange for agreeing to cover any cash shortfall in the
Offering up to $5 million.  The warrants have a five-year term.  The fair value
of the warrants of $225,000 was netted against the Offering proceeds.

EVL Lease Agreement
-------------------

On December 29, 2000, as amended in February 2001, the Company secured a lease
line of credit of up to $15 million from Excimer Vision Leasing L.P. ("EVL").
EVL leases laser vision correction equipment to ophthalmologists.  Anthony
Pilaro, the Company's Chairman, serves as Chairman of EVL.  Effective June 30,
2001, CAP America Limited increased its ownership in EVL from 1.79% to 70% and
CAP America Trust decreased its ownership interest from 78.21% to 10%.  On the
same day, CAP America Limited was sold to LCO Investments Limited ("LCO"), the
Company's major shareholder. Mr. Pilaro is also Chairman of LCO.  The remaining
20% ownership interest in EVL is held by persons not affiliated with the
Company.

In addition to providing working capital to the Company, the lease line of
credit enabled the Company to place up to 1,755 new BS3000PB teeth whitening
devices in Associated Centers in the U.S.  Pursuant to the lease line agreement,
EVL purchased from the Company 1,245 BS3000 teeth-whitening devices currently
used in various Associated Centers in the United States for $5 million.  During
Fiscal 2001, the Company utilized the remaining $10 million available on the
lease line to purchase BS 3000PB devices for placement in Associated Centers.
EVL leases all devices to the Company for a term of five years. The Company pays
EVL a monthly rental for each device consisting of a fixed amount, plus a
"variable rent" payment in the amount of $25 for each right to perform a
procedure purchased by the Associated Center where the corresponding device is
located.  During Fiscal 2001 $2,680,000 in rent expense was recorded relative to
this lease arrangement.

On March 8, 2002, the Company and EVL amended their lease agreement to provide
that the variable rent portion of the monthly rental payments during 2002, in
the amount of $25 for each BriteSmile procedure, will be deferred and

                                       5
<PAGE>

paid to EVL in twelve equal monthly installments beginning January 9, 2003, with
interest payable on the deferred amount at a rate equal to LIBOR as quoted by
The Bank of Nova Scotia for the applicable adjustment dates for deposits in U.S.
Dollars for one month maturities, plus 200 basis points.

CAP Advisers Line of Credit
---------------------------

In December 2001, as amended in March 2002, BriteSmile International entered
into Credit and Security Agreements (the "Credit Agreements") with CAP Advisers
Limited ("CAP Advisers").  The Credit Agreements provide for secured loans to
the Company of up to $1.5 million, and an unsecured line of credit of up to $1
million.  Any principal advanced under the unsecured portion of the line of
credit is payable on demand, and bears interest at a fluctuating rate equal to
LIBOR plus 200 basis points, payable monthly.  Advances under the unsecured $1
million line may be used for general business purposes, including use by the
Company.  Advances under the unsecured $1 million line may be used to purchase
BS3000PB devices for non-U.S. deployment.  Mr. Pilaro, the Company's Chairman,
is also Chairman of CAP Advisers.  CAP Advisers is the sole trustee of the ERSE
Trust.  The ERSE Trust owns 100% of LCO, the Company's major shareholder.

EVL Loan Agreement
------------------

On March 1, 2001, the Company borrowed $2.5 million from EVL for general working
capital.  The loan matures on May 10, 2006 and may be prepaid at any time
without penalty.  Payments under the loan consist of "fixed payments" of
interest, "variable payments" of principal and a "final payment" of principal.
An initial fixed payment of $10,417 was paid on April 1, 2001.  Additional fixed
monthly payments of $12,500 are due during the loan period.  Variable payments
are $25 for each LATW procedure performed at the Company's 14 Centers.  For the
fifty-two weeks ended December 29, 2001 variable payments totaled $664,000 and
the unpaid balance of the loan was $2,083,000.  The final payment, due at
maturity, will be the amount by which the aggregate of variable payments paid
during the term of the loan is less than the original $2.5 million principal
amount of the loan.

Management
----------

Effective January 2002 the Company appointed Derek Correia as Executive Vice-
President, Marketing.  Mr. Correia replaces Michael P. Whan, who left the
Company to pursue other opportunities.  Mr. Correia initially joined BriteSmile
in September 2000.  He brings to the Company 10 years of experience in consumer
marketing and brand management working for Fortune 500 companies with dynamic
consumer brands.  Prior to joining BriteSmile, Mr. Correia served as Senior Vice
President of Marketing for Renaissance Cruises; Vice-President, Product and
Brand Marketing for Burger King Corporation; and Director, Innovation and Brand
Marketing for Pizza Hut, Inc.

Market for Products and Services

The Company continues to believe that the market for teeth whitening services
and products is large and growing.  According to a study conducted by Dental
Products Report, it is estimated that professionally administered bleaching
products and services exceeded $1.3 billion for the year 2000.  While data is
not yet available for 2001, indications are that this number has increased
significantly, consistent with a proliferation of products and services
available professionally.  The retail market for whitening products also
continues to grow, including whitening toothpastes, over-the-counter and direct-
to-consumer home gel and tray systems, as well as strips.

Domestically, various independent surveys have indicated 70%-80% of adults are
not happy with the current color of their teeth.  This, combined with the
increasing desire for physical self-improvement and a continuing rise in
"vanity" spending, creates a favorable marketplace for continued long-term
growth, despite the recent economic downturn.  Globally, acceptance of teeth
whitening and western trends in physical self-improvement continue to be
encouraging.  This perception is supported by the Company's continued growth in
distribution as well as international Associated Center productivity, despite
minimal advertising investment.

No customer accounted for more than 10% of net sales during Fiscal 2001, the
Transition Period or Fiscal 2000.

                                       6
<PAGE>

Marketing and Distribution

BriteSmile's teeth-whitening procedures are marketed primarily via consumer
advertising, a somewhat unique approach within professional dentistry.  The
Company employs a strategy of marketing whereby all advertising includes a toll-
free number for consumers to call to make an appointment at Associated Centers
or at a Company-owned Center after seeing or hearing the ads.  Core advertising
efforts include TV, radio and print.  Historically, the Company purchased most
of its media locally in markets of significant density, and specifically where
Centers are located.  However, as the Company achieved national distribution and
associated economies of scale, it switched to national advertising in the fourth
quarter of 2001.

Competition

The Company's LATW procedure competes with all teeth whitening products and
services.  These include in-office bleaching systems, professionally
administered take home bleaching systems, and over-the-counter and direct to
consumer products such as pastes, gels and strips.  Competition continues to
proliferate, as consumer demand for whitening increases.

Numerous manufacturers and individual brands compete in the various product
arenas.  Recently, a number of companies have entered the LATW arena with
products of their own.  Some of these companies are also in the professional
tray business.  A significant development in 2001 was the launch of Crest
WhiteStrips, a new methodology for at-home whitening.  These strips are sold
over-the-counter as well as in dentist's offices, where a higher concentration
of peroxide is used.  Many competing products have a substantially longer
treatment time (weeks or more) than the BriteSmile 90-minute procedure.

Virtually all professional whitening systems use some type of peroxide, usually
a hydrogen peroxide for in-office procedures, and a milder carbamide peroxide
for at-home use.  BriteSmile's LATW system uses a 15% hydrogen peroxide
solution, a relatively low percentage for an in-office procedure.  As a result,
BriteSmile's process has low sensitivity (less than 10%) relative to many
competing procedures.

BriteSmile has performed numerous independent clinical studies on safety and
efficacy.  These include studies at the University of Medicine and Dentistry of
New Jersey, Forsyth Institute, Loma Linda University, and New York University.
These studies have not only proven the safety of the BriteSmile process on
teeth, gums and dental work, but have also proven the efficacy of BriteSmile's
LATW.  In one of these studies BriteSmile's efficacy was compared against a
leading professional take home tray system, an in-office curing-light process,
and a leading whitening toothpaste.  In all instances BriteSmile was proven to
have significantly greater whitening efficacy as measured by the Vita-Pan(R)
shade differential scale.

BriteSmile continues to invest in research and development, and is investigating
advanced gel and light technology to ensure a continued leadership position in
teeth whitening safety, speed and efficacy, however there is no guarantee that
this leadership position will be maintained despite these efforts.

Sources of Supply

The Company has subcontracted the manufacturing of LATW devices with a single
manufacturer, Peak Industries in Longmont, Colorado.  The Company leases a
significant number of its LATW systems used in Associated Centers from EVL
pursuant to the $15 million lease line of credit entered into on December 29,
2000.  See Item 1--"Business, Recent Business Developments, EVL Lease
Agreement," above. Goods purchased to produce the LATW device and gel and equip
the Centers and Associated Centers are in some cases unique and purchased from a
single vendor. In those cases the Company believes it could purchase items
meeting its design specifications from other vendors within the industry.
Overall, the Company believes it has access to sufficient quantities of goods
and materials at competitive prices to enable it to operate effectively.

                                       7
<PAGE>

Contractual Relationships with Centers

A licensed dentist, and a dental hygienist or licensed dental assistant,
administer the Company's LATW process at Centers. Regarding the relationship
between the Company and such dentists, the dentists generally create a
professional corporation (the "PC"), which enters into various agreements with
the Company.  Pursuant to such agreements, the licensed dentist has exclusive
authority regarding dental matters, including administering of the LATW. A
Deficit Funding Agreement between the Company and the PC obligates the Company
to fund any Center operating losses by lending necessary funds to the PC which
are repayable solely from the assets of the PC, and without recourse against any
officer, director, or shareholder of the PC. Under a Security Agreement between
the Company and the PC, the PC grants to the Company a security interest in all
of the PC's accounts, general intangibles, equipment, and fixtures to secure the
PC's obligations under the Deficit Funding Agreement. Pursuant to a Management
Agreement between the Company and the PC, the Company manages the business and
marketing aspects of the Center including providing furnishings, equipment,
advertising and office space, and maintaining, repairing, and replacing
furnishings as necessary.

Organizational Structure of Associated Centers

Associated Centers are located within existing independent dental offices
pursuant to a BriteSmile Systems Agreement  (the "Systems Agreement") between
the Company and a dentist (the "Associated Center Dentist"). The Systems
Agreement specifies the number of devices to be located at the Associated
Center, payment terms, and the obligations of both parties with respect to use
and maintenance of the LATW equipment.

Patents, Trademarks and Licenses

The Company has filed a number of patent applications related to the LATW system
which have been issued or are pending, including patent applications related to
the composition of the Company's whitening gel, methods of whitening teeth with
light tissue isolation barriers, the Company's business method and the Company's
unique system of delivery of light to all teeth simultaneously through the
Company's gas-plasma light activating device. In addition, the Company has
ongoing research and development efforts to improve and expand the Company's
current technology, and to develop new tooth whitening compositions and light
devices.

Since December 30, 2000, patents have been issued to the Company related to
methods of LATW, and a design for a device that provides light to teeth for
whitening procedures.  Additionally, method claims related to LATW have been
allowed but not yet issued.

Although the Company intends to continue to apply for patents as advised by
patent counsel, there can be no assurance that such patents will be issued or
that, when they are issued, they will not be infringed upon by third parties or
that they will cover all aspects of the product or system to which they relate.
Management generally believes that the Company's success depends more on its
ability to maintain state-of-the-art technology and to market its products on a
price-competitive and value-added basis, than on any legal protection that
patents may provide. The Company relies, and will continue to rely, on trade
secrets, know-how and other unpatented proprietary information in its business.
Certain key employees of the Company are required to enter into confidentiality
and non-competition agreements to protect the confidential information of the
Company. However, there is no assurance that these agreements would be
enforceable if they are breached or, if enforced, that they would adequately
protect the Company or provide an adequate remedy for the damage that may be
caused by such a breach.

The Company owns the rights to the registered trademarks and service marks
"BriteSmile" (name and logo).

Government Regulation

The Company's business operations are subject to certain federal, state and
local statutes, regulations and ordinances (collectively, "government
regulations"), including those governing health and safety. The LATW system is
categorized as a Class 1 Medical Device as defined by the Food and Drug
Administration ("FDA"). The LATW device is utilized specifically to perform
cosmetic dental procedures (teeth whitening); as such, the Company's LATW device
is not subject to the customary rules, regulations and oversight by the FDA.
There can be no assurance that some or all of the existing government
regulations will not change significantly or adversely in the

                                       8
<PAGE>

future, or that the Company will not become subject to compliance with
additional and stricter government regulations.

In most states the Company's teeth whitening procedure is deemed to be a part of
the practice of dentistry. Generally, states impose licensing and other
requirements on the practice of dentistry. In addition, some states prohibit
general business corporations (such as the Company) from engaging in the
practice of dentistry. In some states the BriteSmile corporate structure and
contractual relationships with PCs that provide LATW services to consumers must
be reviewed by, and require the express approval of, that state's agency
governing the practice of dentistry (such as a Board of Dental Examiners). In
those states, approval is necessary for the Company's operation of Centers.  The
Company has obtained all required government approvals for its Centers.  The
Company intends to continue to cooperate with state regulatory agencies, and
obtain all necessary governmental approvals. Even with such approvals there can
be no assurance that future enactments, amendments, or interpretations of
government regulations will not be more stringent, and will not require
structural, organizational, and operational modifications of the Company's
existing and future contractual relationships with PCs which provide LATW
services. However, management believes that its present and contemplated
operation of Centers is and will be in compliance in all material respects with
applicable federal, state and local regulations.

The Company regularly monitors developments in government regulations relating
to the practice of dentistry. The Company plans to structure all of its
agreements, operations and marketing in accordance with applicable government
regulations, although there can be no assurance that its arrangements will not
be successfully challenged or that required changes may not have a material
adverse effect on the Company's operations or profitability.

Product Liability

The Company may become subject from time to time to suits alleging negligence,
product liability or related causes of action, although no such action is
currently pending. The Company maintains product liability insurance coverage
for its products and services with coverage limits of $5 million per occurrence
and $5 million per year. While the Company intends to continue to insure against
such actions, there can be no assurance that the Company will be successful in
maintaining such coverage or that the limits of such policies will be adequate
or renewable at prices or on terms that are sufficient for the Company's
business. A successful claim against the Company in excess of any insurance
coverage could have a material adverse effect upon the Company and its financial
condition. Claims against the Company, regardless of the merit or eventual
outcome of such claims, also may have a material adverse effect on the Company's
reputation and business.

Employees

As of March 1, 2002, the Company had 110 full-time employees and 14 part-time
employees. None of the Company's employees are represented by a union and the
Company is not aware of any efforts to unionize any employees. The Company
believes its labor relations are satisfactory.


ITEM 2.  DESCRIPTION OF PROPERTY

In November 1999 the Company relocated its corporate offices to Walnut Creek,
California. In September 1999, the Company entered into a lease agreement
through April 2007 for its 13,746 square foot corporate office facility in
Walnut Creek, California.  This facility is used for administration, Call Center
and office space.   In July 2001, the Company entered into a lease agreement
through July 2002 for a 10,255 square foot facility for warehousing and
distribution located in Walnut Creek, California next to its corporate office.
The Company is currently negotiating an extension of that lease.

The Company's facilities in Walnut Creek, California are in good repair.

As of the date of this Report, the Company has fourteen 14 Centers operating
under lease agreements in the following locations:

                                       9
<PAGE>

  Lease Site                        Lease Term
  ----------                        ----------

  Atlanta, GA                   5
  Beverly Hills, CA            10
  Boca Raton, FL                5
  Boston, MA                    5
  Chicago, IL                  10
  Denver, CO                   10
  Honolulu, HI                  5
  Houston, TX                   6
  Irvine, CA                   10
  LaJolla, CA                  10
  New York, NY                 10
  Palo Alto, CA                 5
  Phoenix, AZ                   6
  Walnut Creek, CA              5

Each Center lease covers prime street-level retail spaces, consisting of
approximately 3,000-7,000 square feet, with improvements to create attractive
salon settings. Equipment available at each Center includes BriteSmile LATW
devices, dental chairs and dental cabinetry and equipment, all in excellent
condition.

During fiscal year 2001 the Company closed three of its less productive Centers,
which operated under the following lease agreements.  In December 2001, the
Company also terminated plans to open a new Center in San Francisco.  At
present, the Company remains obligated under these leases, and plans to sub-
lease and/or negotiate termination of the leases.

  Lease Site                 Lease Term
  ----------                 ----------

  Coral Gables, FL               5
  Ft. Lauderdale, FL             7
  Pasadena, CA                   5
  San Francisco                 10

ITEM 3.  LEGAL PROCEEDINGS

On November 30, 2001, Banc of America Securities, LLC ("BAS") commenced an
action against the Company in the United States District Court for the Southern
District of New York for breach of contract seeking to recover approximately
$1.7 million as a commission fee on a private placement offering of the
Company's securities.  BAS alleges that the Company breached its contract with
BAS by employing another investment bank to carry out its private placement and
by refusing to pay a fee to BAS based upon the proceeds thereof.

The Company has filed an answer denying the material allegations of BAS'
complaint and alleging affirmatively that BAS itself breached its contract with
the Company by abandoning its efforts to market and sell the Company's
securities.  The Company further alleges that after BAS advised the Company of
its inability to place the Company's securities, BAS acquiesced in the
appointment of another placement agent for the sale of the Company's securities.
The Company has filed counterclaims against BAS for $2 million alleging that
BAS' performance under the agreement was careless, negligent and indifferent and
that the abandonment of its duties constituted a breach of contract.

Pretrial discovery is in its initial stages and there have been no depositions
conducted to date.

                                       10
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the last quarter
of the fiscal year covered by this Report.

PART II.


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

On April 7, 2000, the common stock of the Company commenced trading on the
NASDAQ National Market System under the symbol "BSML". Prior to its listing on
NASDAQ, from 1995 to April 2000, the Company's common stock was listed for
trading on the American Stock Exchange (AMEX: BWT). The following table sets
forth, for each full quarterly period during Fiscal 2001 and the Transition
Period, high and low sales price information as reported by Nasdaq, AMEX, or
other electronic services, as the case may be.

                                                          High             Low
                                                          ----             ---

     Fiscal Year Ended December 29, 2001
     -----------------------------------
     March 31, 2001                                     $ 6.2500         $2.438
     June 30, 2001                                      $ 12.000         $4.938
     September 29, 2001                                 $14.5000         $5.203
     December 29, 2001                                  $ 6.2500         $3.266

     Transition Period Ended December 30, 2000
     -----------------------------------------
     July 1, 2000                                       $ 10.875         $3.281
     September 30, 2000                                 $  9.812         $3.250
     December 30, 2000                                  $  8.281         $2.187

As of March 26, 2002, there were 314 holders of record of the Company's common
stock. This number excludes any estimate by the Company of the number of
beneficial owners of shares held in street name, the accuracy of which cannot be
guaranteed.

Dividends

The Company has not paid any cash dividends on its common stock since its
inception. The policy of the Board of Directors is to retain earnings to support
growth; therefore, the Company does not anticipate paying any cash dividends on
its common stock in the foreseeable future.

Recent Sales of Unregistered Securities

In addition to the issuance of shares upon exercise of options or otherwise as
reported elsewhere in this Report, within the past three years the Company has
issued securities in transactions summarized below without registration of the
securities under the Securities Act of 1933, as amended (the "1933 Act").

Fiscal Year Ending April 1, 2000
--------------------------------

Effective June 4, 1999, the Company sold 1,355,555 shares of restricted common
stock in a private placement for $15 million.  1,004,043 of the shares were sold
to nine private investors, including LCO , for $11.12 million. The remaining
351,512 shares were sold to a group of 18 individuals, including members of
senior management, the Company's Board of Directors, and key consultants
("Management Purchasers") for $3.88 million. The purchase price was $10.95 per
share. However, four of the purchasers, including three non-employee directors
of the Company and LCO, purchased at $11.525 per share. CAP Advisers provided
financing for the Management Purchasers. All purchasers acquired certain
registration rights.

                                       11
<PAGE>

Effective January 12, 2000, the Company sold 77,318 shares of restricted common
stock in a private placement to Andrew J. McKelvey for cash proceeds of
$464,000, or $6.00 per share. Mr. McKelvey also acquired certain registration
rights with respect to the shares. Bradford Peters, a director of the Company,
shares in the economic benefits of any appreciation in the shares acquired by
Mr. McKelvey. Mr. Peters also shares with Mr. McKelvey authority to dispose of
the shares.

Effective January 12, 2000, the Company sold in a private placement a total of
30,927 shares of restricted common stock to Quota Rabbicco II, Ltd., Argonaut
Partnership, L.P., and David E. Gerstenhaber for $186,000 or $6.00 per share.
The three purchasers also acquired certain registration rights with respect to
the shares.

On January 18, 2000, the Company sold in a private placement 3,333,333 shares of
its restricted common stock, representing 14.2 percent of the Company's total
shares then outstanding, for aggregate proceeds of $20 million. The purchase
price was $6.00 per share. The shares were issued to three private investors,
Pequot Private Equity Fund II, L.P. (1,666,667 shares), Pequot Partners Fund,
L.P. (833,333 shares), and Pequot International Fund, Inc. (833,333
shares)(collectively, the "Pequot Investors"). Pursuant to a Registration Rights
Agreement entered into with the Company, the Pequot Investors acquired both
demand and piggyback registration rights to cause the Company to register their
shares for offer and sale under the 1933 Act. Pursuant to a Voting and Co-Sale
Agreement entered into between the Company, the Pequot Investors, and LCO, the
Company granted to the Pequot Investors the right to designate one person to be
appointed to the Board of Directors of the Company, and to be nominated for
election as a director in any shareholders meeting at which directors are
elected. The Pequot Investors appointed Mr. Gerald Poch to serve as their
designee on the Company's Board of Directors.

Transition Period Ended December 30, 2000
-----------------------------------------

On June 29 and August 3, 2000, the Company sold to eleven investors (the "Note
Investors") in a private placement its 5% Subordinated Convertible Notes due
June 29, 2005 (the "August 2000 Notes") in the aggregate principal amount of $20
million.

Initially, the August 2000 Notes were convertible into shares of the Company's
restricted common stock at a per share conversion price of $6.18, which was 120%
of the average of the closing bid price of the common stock during the ten-day
trading period immediately prior to June 27, 2000, the date the transaction
documents were signed.  The Company also issued to the Investors, pro rata,
warrants (the "Warrants") for the purchase a total of 1,618,121 shares of common
stock, which have a term of five years and initially had an exercise price of
$7.21 per share. The fair value of the Warrants issued of $2.1 million was
recorded as a discount against the August 2000 Notes and was being amortized
over the life of the August 2000 Notes to interest expense.

Pursuant to Registration Rights Agreements between the Note Investors and the
Company, the Company registered with the SEC, effective August 25, 2000, the
shares of common stock underlying the August 2000 Notes and Warrants for resale
under the Securities Act.

Seven of the Note Investors, who purchased an aggregate amount of $15.7 million
of the August 2000 Notes, are affiliates of the Company.  The affiliated Note
Investors include LCO (the principal shareholder of the Company and affiliated
with director Anthony Pilaro), John Reed (shareholder, CEO and director), Dr.
Gasper Lazzara, Jr. (director), Andrew McKelvey (shareholder and affiliated with
director Bradford Peters), and Pequot Private Equity Fund II, L.P., Pequot
International Fund, Inc., and the Pequot Investors (shareholders and affiliated
with director Gerald Poch).

Four of the Note Investors, who purchased a total of $4.3 million principal
amount of the August 2000 Notes, are unaffiliated with the Company.  These
unaffiliated Note Investors are CapEx, L.P., Pacific Mezzanine Fund, VenCap
Opportunities Fund, L.P., and Wendell Starke.

On December 5, 2000, the Company sold to LCO in a private placement a
Convertible Promissory Note (the "December 2000 Note") in the aggregate
principal amount of $5 million.  This December 2000 Note, together with accrued
interest of $132,644, was converted into 1,026,529 shares of restricted common
stock of the Company on April 10, 2001, at a conversion price of $5.00 per
share.  In conjunction with the issuance of the December 2000 Note, LCO was
granted warrants for 250,000 shares at $5.00 per share. The fair value of the
warrants issued of

                                       12
<PAGE>

$253,000 was recorded as a discount against the December 2000 Note and is being
amortized over the life of the December 2000 Note to interest expense. The
unamortized fair value of the warrants was recorded as additional interest
expense upon conversion of the Note. All 250,000 warrants granted in connection
with the December 2000 Note Offering remain outstanding and unexercised.

As a result of the issuance of the December 2000 Note, the conversion price of
the August 2000 Notes, and the exercise price of the Warrants, was automatically
adjusted to $5.00 per share. Additionally, the fair value of the Warrants was
adjusted to $2.3 million based upon the change in conversion price and the
discount of the August 2000 Notes was adjusted accordingly.  The new fair value
of the Warrants was amortized on a straight-line basis over the life of the
August 2000 Notes to interest expense.

In December 2000, LCO, the Company's principal shareholder, and John Reed, the
Company's Chief Executive Officer, converted their August 2000 Notes, together
with accrued interest, into an aggregate of 1,122,323 shares of common stock.
This conversion was effected at the $5.00 conversion price.

Subsequently, effective December 14, 2000, other Note Investors agreed with the
Company to convert an aggregate of $13,642,000 in principal amount of their
August 2000 Notes, together with accrued interest, into 3,568,560 shares of
common stock at an amended conversion price of $3.8625 per share.  Upon
conversion of these notes, the related unamortized discount of $2.2 million
arising from the fair value of the Warrants was immediately recorded as interest
expense.

Of the original principal amount of $20 million of August 2000 Notes, as of the
date of this Report, $800,000 in principal amount has not been converted and
remains outstanding.

Of the original Warrants issued in the August 2000 Note offering, all 1,506,311
Warrants remain outstanding and unexercised.

In March 2002, the Company granted warrants to purchase 80,000 share of common
stock to certain guarantors of 2002 working capital.  The warrants are
exercisable at $4.70 per share.  See Item 7--Management's Discussion and
Analysis--Liquidity and Capital Resources--"Additional Working Capital
Guarantees."  As a result of the issuance of these warrants, the conversion
price of the remaining August 2000 Notes, and the exercise price of the
Warrants, was automatically adjusted to $4.70 per share.

The conversion price of the remaining August 2000 Notes, and the exercise price
of the Warrants, continues to be subject to additional adjustments from time to
time upon the occurrence of certain other events described in the August 2000
Notes and Warrants, including future issuances of common stock for consideration
less than the conversion price then in effect, stock splits or reverse stock
splits, and the occurrence of certain major corporate events such as mergers,
sale of assets, tender offers or exchange offers.  At any time after the third
anniversary of the issuance date of the August 2000 Notes, the remaining Note
holders have the right, but not the obligation, to cause the Company to redeem
all or a portion of the August 2000 Notes.

Fiscal Year Ended December 29, 2001
-----------------------------------

On April 30, 2001, the Company completed the Offering.  The Offering involved
sales of a total of 5,371,428 Shares to the April 2001 Investors.  None of the
April 2001 Investors were affiliated with the Company before the completion of
the Offering.  The Company sold the Shares for $5.25 per share, yielding gross
proceeds to the Company of $28.2 million.

In connection with the Offering, the Company paid the Placement Agent five
percent of the gross proceeds of the Offering, or $1,410,000, and issued to the
Placement Agent warrants to purchase a total of 537,143 shares of restricted
common stock for a per share purchase price of $5.25.  The warrants have a five-
year term.  The fees paid to the Placement Agent and the fair value of the
warrants of $704,000 were netted against the Offering proceeds.  To date, the
Placement Agent has exercised warrants to purchase 429,048 shares of common
stock.

                                       13
<PAGE>

In connection with the Offering, the Company filed with the SEC a registration
statement covering the Shares and the common stock underlying the warrants
issued to the Placement Agent.  The SEC declared the registration statement
effective on June 11, 2001.

With respect to all of the foregoing offers and sales of restricted and
unregistered securities by the Company, the Company relied on the provisions of
Sections 3(b) and 4(2) of the 1933 Act and rules and regulations promulgated
thereunder, and upon Regulation S promulgated by the Securities and Exchange
Commission, including, but not limited to Rules 505 and 506 of Regulation D, in
that such transactions did not involve any public offering of securities and
were exempt from registration under the 1933 Act. The offer and sale of the
securities in each instance was not made by any means of general solicitation;
the securities were acquired by the investors without a view toward
distribution; and all purchasers represented to the Company that they were
sophisticated and experienced in such transactions and investments and able to
bear the economic risk of their investment. A legend was placed on the
certificates and instruments representing these securities stating that the
securities evidenced by such certificates or instruments, as the case may be,
were not registered under the 1933 Act and setting forth the restrictions on
their transfer and sale. Each investor also signed a written agreement, or
agreed to so sign upon exercise of their options, that the securities would not
be sold without registration under the 1933 Act or pursuant to an applicable
exemption from such registration.

Stock Options
-------------

Since March 31, 1998, the Company has granted options to purchase shares of
common stock to employees, directors, or key consultants pursuant to the
Company's 1997 Stock Option and Incentive Plan (the "1997 Plan"). As of March 4,
2002, options for 745,462 shares of common stock have been exercised, 2,075,250
have been forfeited and 5,360,212 remain outstanding and unexercised.
Additional options for approximately 856,001 shares have been granted to certain
vendors and consultants outside the 1997 Plan, and remain outstanding and
unexercised as of the date of this Report.  Options for 468,332 shares have been
exercised by such vendors and consultants outside the 1997 Plan.  The exercise
price of the options granted during that period ranges from $1.00 to $13.75 per
share. Most of the options vest and become exercisable in increments over time.

The Company has registered with the SEC, on Form S-8, up to 4,000,000 million
shares of common stock subject to stock options which have been or may in the
future be granted under the Company's 1997 Plan, and up to 675,000 shares of
common stock subject to stock options or warrants which have been granted to
consultants or advisers outside the 1997 Plan. The Company intends to register
with the SEC on Form S-8 such additional shares of common stock as will be
necessary to cover all 7,000,000 option shares presently authorized to be issued
under the Company's 1997 Plan.

ITEM 6.  SELECTED FINANCIAL DATA

The selected consolidated financial data set forth below with respect to the
Company's consolidated statements of earnings and consolidated balance sheets
for the periods indicated are derived from the consolidated financial statements
of the Company.  The data set forth should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the audited consolidated financial statements and related notes
thereto.

<TABLE>
<CAPTION>
                                                         Dec 29,       Dec 30,   April 1,    March 31,  March 31,
                                                           2001         2000       2000        1999        1998
                                                          ------        ----       ----        ----        ----
                                                                      (As Restated)
                                                                 (in thousands, except per share data)
Consolidated Balance Sheet Data:
<S>                                                      <C>           <C>        <C>        <C>         <C>
Cash and cash equivalents..............................  $ 7,162       $ 5,701    $10,969    $ 6,200     $   503
Working capital........................................    2,929        (4,808)    10,869      3,498       1,198
Current assets.........................................   15,614        13,257     15,018      7,780       3,082
Total assets...........................................   39,847        30,131     32,390     10,432       4,662
Long-term obligations, less current maturities.........    4,849         1,727        122          -           -
Stockholders' equity...................................   20,556         9,519     28,119      6,060       1,847
</TABLE>

                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                            9-month
                                                                           Transition
                                                           Year Ended     Period Ended                 Year Ended
                                                                                         --------------------------------------
                                                             Dec.29,        Dec. 30,        April 1,     March 31,    March 31,
                                                              2001            2000           2000          1999         1998
                                                              ----            ----           ----          ----         ----
                                                                          (As restated)
<S>                                                        <C>            <C>            <C>           <C>           <C>
Consolidated Statement of Operations data:                               (in thousands, except per share data)

Net Sales                                                  $    43,230     $    16,304   $     8,044   $       547   $    4,609

Operating and occupancy costs                                   16,744           9,462        13,849           946        5,813
Selling, general and administrative                             43,492          30,556        14,498         4,627        4,508
Research and development                                         1,849           1,811         1,748         3,201          906
Depreciation and amortization                                    4,715           3,830         1,457           123          422
Restructuring expense                                              879             778           472         1,030        2,017
Impairment charges                                               1,217           1,254             -         2,525            -
Loss on sale/leaseback                                               -           7,138             -             -            -
                                                           --------------------------------------------------------------------

Total operating expenses                                        68,896          54,829        32,024        12,452       13,666
                                                           --------------------------------------------------------------------

Loss from operations                                           (25,666)        (38,525)      (23,980)      (11,905)      (9,057)

Other income (expense), net                                       (776)         (5,961)          475           138          (56)
                                                           --------------------------------------------------------------------

Loss before income tax provision                               (26,442)        (44,486)      (23,505)      (11,767)      (9,113)
Provision for income taxes                                          57              26            11             -            -
                                                           --------------------------------------------------------------------

Net Loss, before cumulative effect of change in
 accounting principle                                      $   (26,499)    $   (44,512)  $   (23,516)  $   (11,767)  $   (9,113)

Cumulative effect of change in accounting principle                  -            (272)            -             -            -
                                                           --------------------------------------------------------------------
Net Loss                                                   $   (26,499)    $   (44,784)  $   (23,516)  $   (11,767)  $   (9,113)
                                                           ====================================================================

Basic and Diluted Net Loss per Share:
Before cumulative effect of change in accounting
 principle                                                 $     (0.79)    $     (1.82)  $     (1.18)  $     (1.13)  $    (1.62)
                                                           ====================================================================
Cumulative effect of change in accounting principle                  -     $     (0.01)            -             -            -
                                                           ====================================================================
Basic and diluted net loss per share                       $     (0.79)    $     (1.83)  $     (1.18)  $     (1.13)  $    (1.62)
                                                           ====================================================================

Weighted average shares outstanding-diluted                 33,550,316      24,493,676    19,995,796    10,409,212    5,630,000
                                                           ====================================================================
</TABLE>

                                       15
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

THIS ANNUAL REPORT ON FORM 10-K CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTANTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED BY
THE COMPANY AND DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED BELOW IN THE SECTION
ENTITLED "FORWARD-LOOKING STATEMENTS" AND ELSEWHERE IN THIS ANNUAL REPORT. THE
FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH OUR FINANCIAL STATEMENTS AND
RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS DOCUMENT.

Financial Restatement

The Company's financial statements for the 9-month transition period ended
December 30, 2000 (the "Transition Period"), and for the first three quarters of
the fiscal year ended December 29, 2001 ("Fiscal 2001"), have been restated due
to adoption of a change in the Company's revenue recognition policy related to
revenue from Associated Centers.  See "Revenue Recognition" below.  See also
Consolidated Statements of Operations on pages F-5, and Footnote 17, Quarterly
Results, on page F-29.  For the Transition Period, the restatement reflects a
reduction in revenues of $504,000, a cumulative effect of a change in accounting
principle of $272,000, and an increase in net loss for the period of $776,000,
or 1.76%, compared to the net loss previously reported.

Critical Accounting Policies And Estimates

General
-------

The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to customer programs and incentives, bad
debts, inventories, income taxes, warranty obligations, financing operations,
restructuring, and contingencies and litigation. The Company bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.

Revenue Recognition
-------------------

BriteSmile recognizes revenue related to retail products at the time such
products are sold to customers.

BriteSmile recognizes revenue at Company operated Centers at the time a
whitening procedure is performed.

BriteSmile records deferred revenue at the time of sale of key cards and access
codes to Associated Centers.  Deferred revenue is recorded for the full value of
the key cards and access codes at the time of sale only if BriteSmile is
contractually entitled to invoice the Associated Center for the full value of
the sale and the Associated Center is obligated to pay such invoice, thereby
creating a corresponding account receivable.  Deferred revenue is subsequently
recognized as revenue over the estimated period that the whitening procedures
which can be performed via the key cards and access codes are expected to be
used, currently 30 days from the date of shipment.  A material

                                       16
<PAGE>

change to the estimated time period over which the key cards and access codes
are used could have a significant impact on BriteSmile's revenue in the period
of change as well as future periods.

BriteSmile's policy is not to accept any return of key cards or access codes
during the course of the agreement with an Associated Center; however, it does
provide credits to the ultimate whitening customer for a "whitening guarantee."
BriteSmile recognizes those credits by reducing its revenue.

Bad Debt
--------

BriteSmile maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. A
considerable amount of judgment is required in assessing the ultimate
realization of accounts receivable including the current credit-worthiness of
each customer. If the financial condition of BriteSmile's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.

Inventory
---------

BriteSmile is required to state its inventories at the lower of cost or market.
BriteSmile writes down its inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions, as well as for damaged goods. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.

Property, Equipment and Improvements - Carrying Value Near Recoverability
-------------------------------------------------------------------------
Estimate
--------

BriteSmile evaluates its property, equipment and improvements for impairment
whenever indicators of impairment exist. Management determined that impairment
indicators did exist in Fiscal 2001 based upon continued operating losses and
negative cash flow.  BriteSmile's current estimates of recoverability for its
property, equipment and improvements indicated those assets would not have been
recoverable if management's estimates of future cash flows had been 295% lower
than its current estimate.  BriteSmile's recoverability estimates are based on
current revenue levels continuing to grow at approximately 20% per annum
compared to an historical growth rate of approximately 114%. BriteSmile has
further assumed that operating costs will increase by approximately 3% per annum
compared to an historical increase of approximately 157%.  The Company completed
a major restructuring of its cost structure in the fourth quarter of Fiscal 2001
with plans to reduce operating costs by approximately $14 million per year
compared to Fiscal 2001. Had BriteSmile's recoverability estimates resulted in a
determination that these assets were not recoverable, BriteSmile would have
recognized an impairment loss in Fiscal 2001.

Store Closures
--------------

During Fiscal 2001 and the Transition Period, BriteSmile recorded significant
reserves in connection with store closures. These reserves include estimates
pertaining to employee separation costs and the settlements of contractual
obligations, primarily property leases. Although the Company does not anticipate
significant changes, the actual costs related to the closures may differ from
these estimates.

Legal Contingencies
-------------------

BriteSmile is currently a party to certain legal action. As discussed in Note 14
of BriteSmile's consolidated financial statements, management does not believe
that current pending litigation will have a material adverse effect on
BriteSmile's consolidated financial position. This conclusion has been developed
in consultation with outside counsel handling BriteSmile's defense in the
matter. It is possible, however, that future results of operations for any
particular quarterly or annual period could be materially affected by changes in
management's assumptions and the effectiveness of BriteSmile's strategies
related to these legal actions.

BriteSmile recognizes the costs of legal services in the periods incurred. As of
December 29, 2001, no amounts had been accrued for costs related to these legal
actions.

                                       17
<PAGE>

Results of Operations

During the fourth quarter of the Company's fiscal year ended April 1, 2000
("Fiscal 2000"), the Company adopted a 52/53-week (4 week - 4 week - 5 week
quarter) fiscal calendar. In addition, the Company changed its year end from
March to December. The first such 52 week calendar period to be audited is
Fiscal 2001. Accordingly, the audited financial information in this Annual
Report on Form 10-K includes only Fiscal 2001 (the 52-week period ended December
29, 2001), the Transition Period (the 39 weeks ended December 30, 2000), and
Fiscal 2000 (the 52 weeks ended April 1, 2000).

The following table sets forth, for the periods indicated, certain information
relating to the operations of the Company.  The unaudited information for Fiscal
2000 and 39 weeks ended December 30, 1999 was prepared by the Company for the
reader's information only, and is not covered by the auditor's report contained
herein.

                                       18
<PAGE>

<TABLE>
<CAPTION>
                                               52 Weeks Ended    39 Weeks Ended     52 Weeks Ended   52 Weeks Ended   39 Weeks Ended
                                                December 29,       December 30,       December 30,      April 1,       December 30,
                                                    2001               2000               2000            2000             1999
                                                  (audited)          (audited)        (unaudited)       (audited)       (unaudited)
                                              --------------------------------------------------------------------------------------
                                                                  (As Restated)
<S>                                            <C>               <C>                <C>              <C>              <C>
REVENUES:
 Center whitening fees, net....................   $    14,333       $     9,315         $    11,295     $     5,838     $     3,858
 Associated Center whitening fees, net.........        24,048             5,766               6,994           1,970             742
 Product sales.................................         4,849             1,223               1,362             236              97
                                                  -----------       -----------         -----------     -----------     -----------

   Total revenues, net.........................        43,230            16,304              19,651           8,044           4,697
                                                  -----------       -----------         -----------     -----------     -----------

OPERATING COSTS AND EXPENSES
 Operating and occupancy costs.................        16,744             9,462              16,580          13,849           6,731
 Selling, General and administrative expenses..        43,492            30,556              32,753          14,498          12,301
 Research and development expenses.............         1,849             1,811               2,280           1,748           1,279
 Depreciation and amortization.................         4,715             3,830               4,513           1,457             774
 Restructuring expense.........................           879               778                 950             472             300
 Impairment charges............................         1,217             1,254               1,254               -               -
 Loss on sale/leaseback transaction............             -             7,138               7,138               -               -
                                                  -----------       -----------         -----------     -----------     -----------

   Total operating costs and expenses..........        68,896            54,829              65,468          32,024          21,385
                                                  -----------       -----------         -----------     -----------     -----------

     Loss from operations......................       (25,666)          (38,525)            (45,817)        (23,980)        (16,688)
                                                  -----------       -----------         -----------     -----------     -----------

OTHER INCOME (EXPENSE), net....................          (776)           (5,961)             (5,766)            475             280
                                                  -----------       -----------         -----------     -----------     -----------

     Loss before income tax provision and
      change in accounting principle...........       (26,442)          (44,486)            (51,583)        (23,505)        (16,408)

INCOME TAX PROVISION...........................            57                26                  37              11               -
                                                  -----------       -----------         -----------     -----------     -----------

  Net loss before change in accounting
   principle...................................   $   (26,499)      $   (44,512)        $   (51,620)    $   (23,516)    $   (16,408)
   Cumulative effect of change in accounting
   principle, net of taxes.....................             -              (272)               (272)              -               -
                                                  -----------       -----------         -----------     -----------     -----------

     Net loss..................................   $   (26,499)      $   (44,784)        $   (51,892)    $    23,516)    $   (16,408)
                                                  ===========       ===========         ===========     ===========     ===========

BASIC AND DILUTED NET LOSS PER SHARE BEFORE
 CHANGE IN ACCOUNTING PRINCIPLE................   $     (0.79)      $     (1.82)        $     (2.13)    $     (1.18)         $(0.87)
                                                  ===========       ===========         ===========     ===========     ===========

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
 PRINCIPLE.....................................   $         -       $     (0.01)        $     (0.01)    $         -     $         -
                                                  ===========       ===========         ===========     ===========     ===========

BASIC AND DILUTED NET LOSS PER SHARE...........
                                                  $     (0.79)      $     (1.83)        $     (2.14)    $     (1.18)    $     (0.87)
                                                  ===========       ===========         ===========     ===========     ===========

WEIGHTED AVERAGE SHARES - BASIC AND DILUTED....    33,550,316        24,493,676          24,281,863      19,995,796      18,783,918
                                                  ===========       ===========         ===========     ===========     ===========
</TABLE>

                                       19
<PAGE>

The following are explanations of significant period-to-date changes for Fiscal
2001 and Fiscal 2000 (unaudited and restated):

Revenues

Total Revenues, net.  Total revenues, net increased by $23.6 million, or 120%,
to $43.2 million for Fiscal 2001, from $19.7 million for Fiscal 2000.

Center Whitening Fees, net.  Center whitening fees, net increased by $3 million
or 27%, to $14.3 million for Fiscal 2001, from $11.3 million for Fiscal 2000.
This increase was attributable to a 21% comparable store increase for eleven of
the fourteen Centers.  The increase can also be attributed to the fact that
three of the Centers were in operation for only a portion of Fiscal 2000, but
operated for the full 12 months in Fiscal 2001.  This overall increase was
partially offset by the closure of three underperforming Centers in the first
quarter of Fiscal 2001 that were open throughout 2000.  The number of procedures
performed in the Centers increased 23% to 32,136 procedures for Fiscal 2001,
compared to 26,197 Center procedures in Fiscal 2000.

Associated Center Whitening Fees, net.  Associated Center whitening fees, net
increased by $17.1 million, or 244%, to $24.0 million for Fiscal 2001, from $7.0
million for Fiscal 2000.  This increase was primarily due to the operation of
3,959 Associated Centers at the end of Fiscal 2001 compared to just 1,155
Associated Centers that were in operation at the end of Fiscal 2000.  Of the
3,959 Associated Centers in operation at December 29, 2001, 652 were
international locations.  The number of procedures sold to the Associated
Centers increased 224% to 119,380 procedures in Fiscal 2001 compared to 36,856
procedures in Fiscal 2000.

Although the Company does not believe that its business follows seasonal trends,
it has recognized that at various times during the months of July and August and
again during December and January, a substantial number of Associated Center
Dentists (both domestic and international) shut down their practices for
vacation.  As a result, the frequency of key card and access code purchases by
Associated Centers during these months can decline as well.

The Company continues to execute its strategic plan of expanding distribution
into the professional dental practice channel through its Associated Centers.
Additionally, the Company anticipates opening additional Associated Centers in
domestic and international locations over the next twelve months.  There can be
no guarantee that the Company will be successful in executing its business plan.

Product Sales.  Product sales increased by $3.5 million, or 256%, to $4.8
million for Fiscal 2001, from $1.4 million for Fiscal 2000.  Product sales
represent the Company's toothpaste, mouthwash, whitening gum and Sonicare
toothbrush products sold at Centers, Associated Centers, and through its
website.  Product sales are expected to increase during the next twelve months
as a result of the introduction of additional oral care products to be sold at
Centers, Associated Centers, and through the company's Internet website.

Operating Costs and Expenses

Operating and Occupancy Costs.   Operating and occupancy costs decreased as a
percentage of sales to 39% for a total of $16.7 million for Fiscal 2001, from
82% for a total of $16.6 million for the comparable 52-week period ended
December 30, 2000.  This decrease as a percentage of sales is a reflection of
the lower fixed cost structure of the Associated Center sales channel and the
fact that the cost structure for the 14 Centers is essentially fixed.  Also, in
the first quarter of Fiscal 2001, the Company closed three underperforming
Centers.  The total operating and occupancy costs of these three closed Centers
was $260,000 for the period they were open in Fiscal 2001, compared to total
operating and occupancy costs of $1.8 million for the same three Centers in
Fiscal 2000.

Selling, General and Administrative Expenses.  Selling, general and
administrative expenses decreased as a percentage of sales to 101% for the
Fiscal 2001 compared to 163% in Fiscal 2000.  In dollar terms, total selling,
general and administrative expenses increased $10.7 million to $43.5 million for
Fiscal 2001 compared to $32.8 million for Fiscal 2000.  This increase was
primarily attributable to increased expenses to support the Company's extensive
growth in Fiscal 2001, including: (i) salaries and benefits and (ii) sales,
training, marketing and advertising activities.  As a result of catching up on
the backlog of new customers which required higher than originally expected

                                       20
<PAGE>

field personnel costs, at the start of the fourth quarter of 2001 the Company
was able to streamline its field personnel which will result in lower costs in
the future, as well as reductions in corporate overhead expenses.

Additionally, in Fiscal 2001 the Company recognized $1,554,000 in non-cash
compensation expense as a result of the issuance of warrants and options to
outside consultants, and the revaluation of previously issued warrants.

Research and Development Expenses.  Research and development expenses decreased
as both a percentage of sales and in dollar terms to $1.8 million, or 4% of
sales, for Fiscal 2001, compared to $2.3 million or 11% of sales, in Fiscal
2000.  Research and development costs incurred during Fiscal 2001 represent
expenses related to safety and efficacy studies along with various other
research studies to expand the Company's leadership position in the teeth-
whitening industry.

Depreciation and Amortization.  Depreciation and amortization decreased as a
percentage of sales to 11%, or $4.7 million for Fiscal 2001 compared to 22% of
sales, or $4.5 million in Fiscal 2000.  This percentage decrease is primarily
due to the increase in both Center and Associated Center sales.    The increase
in total depreciation dollars is due to the greater number of BS3000 and
BS3000PB systems deployed in the Associated Centers, offset by (i) smaller
depreciation resulting from the closure of three Centers in the first quarter of
Fiscal 2001, and (ii) the leasing of BS3000 and BS3000PB machines under capital
leases and the resulting lower relative amortization expense.

Restructuring Expense.  Restructuring expense was $879,000 for Fiscal 2001
compared to $950,000 for Fiscal 2000.  In December 2001, the Company's Board of
Directors and management decided to terminate the construction of a Center in
San Francisco, California as a result of the pending recession and the
concentrated effect of the failure of numerous "Dot-Com" businesses in Northern
California.  As a result of the Company's decision to cease construction on this
Center, the Company reserved $987,000 for lease liability obligations.  This
amount was offset by a reduction of the Fiscal 2000 restructuring liability of
$108,000.

Impairment Charge.  The Company recognized a $1.2 million non-cash charge for
impairment of assets related to the aborted construction of the San Francisco
Center, as leasehold improvements were not deemed recoverable.  The Company
incurred a similar charge of $1.3 million in 2000 for three closed Centers. See
Restructuring Expense above.

Interest Expense.  Interest expense decreased $4.8 million to $1.1 million for
Fiscal 2001 from $5.9 million for Fiscal 2000.  The significant decrease is due
to the fact that the Company recognized $3.4 million of interest expense related
to the beneficial conversion of notes in Fiscal 2000.  The $1.1 million of
interest expense is primarily comprised of interest on the EVL lease line and
the EVL working capital loan, together with interest on outstanding August 2000
Notes.

Interest Income.  Interest income increased $88,000 to $307,000 in Fiscal 2001
from $219,000 in Fiscal 2000, as a result of higher average cash balances
throughout the fiscal year.

Net Loss.  The net loss decreased $25.4 million or 49% to $26.5 million for
Fiscal 2001 from $51.9 million for Fiscal 2000, due to a combination of the
factors discussed above which include various one-time charges and various non-
cash charges.  As a result of this improvement, the net loss per share was
$(0.79) for Fiscal 2001 compared to a net loss per share of $(2.14) for Fiscal
2000.

The following are explanations of significant period-to-period changes for the
Transition Period (the 39 weeks ended December 30, 2000) (as restated) and the
39 weeks ended December 30, 1999 (unaudited):

Revenues

Total Revenues, net. Total revenues, net increased by $11.6 million, or 247% to
$16.3 million for the Transition Period from $4.7 million for the 39 weeks ended
December 30, 1999.

Center Whitening Fees, net.   Center whitening fees, net increased by $5.5
million, or 141%, to $9.3 million for the Transition Period from $3.9 million
for the 39 weeks ended December 30, 1999. This increase was primarily due to the
operation of 17 Centers during the Transition Period compared to 8 Centers that
were in operation during the 39 weeks

                                       21
<PAGE>

ended December 30, 1999. The Company opened 3 new Centers during the Transition
Period. In Fiscal 2001, the Company closed three of its less-productive Centers.
See "Operating Costs and Expenses- Store Closure Recovery" below.

Associated Center Whitening Fees, net.  Associated Center whitening fees, net
increased by $5.0 million, or 677% to $5.8 million for the Transition Period
from $742,000 for the 39 weeks ended December 30, 1999. This increase was
primarily due to the operation of 1,155 Associated Centers at the end of the
Transition Period compared to 29 Associated Centers that were in operation at
the end of the 39 weeks ended December 30, 1999. Of the 1,155 Associated Centers
in operation at the end of Fiscal 2000, 175 were international locations.

During the Transition Period, the Company opened 1,126 new Associated Centers,
of which 175 were international locations. At the end of Fiscal 2000, there were
428 Associated Centers in the process of being placed into operation, of which
none were international locations.

Product Sales. Product sales increased by $1.1 million, or 1,161% to $1.2
million for the Transition Period from $97,000 for the 39 weeks ended December
30, 1999. Product sales represent the Company's toothpaste and Sonicare
toothbrush products sold at Centers and Associated Centers.

Operating Costs and Expenses

Center Selling and Occupancy Costs. Center selling and occupancy costs increased
by $2.7 million, or 41%, to $9.5 million for the Transition Period from $6.7
million for the 39 weeks ended December 30, 1999.  This increase is primarily
due to the operation of 17 Centers at the end of the Transition Period compared
to 8 Centers that were in operation at December 30, 1999. Of this increase, $1.8
million related to Center salaries and benefits, $0.5 million related to rent,
utilities, repairs and telephone at the 17 existing Centers, and $0.5 million
related to product cost of sales and procedure supplies as a result of increased
sales.

Center selling and occupancy costs, as a percentage of Center whitening fees,
increased to 102% for the Transition Period from 98% for the 39 weeks ended
December 30, 1999. The low operating margins represent newly opened Centers and
partial year results from existing Centers.

Product cost of sales as a percentage of product sales increased to 34% for the
Transition Period from 30% for the 39 weeks ended December 30, 1999. This
increase was primarily due to the introduction of the Sonicare toothbrush
product during the period, which has lower margins. Product cost of sales
consisted primarily of the Company's toothpaste and Sonicare toothbrush
products.

During September 2000, the Company reduced the number of operating days at 12 of
its 17 Centers, from 6 days to 5 days, eliminating Mondays. This change did not
affected the number of paid procedures performed at Centers in relationship to
historical trends.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $18.3 million, or 148%, to $30.6 million for
the Transition Period from $12.3 million for the 39 weeks ended December 30,
1999. During the Transition Period, the Company added 26 additional market
managers, executive, selling and administrative personnel to effectively execute
the Company's business strategy, including the introduction of new Centers, the
addition of 1,126 Associated Centers, and costs incurred to open future Centers
and Associated Centers.

Of this increase, $10.3 million related to advertising, promotional and Call
Center costs directed to increase consumer awareness, and sales of the whitening
service to prospective Associated Center dentists, $1.9 million to increased
salaries and benefits, $400,000 to postage, $396,000 to travel and entertainment
and $932,000 of professional service costs related to public relations,
executing Center and Associated Center agreements, executing leases,
intellectual property protection, legal fees, employee recruitment and general
corporate matters. In addition, the Company also incurred an incremental $1.6
million related to the development and expansion of international Associated
Centers in Japan, Argentina, Venezuela, Switzerland, Italy, Holland, France,
Singapore, Germany, Netherlands and Belgium.

Research and Development Expenses. Research and development expenses increased
by $532,000 to $1.8 million for the Transition Period from $1.3 million for the
39 weeks ended December 30, 1999. Research and development

                                       22
<PAGE>

costs incurred during the Transition Period were primarily attributable to the
development of the Company's next generation LATW system. Research and
development costs incurred during the 39 weeks ended December 30, 1999 represent
the development of the BS3000 system and associated key card, which was
introduced into Associated Centers during November 1999. The Company also
incurred additional expenses related to clinical and efficacy studies and costs
incurred in connection with the Company's efforts to obtain ADA approval.

Depreciation and Amortization. Depreciation and amortization increased by $3.1
million, or 395%, to $3.9 million for the Transition Period from $774,000 for
the 39 weeks ended December 30, 1999. This increase was primarily attributable
to the operation of 17 Centers and the operation of 1,155 BS3000 systems in
Associated Centers.

Stock Option Expense.  During the Transition Period, the Company recognized non-
cash charges totaling $313,000 for the fair value of stock options granted to
various consultants to the Company. These expenses have been allocated to the
appropriate expense category on the income statement.

Restructuring Expense. Restructuring expense increased by $478,000 to $778,000
for the Transition Period from $300,000 for the 39 weeks ended December 30,
1999. During the Transition Period, the Company's Board of Directors and
management decided to close its Centers located in Pasadena, CA., Ft.
Lauderdale, FL., and Coral Gables, FL. due to underperformance.  In addition,
the Company believed that there was an over saturation of wholly-owned Centers
in those markets.  These restructuring costs consisted primarily of lease
termination accruals, the write-down of leasehold improvements and employee
severance.

Impairment Charges and Loss on Sale/Leaseback Transactions. Impairment charges
and loss on sale/leaseback transactions was $8.4 million for the Transition
Period versus $0 for the 39 weeks ended December 30, 1999. During the Transition
Period, the Company recorded a $7.1 million charge related to the write-down of
1,384 BS3000 devices as a result of entering into the equipment lease financing
arrangement with Excimer Vision Leasing, L.P. ("EVL") on December 29, 2000.  The
loss of $7.1 million was recognized in the Transition Period as the fair market
value of the equipment sold, less its carrying value. The decline in fair value
resulting in the loss recognition was the result of a decision to change to a
new model of device and device manufacturer, which contributed to a significant
decline in the cost to purchase new devices.  In addition, the Company recorded
a $1.3 million charge related to the impairment of assets with the closing of
the three wholly-owned Centers discussed above.

Interest Expense. Interest expense was $6.1 million for the Transition Period
versus $24,000 for the 39 weeks ended December 30, 1999. Interest expense for
the Transition Period represents a pro-rata amount of the 5% interest to be
accrued and paid on a semi-annual basis on the outstanding amount of the August
2000 Notes, as well as the amortization of the fair market value of the Warrants
issued to the Note Investors.  The fair value of the Warrants was recorded as a
discount of the August 2000 Notes and was being amortized over the life of the
August 2000 Notes to interest expense.  For the Transition Period, the Company
recorded $191,000 of interest expense related to this amortization.
Additionally, upon conversion of the August 2000 Notes, the related unamortized
discount of $2.2 million was immediately recorded as interest expense.  The
Company also recorded $3.4 million of interest expense related to the beneficial
conversion rate offered certain August 2000 Note holders.  The beneficial
conversion amount represents the difference between the stated conversion rates
of the August 2000 Notes and the effective conversion rates considering the
relative fair value attributed to the August 2000 Notes and the Warrants.
Interest expense for the 39 weeks ended December 30, 1999 consisted primarily of
mortgage interest paid on the Company's former headquarters facility. Effective
March 2002, the Warrants are exercisable at $4.70 per share and expire on June
29, 2005.

Interest Income. Interest income decreased $112,000 or 37%, to $192,000 for the
Transition Period from $304,000 for the 39 weeks ended December 30, 1999. This
decrease was primarily related to decreased average available cash on-hand to
invest.

Net Loss. The net loss increased by $28.4 million, or 173%, to $44.8 million for
the Transition Period from $16.4 million for the 39 weeks ended December 30,
1999 due to a combination of the factors described above.

                                       23
<PAGE>

Liquidity and Capital Resources

General

The Company's principal sources of liquidity have been issuances of convertible
debt, common stock and common stock equivalents. At December 29, 2001, the
Company had $7.1 million of cash and cash equivalents. The Company expects to
sign contracts for additional Associated Centers during the next twelve months.
This expansion is contingent upon several factors, including available cash
resources and acceptance by consumers and Associated Center dentists of the
Company's LATW services. The Company expects that its principal uses of cash
will be to provide working capital, to finance capital expenditures, and to
satisfy other general corporate expenses. In particular, the Company plans to
use its cash to finance its marketing strategy.

During the first quarter of 2002, the Company obtained a $2.5 million line of
credit from CAP Advisers, and $4 million in shortfall guarantees.  See "CAP
Advisers Line of Credit," and "Additional Working Capital Guarantees" below.
The Company also amended its EVL Lease Agreement to defer payment of monthly
rental on LATW devices to year 2003.  See "EVL Lease Line Amendment" below.

Post September 11 Expense Reductions
------------------------------------

During the weeks following the September 11, 2001 terrorist attacks, the Company
saw an immediate drop in revenue, with the New York area Associated Centers
being hardest hit within the BriteSmile network of Associated Centers, and the
Company's own Center in New York.  The Company assessed the operating variables
that could be controlled and immediately responded to the decline in sales.
Management has and is implementing several cost saving initiatives totaling
approximately $14 million over the next twelve months.  Through the first two
months of Fiscal 2002, the Company has hit its cost targets and expects to do
the same throughout Fiscal 2002 to achieve the $14 million cost reduction. The
Company expects to achieve these cost savings in the areas of Center operations,
procedure kit production, various selling, general and administrative costs
including legal and consulting fees, and leveraging its marketing spend more
effectively by utilizing smaller media specific agencies, thereby reducing
agency fees. As a result, management expects selling, general and administrative
expenses to be leveraged more efficiently as sales from Centers and Associated
Centers increase in the future.  Depending upon the operating results, the
Company may increase its advertising spend.

CAP Advisers Line of Credit
---------------------------

In December 2001, as amended in March 2002, BriteSmile International entered
into Credit and Security Agreements with CAP Advisers which provides for a $2.5
million line of credit facility to the Company and its subsidiary.  See Item 1,
"Recent Business Developments--CAP Advisers Line of Credit."

EVL Lease Amendment
-------------------

The Company pays EVL a monthly rental for each LATW device leased, consisting of
a fixed amount, plus a "variable rent" payment in the amount of $125 for each
key card or access code sold to an Associated Center where EVL is the lessor of
the LATW device, which key card or access code enables Associated Center
dentists to perform 5 teeth whitening procedures (i.e. variable rent of $25 per
procedure).  See Item 1, "Recent Business Developments--EVL Lease Agreement."

On March 8, 2002, the Company and EVL amended their lease agreement to provide
that the variable rent portion of the monthly rental payments during 2002, in
the amount of $25 for each BriteSmile procedure, will be deferred and paid to
EVL in twelve equal monthly installments beginning January 9, 2003, with
interest payable on the deferred amount at a rate equal to LIBOR as quoted by
The Bank of Nova Scotia for the applicable adjustment dates for deposits in U.S.
Dollars for one month maturities, plus 200 basis points.

Additional Working Capital Guarantees
-------------------------------------

In March 2002 the Company received Commitment Letters from the Guarantors to
severally purchase, on or before December 31, 2002, up to $4 million of
additional shares of common stock of the Company (or to otherwise secure,
collateralize, or make available such funds to the Company).  The precise
purchase amount committed by the

                                       24
<PAGE>

Guarantors equals the difference between $4 million, and the "Excess Cash
Receipts" to be realized by the Company in 2002. "Excess Cash Receipts," for
this purpose, is defined to mean cash received by the Company through sales of
the Company's debt or equity securities, additional borrowings, or cash receipts
in excess of current projections. If the Guarantors are required to purchase
shares pursuant to the Commitment Letters, the purchase price for the common
stock will be the lesser of (i) $3.76 or (ii) eighty percent (80%) of the market
price of the Company's common stock at the time of purchase. In consideration
for the Guarantors' commitment, the Company issued to the Guarantors five-year
warrants to purchase an aggregate of 80,000 shares of common stock of the
Company at an exercise price of $4.70 per share.

There can be no assurance that additional capital will not be required, or that
it will be available on terms that are acceptable to the Company.  Additionally,
there can be no assurance that the Company's business will generate cash flows
at or above current levels.  Accordingly, the Company may choose to defer
capital expenditure plans or further reduce operating expenditures.

Cash flow used in operations decreased by $217,000 to $(20.3 million) for the
Fiscal 2001 from $(20.5 million) used in operating activities during the
Transition Period, primarily due to the decrease in the net loss recognized and
the net effect of timing differences in the collection and disbursement of
working capital components.

Net cash provided by financing activities was $33.0 million for Fiscal 2001.
Net cash provided by financing activities was $25.2 million for the Transition
Period.  In March 2001, the Company engaged the services of the Placement Agent
to assist the Company in raising capital in the Offering.  On April 30, 2001,
the Company completed the Offering in the aggregate amount of $28.2 million to
the April 2001 Investors.  The Offering consisted of the sale of 5,371,428
shares of the Company's restricted common stock at an offering price of $5.25
per share.  In addition, the Company received $4.7 million in cash from the
issuance of common stock upon the exercise of stock options and warrants during
Fiscal 2001 compared to $227,000 received from the issuance of common stock upon
the exercise of stock options during Fiscal 2000.

Capital expenditures were $11.2 million for Fiscal 2001.  Net capital
expenditures were $10 million for the Transition Period.  The capital
expenditures were primarily related to the development and purchase of BS3000
and BS3000PB systems for domestic and international Associated Centers,
expansion of the Company's Call Center, and final payments for the build-out of
the New York Center.  New devices were also funded through the use of the EVL
lease line.

The following table summarizes the Company's contractual obligations, commercial
commitments and expected cash flow impacts from the restructurings announced in
2001 and 2000 as of December 29, 2001 (in thousands):

<TABLE>
<CAPTION>
                                                                        Payments Due By Period
                                                           Less Than 1                                      After 5 Years
Contractual Obligations                         Total          Year         1-3 Years        4-5 Years
<S>                                             <C>            <C>          <C>              <C>            <C>
Long-Term Debt                                      2,883            500             2,300              83             --
Capital Lease Obligations                           3,831            900             2,700             231             --
Operating Leases                                   18,205          3,284             8,304           1,934          4,683
Restructuring                                       1,210            310               450             122            328
                                                   ------          -----            ------           -----          -----
Total Contractual Cash Obligations                 26,129          4,994            13,754           2,370          5,011
</TABLE>

                                       25
<PAGE>

Factors that may affect our performance

Inflation

Most of the Company's products are purchased in finished form and packaged by
the supplier or at the Company's headquarters. The Company anticipates usual
inflationary increases in the price of its products and does not intend to pass
these increases along to its customers, primarily as a result of other operating
efficiencies gained through changing the sourcing of certain of its products.
In general, the Company does not believe that inflation has had a material
effect on its results of operations in recent years.  However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.

Seasonality

The Company believes that its business follows seasonal trends due to the
closing of some Associated Center dental offices in July and August, and again
in November and December, for vacations.  As a result, the Company's sales
performance could potentially be affected.

Forward Looking Statements

The statements contained in this Report that are not purely historical are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act.
These statements relate to the Company's expectations, hopes, beliefs,
anticipations, commitments, intentions and strategies regarding the future. They
may be identified by the use of words or phrases such as "believes," "expects,"
"anticipates," "should," "plans," "estimates," and "potential," among others.
Forward-looking statements include, but are not limited to, statements contained
in Management's Discussion and Analysis of Financial Condition and Results of
Operations regarding the Company's financial performance, revenue and expense
levels in the future and the sufficiency of its existing assets to fund future
operations and capital spending needs.  Actual results could differ materially
from the anticipated results or other expectations expressed in such forward-
looking statements. The Company believes that many of the risks set forth here
and in the Company's filings with the Securities and Exchange Commission are
part of doing business in the industry in which the Company operates and
competes and will likely be present in all periods reported. The forward-looking
statements contained in this Report are made as of the date of this Report and
the Company assumes no obligation to update them or to update the reasons why
actual results could differ from those projected in such forward-looking
statements. Among others, risks and uncertainties that may affect the business,
financial condition, performance, development, and results of operations of the
Company include:

We have a limited operating history upon which to evaluate our likelihood of
success.

We have only manufactured and distributed our BS2000 since November 1998, the
BS3000 since November 1999 and the BS3000PB since May 2001.  We opened our first
Center in Walnut Creek, California in February 1999, and BriteSmile Associated
Centers began performing LATW procedures in April 1999.  Therefore, we have a
limited relevant operating history upon which to evaluate the likelihood of our
success.  Investors must evaluate the likelihood of our success in light of the
risks, expenses and difficulties frequently encountered in the operation and
expansion of a new business and the development and marketing of new products.
We cannot be certain that our business strategy will be successful or that we
will successfully address these risks and difficulties.  Our failure to address
any of these risks or difficulties could have a material adverse effect on our
business.

We have a history of losses and accumulated deficit and this trend of losses may
continue in the future.

For the Fiscal 2001, we had a net loss of $26.5 million, for the Transition
Period ended December 30, 2000 we had a net loss of $44.8 million, and for
Fiscal 2000 we had a net loss of $23.5 million.  As of December 29, 2001, our
accumulated deficit was $116.6 million.  Our ability to reach and sustain
profitability will depend, in part, upon the successful marketing of our
existing services and products and the successful and timely introduction of new
services and products.  We anticipate that net losses will continue for the
foreseeable future.  We can give no assurances that we will achieve
profitability or, if achieved, that we will sustain profitability.

                                       26
<PAGE>

Our success will depend on acceptance of our LATW process and post-whitening
maintenance products.

We derive substantially all of our revenues from our LATW procedures, a
relatively new teeth whitening concept for consumers.  We have also begun to
market BriteSmile brand toothpaste, electric toothbrushes and post-whitening
procedure touchup kits through our Centers and Associated Centers.  We expect to
add other oral care accessories under the BriteSmile brand name to our line of
retail products, which currently include mouthwash, toothbrushes, chewing gum,
and travel kits.  Our success will depend in large part on our ability to
successfully encourage consumers, dentists and dental office employees to switch
from traditional and less expensive bleaching tray whitening methods to our LATW
system, and on our ability to successfully market our line of post-whitening
maintenance products.  There can be no assurance that consumers will accept our
procedure or products.  Typically, medical and dental insurance policies do not
cover teeth whitening procedures, including the Company's LATW procedure, or
whitening maintenance products, which may have an adverse impact upon the market
acceptance of our products and services.

Our success will depend on our ability to update our technology to remain
competitive.

The dental device and supply industry is subject to technological change. As
technological changes occur in the marketplace, we may have to modify our
products in order to become or remain competitive or to ensure that our products
do not become obsolete.  While we are continuing our research and development
efforts to improve our current LATW systems in order to strengthen our
competitive advantage, we cannot assure that we will successfully implement
technological improvements to our LATW systems on a timely basis, or at all.  If
we fail to anticipate or respond in a cost-effective and timely manner to
government requirements, market trends or customer demands, or if there are any
significant delays in product development or introduction, our revenues and
profit margins may decline which could adversely affect our cash flows,
liquidity and operating results.

We may have problems financing our future growth.

Our growth strategy includes investment in and expansion of Associated Centers
throughout the United States and internationally, increasing awareness of the
BriteSmile brand and developing and marketing our brand name retail products.
To finance our prior growth we have sold debt and equity securities; however,
additional funds are needed in the future for continued expansion.  We cannot
assure that additional financing will be available or that, if available, it
will be on terms favorable to our stockholders or us.  If needed funds are not
available, we may be required to close existing Centers, and/or limit or forego
the establishment of new Associated Centers and the development of new products,
or limit the scope of our current operations, which could have a material
adverse effect on our business, operating results and financial condition.  We
may be required to take other actions that may lessen the value of our common
stock, including borrowing money on terms that are not favorable to us.  Raising
the needed funds through the sale of additional shares of our common stock or
securities convertible into shares of common stock may result in dilution to
current stockholders.

We are subject to competition.

The market for teeth whitening products and services is highly competitive.
Competition in the market for teeth whitening products and services may
intensify in the future. Numerous well-established companies and smaller
entrepreneurial companies are focusing significant resources on developing and
marketing products and services that will compete with our products and
services.  In addition, many of our current and potential competitors have
greater financial, technical, operational and marketing resources.  Teeth
whitening products and services offered by our competitors include traditional
and often less expensive bleaching tray methods and other forms of heat or light
activated curing methods.  We may not be able to compete successfully against
these competitors in developing, marketing and distributing our services and
products, which could result in the loss of customers and could have a material
adverse effect on our business. Competitive pressures may also force prices for
teeth whitening services down and such price reductions may adversely affect our
potential future revenue.

                                       27
<PAGE>

We are susceptible to product liability suits and if a lawsuit is brought
against us it could result in us having to pay large legal expenses and/or
judgments.

Although no lawsuits have been filed against the Company relating to our
products or services, because of the nature of the dental device industry, there
can be no assurance that we will not be subject to such claims in the future.
Our products come into contact with vulnerable areas of the human body, such as
the mouth, tongue, teeth and gums, and, therefore, the sale and support of
dental products makes us susceptible to the risk of such claims. A successful
product liability claim or claim arising as a result of use of our products or
services brought against us, or the negative publicity brought up by such claim,
could have a material adverse effect on our business. We maintain product
liability insurance with coverage limits of $5 million per occurrence and $5
million per year.  While we believe that we maintain adequate insurance coverage
that is reasonable and customary for our business, we cannot assure that the
amount of insurance will be adequate to satisfy claims made against us in the
future, or that we will be able to obtain insurance in the future at
satisfactory rates or in adequate amounts.

Future growth may place strains on our managerial, operational and financial
resources and we may be unable to recruit and retain qualified personnel.

If we grow as expected, a significant strain on our managerial, operational and
financial resources may occur.  Further, as the number of Associated Centers,
customers, advertisers and other business partners grows, we will be required to
manage multiple relationships with various Center dentists, Associated Center
dentists, customers, strategic partners and other third parties. Future growth
or increase in the number of our strategic relationships may strain our
managerial, operational and financial resources, thereby inhibiting our ability
to achieve the rapid execution necessary to successfully implement our business
plan. In addition, our future success will also depend on our ability to expand
our sales and marketing organization and our support organization commensurate
with the growth of our business.

We may experience shortages of the supplies we need because we do not have long-
term agreements with suppliers.

Our success depends to a large degree on our ability to provide our affiliated
dentists with our LATW systems, and a sufficient supply of teeth whitening gels
and maintenance products.  Since our BS2000 was first used commercially, we have
relied upon manufacturing and supply agreements with multiple suppliers and a
single manufacturer of our LATW systems.  Effective April, 2001, the Company's
LATW systems are manufactured by Peak Industries, Frederick, Colorado, pursuant
to a new agreement between the Company and Peak.  We have no long-term purchase
contracts or other contractual assurance of continued supply, pricing or access
to new products.  While we believe that we have good relationships with our
suppliers and our manufacturer, if we are unable to extend or secure
manufacturing services or to obtain component parts or finished products from
one or more key vendors on a timely basis and on acceptable commercial terms,
our results of operations could be seriously harmed.

We need to successfully manage our growth in order for the addition of any new
Associated Centers to be profitable.

Even though we have grown significantly in the past two years in terms of
numbers of Centers and Associated Centers opened and in operation, we may not be
able to achieve profitable operations at the Centers.  We currently have 14
Centers in operation.  We have no current plans to open additional Centers.

Our future growth primarily depends upon expansion of the number of our
Associated Centers. We cannot assure that we will be successful in expanding the
number of Associated Centers, or that such Associated Centers will achieve sales
levels satisfactory to us.

BriteSmile has certain debt.

BriteSmile has $2.8 million of debt outstanding as of December 29, 2001.  The
degree to which BriteSmile is leveraged could have important consequences to the
shareholders, including the following:

                                       28
<PAGE>

..  BriteSmile's ability to obtain additional financing for working capital,
   capital expenditures, acquisitions or general corporate purposes may be
   impaired;

..  BriteSmile must pay interest on its debt, leaving less funds for other
   purposes;

..  BriteSmile may be at a competitive disadvantage to its less leveraged
   competitors; and

..  BriteSmile may be more vulnerable to a downturn in general economic
   conditions.

If BriteSmile were to default on its debt obligations for any reason, there can
be no assurance that any assets will remain for BriteSmile's shareholders after
payment of amounts owed to debt holders.

See Item 7--Management's Discussion of Financial Condition and Results of
Operations, "Liquidity and Capital Resources."

BriteSmile does not intend to pay dividends.

BriteSmile does not anticipate paying any cash dividends on its common stock to
its shareholders for the foreseeable future.  BriteSmile intends to retain
future earnings, if any, for use in the operation and expansion of its business.
In addition, it is possible that any debt financing agreements entered into by
BriteSmile in the future may contain restrictions on BriteSmile's ability to
declare dividends.

We cannot guarantee that the patents we have applied for will be granted, or
that even if granted, they will not be infringed by competitors.

In addition to the Company's patent which was granted in January 2001, we have
filed several patent applications related to the LATW systems which are
currently pending, including applications related to the composition of our
whitening gel, tissue isolation barriers useful in light-activated teeth
whitening, our business method and our unique system of delivery of light to all
teeth simultaneously.  In addition, we have ongoing research and development
efforts to improve and expand our current technology, and to develop new teeth
whitening compositions and light devices.  Although we intend to continue to
apply for patents as advised by patent counsel, there can be no assurance that
such patents will be issued or that, when they are issued, they will not be
infringed upon by third parties or that they will cover all aspects of the
product or system to which they relate.

The rights we rely upon to protect our intellectual property underlying our
products and services may not be adequate, which could enable third parties to
use our technology and would reduce our ability to compete in the market.

In addition to patents, we rely on a combination of trade secrets, copyright and
trademark laws, nondisclosure agreements and other contractual provisions and
technical measures to protect our intellectual property rights.  Nevertheless,
these measures may not be adequate to safeguard the technology underlying our
products and services.  If they do not protect our rights, third parties could
use our technology, and our ability to compete in the market would be reduced.
In addition, employees, consultants and others who participate in the
development of our products and services may breach their agreements with us
regarding our intellectual property, and we may not have adequate remedies for
the breach.  We also may not be able to effectively protect our intellectual
property rights in some foreign countries.  For a variety of reasons, we may
decide not to file for additional patent, copyright or trademark protection
outside of the United States or in foreign jurisdictions.  We also realize that
our trade secrets may become known through other means not currently foreseen by
us.  Notwithstanding our efforts to protect our intellectual property, our
competitors may independently develop similar or alternative technologies or
products that are equal or superior to our technology and products without
infringing on any of our intellectual property rights or design around our
proprietary technologies.

Our products or services could infringe on the intellectual property rights of
others, which may cause us to engage in costly litigation and, if we are not
successful, could also cause us to pay substantial damages and prohibit us from
selling our products or services.

                                       29
<PAGE>

Third parties may assert infringement or other intellectual property claims
against us.  We may have to pay substantial damages, including treble damages,
for past infringement if it is ultimately determined that our products or
services infringe a third party's proprietary rights.  Further, we may be
prohibited from selling our products before we obtain a license, which, if
available at all, may require us to pay substantial royalties.  Even if these
claims are without merit, defending a lawsuit takes significant time, may be
expensive and may divert management's attention from other business concerns.
Notwithstanding the foregoing, we are not aware of any infringement claims
asserted against us by others.

We are subject to government regulation regarding the corporate practice of
dentistry.

Our corporate structure, operation of Centers and contractual relationships with
the licensed dentists at our Centers are subject to government regulation and
may be reviewed by applicable state agencies governing the practice of dentistry
(such as a Board of Dental Examiners).  We believe that our present and
contemplated operation of Centers is and will be in compliance in all material
respects with applicable federal, state and local laws and regulations, and that
favorable review of our corporate structure would be obtained from any state
agency which chooses to review our operational structure.  However, we cannot
assure that such favorable review would be obtained in all instances.  If we are
unable to obtain favorable review, we may be subject to penalties.  Further, if
we are unable to comply with the applicable laws and regulations in any state,
we may be limited in those states to offering our LATW procedure through
Associated Centers.  We continue to cooperate with state regulatory agencies to
respond to any requests for information about our business structure and to
obtain any necessary governmental approvals.  We cannot assure that future
enactments, amendments or interpretations of government regulations will not be
more stringent, and will not require structural, organizational or operational
modifications to our existing or future contractual relationships with the
licensed dentists at our Centers who provide our services.

We may become subject to government regulation regarding our teeth whitening
services and products.

The light used in the LATW systems is categorized as a Class I Medical Device as
defined by the Food and Drug Administration ("FDA").   As long as the light is
used specifically to perform cosmetic dental procedures (teeth whitening), it is
not subject to pre-market notification requirements, although we are subject to
FDA requirements regarding handling of complaints and other general FDA record
keeping standards.  There can be no assurance that some or all of the existing
government regulations will not change significantly or adversely in the future,
or that we will not become subject to compliance with additional and stricter
government regulations which could, in the future, affect our revenue.

Ownership of our common stock is concentrated in a limited number of
shareholders.

Current directors and executive officers of the Company, or their affiliates,
own and control approximately 80% of the Company and, therefore, have ultimate
authority to make all major decisions affecting our business, including the
identity and make-up of the Company's Board of Directors, and any other matters
requiring approval of the shareholders of the Company.

Our efforts to build strong brand identity and customer loyalty may not be
successful.

We believe that establishing and maintaining brand identity and brand loyalty is
critical to attracting customers, dentists and other strategic partners.  In
order to attract and retain these groups, and respond to competitive pressures,
we intend to continue substantial spending to create and maintain brand loyalty.
We believe that advertising rates, and the cost of advertising campaigns in
particular, could increase substantially in the future.  If our branding efforts
are not successful, our results of operations could be adversely affected.

Promotion and enhancement of the BriteSmile brand will also depend on our
success in consistently providing a high-quality customer experience for our
teeth whitening services and satisfaction with our products.  If customers do
not perceive our service and product offerings to be of high quality, or if we
introduce new services and products that are not favorably received by these
groups, the value of the BriteSmile brand could be harmed.  Any brand impairment
or dilution could decrease the attractiveness of BriteSmile to one or more of
these groups which could harm our reputation, reduce our net revenue and cause
us to lose customers.

                                       30
<PAGE>

Changes in required accounting practices may affect our reported operating
results and stock price

As a public company, we prepare our financial statements in accordance with
generally accepted accounting principles, or GAAP, as interpreted by the SEC.
In December 1999, the SEC released Staff Accounting Bulletin No. 101, an
accounting bulletin clarifying its position on revenue recognition policies
under GAAP for public companies. After discussions with the SEC, we modified our
revenue recognition policies and recorded a reduction in revenue of $504,000 to
the Transition Period, the 39 week period (ended December 30, 2000), and a
further reduction of $272,000, which was recorded as a cumulative effect of a
change in accounting principle. This prospective change may make it more
difficult for investors to compare our historical operating results against our
future operating results. In addition, any future changes to applicable GAAP
standards or additional SEC statements on relevant accounting policies may
require us to further change our practices. These uncertainties may cause our
reported operating results and stock price to decline.

Failures in our information technology systems or the systems of third parties
could adversely affect our business and result in a loss of customers.

Our Company's web site or our Internet-based Scheduler system may experience
slow response times, decreased capacity to accommodate a large number of
customers or a temporary disruption in service for a variety of reasons.
Additionally, power outages and delays in such service may interrupt or prevent
us from immediately coordinating with the schedules of Centers and Associated
Centers, and may interrupt or prevent customers from arranging for our services
or from ordering our products through our e-Commerce Internet site.  Any of
these potential problems could have an adverse effect on business.

Computer hardware and software components to our Scheduler system are located at
our headquarters.  In addition, a back-up file server and tape back-ups of the
Scheduler database reside both at our headquarters and off-site.  Delays in
scheduling teeth whitening procedures would result if we were required to use
our backup computer hardware and software systems.  Nevertheless, natural
disasters such as floods, fires, and power outages, telecommunications failures,
physical or electronic break-ins or vandalism, viruses and other similar events
could damage our hardware and software systems, lead to a loss of data, cause
substantial disruption in our business operations, and have a material adverse
effect on our business.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's consolidated financial statements and associated notes are set
forth on pages F-1 through F-32.


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

None


PART III.


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information for this Item is incorporated by reference to the definitive
proxy statement to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.


ITEM 11.  EXECUTIVE COMPENSATION

The information for this Item is incorporated by reference to the definitive
proxy statement to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.

                                       31
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information for this Item is incorporated by reference to the definitive
proxy statement to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information for this Item is incorporated by reference to the definitive
proxy statement to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.


PART IV.


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission:

(a)  Exhibits and Financial Statement Schedules

Exhibit Number      Title of Document
--------------      -----------------

     1            Financial Statement Schedules

     2            Asset Purchase Agreement and Plan of Reorganization by and
                  among BriteSmile, Inc., an Alabama corporation, BriteSmile,
                  Inc., a Utah corporation, and David K. Yarborough, together
                  with the exhibits and schedules forming part of the Asset
                  Purchase Agreement (incorporated by reference to the Company's
                  Current Report on Form 8-K dated March 7, 1996).

     3.01         Articles of Incorporation and Amendments thereto (incorporated
                  by reference to the Company's Registration Statement and
                  Amendments thereto on Form 10 initially filed August 8, 1990).

     3.02         Bylaws adopted May 2, 1996, (incorporated by reference to the
                  Company's Annual Report on Form 10-KSB for the fiscal year
                  ended March 31, 1996).

     3.03         Amendment to Bylaws adopted July 23, 1999 (incorporated by
                  reference to the Company's Quarterly Report on Form 10-QSB for
                  the quarter ended June 30, 1999).

     10.01        1990 Stock Option Plan for Employees of the Company
                  (incorporated by reference to the Company's Annual Report on
                  Form 10-KSB for the fiscal year ended March 31, 1996).

     10.02        Securities Purchase Agreement dated April 1, 1996 for 300,000
                  shares of common stock and Options to Purchase 1,000,000
                  shares of common stock at $20 per share, between the Company,
                  LCO Investments Limited, Pinnacle Fund L.P., and Richard S.
                  Braddock (incorporated by reference to the Current Report on
                  Form 8-K of the Company dated April 1, 1996).

     10.03        Registration Rights Agreement dated April 1, 1996 between the
                  Company, LCO Investments Limited, Richard S. Braddock, and
                  Pinnacle Fund, L.P. (incorporated by reference to the Current
                  Report on Form 8-K of the Company dated April 1, 1996).

     10.04        Securities Purchase Agreement dated May 8, 1997 for 428,572
                  shares of common stock and Options to Purchase 500,000 shares
                  of common stock at $9.00 per share, among the Company, LCO
                  Investments Limited, and Richard S. Braddock (incorporated by
                  reference to the Company's Annual Report on Form 10-KSB for
                  the fiscal year ended March 31, 1997).

     10.05        Registration Rights Agreement dated May 8, 1997 among the
                  Company, LCO Investments Limited, and Richard S. Braddock
                  (incorporated by reference to the Company's Annual Report on
                  Form 10-KSB for the fiscal year ended March 31, 1997).

                                       32
<PAGE>

     10.06        Stock Purchase Agreement dated as of May 4, 1998 for 1,860,465
                  shares of common stock, between the Company and LCO
                  Investments Limited (incorporated by reference to the
                  Company's Annual Report on Form 10-KSB for the fiscal year
                  ended March 31, 1998).

     10.07        Registration Rights Agreement dated as of May 4, 1998 between
                  the Company and LCO Investments Limited (incorporated by
                  reference to the Company's Annual Report on Form 10-KSB for
                  the fiscal year ended March 31, 1998).

     10.08        Employment Letter dated January 20, 1999 (effective June 2,
                  1999) between the Company and John L. Reed (incorporated by
                  reference to the Company's Annual Report on Form 10-KSB for
                  the year ended March 31, 1999).

     10.09        Employment Letter dated April 19, 1999 between the Company's
                  subsidiary, BriteSmile International, Limited, and Paul Dawson
                  (incorporated by reference to the Company's Annual Report on
                  Form 10-KSB for the year ended March 31, 1999).

     10.10        Revised 1997 Stock Option and Incentive Plan of the Company,
                  as amended through June 20, 2001 (filed herewith).

     10.11        Form of Option Agreement between the Company and certain
                  directors of the Company (filed herewith).

     10.12        Form of Option Agreement between the Company and certain
                  employees of the Company (filed herewith).

     10.13        Form of Stock Purchase Agreement dated as of June 3, 1999,
                  between the Company and purchasers who acquired shares at a 5%
                  discount to the 10-day average market price preceding closing
                  (incorporated by reference to the Company's Current Report on
                  Form 8-K as filed June 21, 1999).

     10.14        Registration Rights Agreement dated as of June 3, 1999 between
                  the Company and the non-management purchasers (incorporated by
                  reference to the Company's Current Report on Form 8-K as filed
                  June 21, 1999).

     10.15        Amended and Restated Registration Rights Agreement dated as of
                  June 3, 1999 between the Company and the management purchasers
                  (incorporated by reference to the Company's Current Report on
                  Form 8-K as filed June 21, 1999).

     10.16        Form of Stock Purchase Agreement dated as of June 3, 1999
                  between the Company and purchasers who acquired shares of
                  common stock of the Company at a 5% discount to the 10-day
                  average market price preceding closing (incorporated by
                  reference to the Company's Current Report on Form 8-K dated
                  June 4, 1999).

     10.17        Registration Rights Agreement dated as of June 3, 1999 between
                  the Company and certain non-management purchasers in the June
                  1999 Private Placement (incorporated by reference to the
                  Company's Current Report on Form 8-K dated June 4, 1999).

     10.18        Amended and Restated Registration Rights Agreement dated as of
                  June 3, 1999 between the Company and certain management
                  purchasers (incorporated by reference to the Company's Current
                  Report on Form 8-K as filed June 4, 1999).

     10.19        Stock Purchase Agreement dated as of January 12, 1999 between
                  the Company and the Pequot investment funds ("Pequot Funds")
                  (incorporated by reference to the Company's Current Report on
                  Form 8-K dated January 18, 2000).

                                       33
<PAGE>

     10.20        Registration Rights Agreement dated as of January 18, 2000
                  between the Company and the Pequot Funds (incorporated by
                  reference to the Company's Current Report on Form 8-K dated
                  January 18, 2000).

     10.21        Voting and Co-sale Agreement dated as of January 18, 2000
                  between the Company, the Pequot Funds and LCO Investments Ltd.
                  (incorporated by reference to the Company's Current Report on
                  Form 8-K dated January 18, 2000).

     10.22        Agreement of Sublease dated December 1999 between the Company
                  and LCO Properties, Inc. (incorporated by reference to the
                  Company's Annual Report on Form 10-KSB for the fiscal year
                  ended April 1, 2000).

     10.23        Securities Purchase Agreement dated as of June 27, 2000
                  between the Company and certain purchasers of 5% Convertible
                  Subordinated Notes (incorporated by reference to the Company's
                  Transition Report on Form 10-K for the Nine-month Transition
                  Period ended December 30, 2000).

     10.24        Form of Convertible Notes issued pursuant to the Securities
                  Purchase Agreement dated as of June 27, 2000 (incorporated by
                  reference to the Company's Transition Report on Form 10-K for
                  the Nine-month Transition Period ended December 30, 2000).

     10.25        Form of Warrants granted to note purchasers pursuant to the
                  Securities Purchase Agreement dated as of June 27, 2000
                  (incorporated by reference to the Company's Transition Report
                  on Form 10-K for the Nine-month Transition Period ended
                  December 30. 2000).

     10.26        Form of Registration Rights Agreement between the Company of
                  the purchasers of Notes pursuant to the Securities Purchase
                  Agreement dated as of June 27, 2000 (incorporated by reference
                  to the Company's Transition Report on Form 10-K for the Nine-
                  month Transition Period ended December 30, 2000).

     10.27        Amendment Agreement dated as of August 3, 2000 between the
                  Company and the purchasers of notes identified therein
                  (incorporated by reference to the Company's Transition Report
                  on Form 10-K for the Nine-month Transition Period ended
                  December 30, 2000).

     10.28        Note Purchase Agreement dated December 5, 2000 between the
                  Company and LCO Investments Limited (incorporated by reference
                  to the Company's Current Report on Form 8-K dated December 5,
                  2000).

     10.29        Convertible Promissory Note dated December 5, 2000 in the
                  principal amount of $5,000,000 (incorporated by reference to
                  the Company's Current Report on Form 8-K dated December 5,
                  2000).

     10.30        Warrant to Purchase 250,000 Shares of common stock of the
                  Company dated December 5, 2000 (incorporated by reference to
                  the Company's Current Report on Form 8-K dated December 5,
                  2000).

     10.31        Amended and Restated Agreement between Excimer Vision Leasing
                  L.P. and the Company dated February 2001 (incorporated by
                  reference to the Company's Transition Report on Form 10-K for
                  the Nine-month Transition Period ended December 30, 2000).

     10.32        Loan Agreement between Excimer Vision Leasing L.P. and the
                  Company dated as of March 1, 2001 (incorporated by reference
                  to the Company's Transition Report on Form 10-K for the Nine-
                  month Transition Period ended December 30, 2000).

     10.33        Unsecured Credit Agreement between BriteSmile International
                  and CAP Advisers Limited dated March 2002 (filed herewith).

                                       34
<PAGE>

     10.34        Credit and Security Agreement dated December 13, 2001 between
                  BriteSmile International and CAP Advisers Limited (filed
                  herewith).

     10.35        Supplemental Agreement dated March 2002 to Credit and Security
                  Agreement dated December 13, 2001 between BriteSmile
                  International and CAP Advisers Limited (filed herewith).

     10.36        Amendment to Lease Agreement between Excimer Vision Leasing
                  L.P. and the Company dated March 8, 2002 (filed herewith).

     10.37        Form of Guaranty of Fiscal 2002 Shortfall Summary of Terms
                  dated March 2002 in connection with commitments from certain
                  shareholders and/or directors of the Company to secure up to
                  $4 million of additional working capital (filed herewith).

     21           Subsidiaries of the Company (filed herewith).

(b)   Reports on Form 8-K

The Company filed no Current Reports on Form 8-K during the last quarter of the
fiscal year covered by this report.

                                       35
<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                   BriteSmile, Inc.

                                   By: /s/ John L. Reed
                                       ----------------
                                       John Reed
                                       Chief Executive Officer

                                   By: /s/ Peter P. Hausback
                                       ---------------------
                                       Peter P. Hausback
                                       EVP, Chief Financial Officer

                                   Date: April 5, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                     Title                                        Date
---------                     -----                                        ----
<S>                           <C>                                          <C>
/s/ A.M. Pilaro               Chairman of the Board of Directors           April 5, 2002
---------------------------
Anthony M. Pilaro

/s/ John L. Reed              Chief Executive Officer                      April 5, 2002
---------------------------
John L. Reed                  and Director (Principal Executive Officer)

/s/ Linda S. Oubre            Director                                     April 10, 2002
---------------------------
Linda S. Oubre

/s/ R. Eric Montgomery        Director                                     April 6, 2002
---------------------------
R. Eric Montgomery

/s/ Gerald Poch               Director                                     April 5, 2002
---------------------------
Gerald Poch

/s/ Dr. Gasper Lazzara, Jr.   Director                                     April 10, 2002
---------------------------
Dr. Gasper Lazzara, Jr.

/s/ Brad Peters               Director                                     April 10, 2002
---------------------------
Brad Peters

/s/ Harry Thompson            Director                                     April 6, 2002
---------------------------
Harry Thompson

/s/ Peter Schechter           Director                                     April 5, 2002
---------------------------
Peter Schechter

/s/ Dennis F. Hightower       Director                                     April 8, 2002
---------------------------
Dennis F. Hightower
</TABLE>

                                       36
<PAGE>

PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS


                               BRITESMILE, INC.
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                        <C>
Report of Independent Auditors...........................................  F-2

Consolidated Balance Sheets..............................................  F-3

Consolidated Statements of Operations....................................  F-5

Consolidated Statements of Cash Flows....................................  F-6

Consolidated Statements of Shareholder's Equity..........................  F-8

Notes to Consolidated Financial Statements...............................  F-9
</TABLE>

                                      F-1
<PAGE>

              Report of Ernst & Young, LLP, Independent Auditors


The Board of Directors and Shareholders,
BriteSmile, Inc.

We have audited the accompanying consolidated balance sheets of BriteSmile, Inc.
as of December 29, 2001 and December 30, 2000, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the 52 weeks
ended December 29, 2001, the 39 weeks ended December 30, 2000 and the 52 weeks
ended April 1, 2000. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BriteSmile, Inc.
at December 29, 2001 and December 30, 2000, and the consolidated results of its
operations and its cash flows for the 52 weeks ended December 29, 2001, the 39
weeks ended December 30, 2000 and the 52 weeks ended April 1, 2000, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

As discussed in Note 3 to the financial statements, in 2000 the Company changed
its method of accounting for revenue recognition in accordance with guidance
provided in SEC Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements."

As discussed in Note 3, the accompanying financial statements as of and for the
39 week transition period ended December 30, 2000 have been restated.


/s/ Ernst & Young, LLP


March 8, 2002, except for Note 1 as to
which the date is March 28, 2002
Walnut Creek, California

                                      F-2
<PAGE>

PART I - FINANCIAL INFORMATION


ITEM 1.    FINANCIAL STATEMENTS

                               BRITESMILE, INC.
                          CONSOLIDATED BALANCE SHEETS
                                    ASSETS
                       (In Thousands, except share data)

<TABLE>
<CAPTION>
                                                              December 29,     December 30,
                                                                  2001             2000
                                                              ------------     ------------
                                                                               (As Restated)
<S>                                                           <C>              <C>
CURRENT ASSETS:
 Cash and cash equivalents..................................     $ 7,162          $ 5,701
 Cash and short term investments, restricted as to use......         843              843
 Trade accounts receivable, net of allowances of $615 and
    $163, respectively......................................       4,311            3,130
 Inventories................................................       2,540            2,365
 Prepaid expenses and other.................................         423              883
 Notes receivable-current portion...........................         335              335
                                                                 -------          -------

         Total current assets...............................      15,614           13,257

PROPERTY, EQUIPMENT AND IMPROVEMENTS:
 Furniture, fixtures and equipment..........................      20,355            7,906
 Leasehold improvements.....................................      10,491           10,095
                                                                 -------          -------
                                                                  30,846           18,001

 Less accumulated depreciation and amortization.............      (8,827)          (4,060)
                                                                 -------          -------

                                                                  22,019           13,941

 Construction in progress...................................         495              907
                                                                 -------          -------

         Net property, equipment and improvements...........      22,514           14,848

OTHER ASSETS................................................       1,719            2,026
                                                                 -------          -------

TOTAL ASSETS................................................     $39,847          $30,131
                                                                 =======          =======
</TABLE>

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

                                      F-3
<PAGE>

                               BRITESMILE, INC.
                    CONSOLIDATED BALANCE SHEETS (continued)

                     LIABILITIES AND SHAREHOLDERS' EQUITY
                       (In Thousands, except share data)

<TABLE>
<CAPTION>
                                                                                   December 29,     December 30,
                                                                                       2001             2000
                                                                                   ------------     ------------
                                                                                                   (As Restated)
<S>                                                                                <C>              <C>
CURRENT LIABILITIES:
 Accounts payable................................................................     $   5,512         $  8,429
 Accrued liabilities.............................................................         4,959            3,538
 Deferred revenue................................................................           763              776
 Accrual for store closures......................................................           310              394
 Note payable to related party, net of discount..................................           500            4,747
 Capital lease obligation with related party- current portion....................           641              181
                                                                                      ---------         --------

          Total current liabilities..............................................        12,685           18,065

LONG TERM LIABILITIES
       Subordinated convertible debenture, net of discount.......................           729              709
       Capital lease obligations with related party - less current portion.......         2,537            1,018
       Accrual for store closure.................................................           900              384
       Note Payable to related party, less current portion.......................         1,583                -
       Other long term liabilities...............................................           857              436
                                                                                      ---------         --------

        Total long term liabilities..............................................         6,606            2,547

          Total liabilities......................................................        19,291           20,612

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
 Common stock, $.001 par value; 50,000,000 shares authorized;
     36,226,961 and 28,748,323 shares issued and outstanding as of December 29,
     2001 and December 30, 2000, respectively....................................            36               29
 Additional paid-in capital......................................................       137,097           99,568
 Accumulated deficit.............................................................      (116,577)         (90,078)
                                                                                      ---------         --------

          Total shareholders' equity.............................................        20,556            9,519
                                                                                      ---------         --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................................     $  39,847         $ 30,131
                                                                                      =========         ========
</TABLE>

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

                                      F-4
<PAGE>

                               BRITESMILE, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In Thousands, except share data)

<TABLE>
<CAPTION>
                                                                52 Weeks          39 Weeks           52 Weeks           39 Weeks
                                                                 Ended             Ended               Ended             Ended
                                                              December 29,      December 30,         April 1,         December 30,
                                                                  2001              2000               2000               1999
                                                              ------------      ------------        -----------       ------------
                                                                                (As restated)                         (unaudited)
<S>                                                           <C>               <C>                 <C>               <C>
REVENUES:
  Center whitening fees, net...............................   $     14,333      $      9,315        $     5,838       $      3,858
  Associated Center whitening fees, net....................         24,048             5,766              1,970                742
  Product sales............................................          4,849             1,223                236                 97
                                                              ------------      ------------        -----------       ------------

   Total revenues, net.....................................         43,230            16,304              8,044              4,697

OPERATING COSTS AND EXPENSES:
  Operating and occupancy costs............................         16,744             9,462             13,849              6,731
  Selling, General and administrative expenses.............         43,492            30,556             14,498             12,301
  Research and development expenses........................          1,849             1,811              1,748              1,279
  Depreciation and amortization............................          4,715             3,830              1,457                774
  Restructuring expense....................................            879               778                472                300
  Impairment charges on leasehold improvements.............          1,217             1,254                  -                  -
  Loss on sale/leaseback transaction.......................              -             7,138                  -                  -
                                                              ------------      ------------        -----------       ------------

   Total operating costs and expenses......................         68,896            54,829             32,024             21,385
                                                              ------------      ------------        -----------       ------------

     Loss from operations..................................        (25,666)          (38,525)           (23,980)           (16,688)
                                                              ------------      ------------        -----------       ------------

Other income (expense), net:
Interest expense (including $5,552 related to
 beneficial conversion expense on converted debt for
 the 39 weeks ended December 30, 2000).....................         (1,083)           (6,153)               (26)               (24)
  Interest income..........................................            307               192                501                304
                                                              ------------      ------------        -----------       ------------

   Total other income (expense), net.......................           (776)           (5,961)               475                280
                                                              ------------      ------------        -----------       ------------

     Loss before income tax provision and cumulative
      effect of change in accounting principle.............        (26,442)          (44,486)           (23,505)           (16,408)

Income tax provision.......................................             57                26                 11                  -

Net loss before cumulative effect of change in
  accounting principle.....................................        (26,499)          (44,512)           (23,516)           (16,408)
Cumulative effect of change in accounting principle
  (Note 3)                                                               -              (272)                 -                  -
                                                              ------------      ------------        -----------       ------------

     Net loss..............................................   $    (26,499)     $    (44,784)       $   (23,516)      $    (16,408)
                                                              ============      ============        ===========       ============

Basic and diluted net loss per share before cumulative
  effect of change in accounting principle.................   $      (0.79)     $      (1.82)       $     (1.18)      $      (0.87)
                                                              ============      ============        ===========       ============

Cumulative effect of change in accounting principle........              -      $      (0.01)                 -                  -
                                                              ============      ============        ===========       ============

Basic and diluted net loss per share.......................   $      (0.79)     $      (1.83)       $     (1.18)      $      (0.87)
                                                              ============      ============        ===========       ============

Weighted average shares - basic and diluted................     33,550,316        24,493,676         19,995,796         18,783,918
                                                              ============      ============        ===========       ============
</TABLE>

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

                                      F-5
<PAGE>

                       BRITESMILE, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In Thousands)

<TABLE>
<CAPTION>
                                                                       52 Weeks        39 Weeks        52 Weeks     39 Weeks
                                                                        Ended           Ended            Ended       Ended
                                                                      December 29,    December 30,     April 1,    December 30,
                                                                         2001            2000             2000        1999
                                                                    -------------    -------------    ----------  ------------
                                                                                     (As restated)                 (unaudited)
<S>                                                                 <C>              <C>              <C>         <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
 Net loss........................................................      $(26,499)        $(44,784)      $(23,516)    $(16,408)
 Adjustments to reconcile net loss to net cash used in operating
  activities:
     Depreciation and amortization...............................         4,715            3,830          1,457          774
     Amortization of discount on debt............................            20              198              -            -
     Loss on sale/leaseback transaction..........................             -            7,138              -            -
     Impairment charges on leasehold improvements................         1,217            1,254              -            -
     Debt conversion expense, including accrued interest
         converted to equity.....................................           385            5,736              -            -
     Costs recognized for issuance of stock and stock options....         1,554              313          1,765        1,653
     Changes in assets and liabilities:
        Trade accounts receivable................................        (1,181)          (1,949)        (1,106)        (339)
        Inventories..............................................          (175)          (1,174)        (1,175)        (117)
        Prepaid expenses and other...............................           460              (49)          (515)        (285)
        Other assets.............................................          (150)            (726)            45           40
        Accounts payable.........................................        (2,917)           6,565           (168)         801
        Accrued liabilities......................................         1,853            2,031            811          557
        Deferred Revenue                                                    (13)             776              -            -
        Other long-term liabilities..............................           421              314            122            -
                                                                       --------         --------       --------     --------

          Net cash used in operating activities..................       (20,310)         (20,527)       (22,280)     (13,324)
                                                                       --------         --------       --------     --------

CASH FLOWS USED IN INVESTING ACTIVITIES:
 Proceeds from sale of assets....................................             -            5,000          1,260          462
 Purchase of property and equipment..............................       (11,225)         (14,968)       (14,838)     (11,579)
                                                                       --------         --------       --------     --------

          Net cash used in investing activities..................       (11,225)          (9,968)       (13,578)     (11,117)
                                                                       --------         --------       --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Payments of capital lease obligation............................          (394)               -              -            -
 Principal payments on long-term debt............................          (417)               -           (866)           -
 Payments under Letters of Credit................................             -                -           (843)           -
 Proceeds from convertible debentures............................             -           25,000              -            -
 Proceeds from debt financing....................................         2,500                               -            -
 Proceeds from common stock offerings............................        26,623                -         40,935       15,707
 Proceeds from exercise of stock options and warrants............         4,684              227          1,401        5,413
                                                                       --------         --------       --------     --------

          Net cash provided by financing activities..............        32,996           25,227         40,627       21,120
                                                                       --------         --------       --------     --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............         1,461           (5,268)         4,769       (3,321)

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD.............         5,701           10,969          6,200        6,200
                                                                       --------         --------       --------     --------

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD...................      $  7,162         $  5,701       $ 10,969     $  2,879
                                                                       ========         ========       ========     ========
</TABLE>

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

                                      F-6
<PAGE>

                       BRITESMILE, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                (In Thousands)

<TABLE>
<CAPTION>
                                                                     52 Weeks        39 Weeks         52 Weeks      39 Weeks
                                                                      Ended           Ended            Ended          Ended
                                                                   December 29,    December 30,       April 1,     December 30,
                                                                       2001            2000             2000          1999
                                                                       ----            ----             ----          ----
                                                                                  (As Restated)                    (unaudited)
<S>                                                                <C>             <C>                <C>          <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Cash paid for interest..........................................     $  291          $   232          $   26        $   23
                                                                      ======          =======          ======        ======

 Cash paid for income taxes......................................     $   57          $    26          $   11        $    -
                                                                      ======          =======          ======        ======

SUPPLEMENTAL DISCLOSURE OF NON CASH ITEMS:
 Conversion of debt, including accrued interest of $132 and
  $195, to equity................................................     $5,132          $19,395          $    -        $    -
                                                                      ======          =======          ======        ======

 Fair value of stock options and warrants issued to consultants..     $    -          $   352          $1,474        $    -
                                                                      ======          =======          ======        ======

 Fair value of warrants issued in debt financing arrangements....     $    -          $ 2,787          $    -        $    -
                                                                      ======          =======          ======        ======
 Equipment acquired under capital lease obligations..............     $2,373          $ 1,199          $    -        $    -
                                                                      ======          =======          ======        ======
</TABLE>

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

                                      F-7
<PAGE>

                       BRITESMILE, INC. AND SUBSIDIARIES
                Consolidated Statements of Shareholders' Equity
                                (In Thousands)

<TABLE>
<CAPTION>
                                                             Additional                          Total
                                        Common     Shares      Paid-In       Accumulated      Shareholder's
                                        Shares     Amount      Capital         Deficit           Equity
                                      ---------  ---------  -------------  ---------------  ---------------
                                                                            (As restated)    (As restated)
<S>                                   <C>        <C>        <C>            <C>              <C>
Balance at March 31, 1999.............   17,138     $  17      $ 27,821      $ (21,778)         $  6,060
Exercise of stock options.............      753         1         1,400              -             1,401
Income tax benefit on exercise
   of stock options...................        -         -         3,005              -             3,005
Valuation allowance for income
   tax benefit on exercise of
   stock options......................        -         -        (3,005)             -            (3,005)
 Stock option compensation cost.......        -         -         3,239              -             3,239
 Private placement of common
    stock.............................    5,970         6        40,929              -            40,935
 Net loss and comprehensive loss......        -         -             -        (23,516)          (23,516)
                                        -------     -----      --------      ---------          --------
Balance at April 1, 2000..............   23,861        24        73,389        (45,294)           28,119
Exercise of stock options.............      152         -           227              -               227
Beneficial conversion related
   to debt financing..................        -         -         3,378              -             3,378
Income tax benefit on exercise
   of stock options...................        -         -         3,253              -             3,253
Valuation allowance for income
   tax benefit for exercise of
   stock option.......................        -         -        (3,253)             -            (3,253)
Stock option compensation cost........        -         -           479              -               479
Conversion of long-term debt to
   common stock.......................    4,735         5        19,390              -            19,395
Issuance of warrants in connection
   with financing agreement...........        -         -         2,705              -             2,705
Net loss and comprehensive loss.......        -         -             -        (44,784)          (44,784)
                                        -------     -----      --------      ---------          --------
Balance at December 30, 2000..........   28,748        29        99,568        (90,078)            9,519
Exercise of stock options.............      969         1         4,124              -             4,125
Stock option compensation cost........        -         -         1,097              -             1,097
Conversion of long-term debt to
   common stock.......................    1,027         1         5,131              -             5,132
Exercise of warrants..................      112         -           559              -               559
Private placement of common stock,
 net of placement fees of $1,400 and
 fair value of warrants issued to
 placement agent......................    5,371         5        26,618              -            26,623
Net loss and comprehensive loss.......        -         -             -        (26,499)          (26,499)
                                        -------     -----      --------      ---------          --------
Balance at December 29, 2001..........   36,227     $  36      $137,097      $(116,577)         $ 20,556
                                        =======     =====      ========      =========          ========
</TABLE>

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

                                      F-8
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


1. Description of Business and Liquidity

BriteSmile, Inc., a Utah corporation ("BriteSmile" or the "Company"), and its
affiliates develop, and sell advanced teeth whitening products, services and
technology. Unless specified to the contrary herein, references to BriteSmile or
to the Company refer to the Company and its subsidiaries on a consolidated
basis.  The Company's operations include the development of technologically
advanced teeth whitening processes that are distributed in professional salon
settings known as BriteSmile Professional Teeth Whitening Centers ("Centers").
The Company also offers its products and technologies through arrangements with
existing independent dental offices known as BriteSmile Professional Teeth
Whitening Associated Centers ("Associated Centers"). As of December 29, 2001,
the Company had 14 Centers and 3,959 Associated Centers in operation.

Centers are located in major metropolitan areas nationwide and offer clients a
salon-like environment dedicated solely to the business of teeth whitening.
Centers are staffed by licensed dentists and trained dental assistants.
Alternatively, consumers can visit an Associated Center, where a local dentist
administers the BriteSmile procedure in the dentist's established office.  To
date, the Company has entered into contracts with 4,109 Associated Centers,
including 3,364 in the United States, and 745 in 28 countries outside the United
States.  The Company is not engaged in the practice of dentistry.  Each licensed
dentist who operates a Center or Associated Center maintains full control over
dental matters, including the supervision of dental auxiliaries and the
administration of the LATW procedure.

The Company developed its current teeth whitening technology (the "BriteSmile
Light Activated Teeth Whitening System," "BS2000" or "LATW") and began
distribution in 1999.  In November 1999 the Company introduced its new
BriteSmile 3000 LATW keycard system (the "BS3000") to Associated Centers.  The
BS3000, a mobile version of the BS2000, can be installed quickly and provides
improved flexibility and mobility in dental offices.  In May 2001, the Company
introduced its more versatile mobile device, the BS3000PB, which is the device
currently shipped to Associated Centers. The BS2000, BS3000, and BS3000PB teeth
whitening devices utilize a light technology. The unique delivery arm of these
devices permits blue green light to reach all 16 front teeth simultaneously,
whitening the teeth by activating BriteSmile's wavelength-specific gel during
three consecutive twenty-minute sessions.

Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and related Information," ("SFAS No. 131") established
standards for reporting information about operating segments in financial
statements. Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief decision maker, or chief decision making group, in deciding how to
allocate resources and in assessing performance. Our President and CEO is our
chief decision maker. Our business is focused on one industry segment, products
and procedures to whiten teeth. All of our revenues and profits are generated
through the sale, licensing, and service of products for this one segment.

Liquidity

CAP Advisers Line of Credit
---------------------------

In December 2001, as amended in March 2002, BriteSmile International entered
into Credit and Security Agreements (the "Credit Agreements") with CAP Advisers
Limited ("CAP Advisers").  The Credit Agreements provide for secured loans to
the Company of up to $1.5 million, and an unsecured line of credit of up to $1
million.  Any principal advanced under the unsecured portion of the line of
credit is payable on demand, and bears interest at a fluctuating rate equal to
LIBOR plus 2%, payable monthly.  Advances under the unsecured $1 million line
may be used for general business purposes, including use by the Company.
Advances under the unsecured $1 million line may be used to purchase LATW
devices for non-U.S. deployment.  Mr. Pilaro, the Company's Chairman of the
Board, is also Chairman of CAP Advisers.  CAP is the sole trustee of the ERSE
Trust.  The ERSE Trust owns 100% of LCO Investments, Ltd, the Company's major
shareholder.

                                      F-9
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


Additional Working Capital Guarantees
-------------------------------------

In March 2002 the Company received written commitments ("Commitment Letters")
from certain existing shareholders and directors of the Company (the
"Guarantors") to severally purchase, on or before December 31, 2002, up to $4
million of additional shares of common stock of the Company (or to otherwise
secure, collateralize, or make available such funds to the Company).  The
precise purchase amount committed by the Guarantors equals the difference
between $4 million, and the "Excess Cash Receipts" to be realized by the Company
in 2002.  "Excess Cash Receipts," for this purpose, is defined to mean cash
received by the Company through sales of the Company's debt or equity
securities, additional borrowings, or cash receipts in excess of current
projections.  If the Guarantors are required to purchase shares pursuant to the
Commitment Letters, the purchase price for the common stock will be the lesser
of (i) $3.76 or (ii) eighty percent (80%) of the market price of the Company's
common stock at the time of purchase.  In consideration for the Guarantors'
commitment, the Company issued to the Guarantors five-year warrants to purchase
an aggregate of 80,000 shares of common stock of the Company at an exercise
price of $4.70 per share.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation
------------------------------------------------------

In 2000, the Company elected to change its fiscal year-end to a 52/53 week
period ending on the last Saturday in December of each year.  Consequently, the
accompanying financial statements reflect the financial position and results of
operations of the Company for the 52 weeks ended December 29, 2001 and the nine-
month Transition Period ended December 30, 2000.

The accompanying consolidated financial statements include the accounts of the
Company, its subsidiaries, and entities (Centers) in which the Company has a
controlling interest. The Company consolidates the Centers as the Company has a
controlling financial interest in the Centers in accordance with the criteria of
EITF 97-2, "Application of FASB Statement No. 94 and APB Opinion #16 to
Physician Practice Management Entities ("PPM") and Certain Other Entities with
Contractual Management Arrangements."  The agreements with the Centers are 30
year, non-terminable agreements, that provide the Company a financial interest
in the PPM and exclusive authority over all decision making other than the
dispensing of medical services.  All intercompany balances and transactions have
been eliminated in consolidation.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ materially from those estimates.

Cash and Cash Equivalents
-------------------------

The Company considers all cash and highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents are recorded at cost at the date of purchase, which approximates
fair value.

Cash and Short-Term Investments, Restricted as to Use
-----------------------------------------------------

At December 29, 2001 and December 30, 2000, $843,000 of the Company's cash and
short-term investments was used to collateralize letters of credit and is
restricted as to use until September 2008.

                                      F-10
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


Concentrations of Credit Risk
-----------------------------

Credit Risk

Financial instruments that potentially subject the Company to a significant
concentration of credit risk consist principally of cash, cash equivalents and
trade accounts receivable.

The Company maintains cash and cash equivalents with various financial
institutions.  These financial institutions are located throughout the United
States and Ireland and the Company's policy is designed to limit exposure to any
one institution. The Company has not experienced any significant losses on its
cash and cash equivalents. The Company performs periodic evaluations of the
relative credit standing of those financial institutions that are considered in
the Company's investment strategy.  The Company does not require collateral on
these financial instruments.

Concentration of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base. No one customer accounted for 10% or more of revenue during any of the
years in the period ended December 29, 2001.

The Company performs ongoing credit evaluations of its customers and generally
does not require collateral.

Supply Risk

Goods purchased to produce the LATW system and equip the Centers and Associated
Centers are in some cases unique and purchased from a single vendor. In those
cases the Company believes it could purchase items meeting its design
specifications from other vendors within the industry. Overall, the Company
believes it has access to sufficient quantities of goods and materials at
competitive prices to enable it to operate effectively.

Revenue Recognition
-------------------

The Company recognizes revenue related to retail products at the time such
products are sold to customers.

The Company recognizes revenue from teeth whitening procedures performed at its
Centers when the procedures have been performed.

During the last quarter of the transition period ended December 30, 2000 and
retroactive to April 1, 2000, the Company has changed its method of accounting
to recognize revenue from Associated Centers, ratably over the estimated period
in which the Associated Centers perform the procedures, commencing when the key
card is shipped. Previously, the Company recognized revenues from Associated
Centers when the keycard to activate the machine was shipped. The effect of the
change of implementing SAB 101 for the transition period ended December 30, 2000
was an increase in the net loss of $776,000 ($0.03 per share), of which $272,000
($0.01 per share) was recorded as a cumulative effect of a change in accounting
principle.  The $272,000, which represented deferred revenue at April 2, 2000,
was recognized as revenue during the 39 weeks ended December 30, 2000.  The pro
forma effect of adopting SAB 101 was an increase in net loss of $272,000 ($0.01
per share) for the 52 weeks ended April 1, 2000

                                      F-11
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


Revenue is reported net of discounts and allowances. Additionally, Associated
Center revenue for the 39 weeks ended December 30, 2000, and the year ended
April 1, 2000, has been reduced by $122,000 and $163,000 respectively, due to
charges related to warrants issued to Orthodontic Centers of America ("OCA").

Inventories
-----------

Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories at December 29, 2001 and December 30, 2000 consist primarily of
dental supplies, marketing materials and displays and replacement component
parts for the teeth whitening systems, as follows:

                                   December 29, 2001        December 30, 2000
                                ----------------------  -----------------------
Supplies                                      $1,765                   $1,811
Marketing displays                               775                      554
                                              ------                   ------

Total Inventory                               $2,540                   $2,365
                                              ======                   ======

Advertising
-----------

Costs of advertising are expensed the first time the advertising takes place.
Advertising costs were $19.1 million, $16.3 million and $10.2 million for the 52
weeks ended December 29, 2001, the 39 weeks ended December 30, 2000, and the 52
weeks ended April 1, 2000, respectively, and are included in "Center selling and
occupancy cost" and in "Selling, general and administrative expenses" in the
accompanying consolidated statements of operations.

Property and Equipment
----------------------

Property and equipment is stated at cost, or in the case of property and
equipment under capital lease, at fair market value.  Expenditures for
maintenance and repairs are charged to expense as incurred, and expenditures for
additions and betterments are capitalized. Equipment, furniture and fixtures are
depreciated for financial reporting purposes over their estimated useful lives,
ranging from three to ten years, using the straight-line method. Leasehold
improvements are amortized for financial reporting purposes using the straight-
line method over the shorter of the estimated useful life of the asset or the
remaining term of the lease. Amortization expense related to assets under
capitalized lease obligations is included in depreciation

Patents
-------

The cost of establishing patents of $160,000 and $40,000 at December 29, 2001
and December 30, 2000, respectively have been capitalized and are being
amortized over their estimated useful lives of 7 years using the straight-line
method. The cost of maintaining patents is expensed as incurred.

Stock-Based Compensation
------------------------

The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations (FIN #44) in accounting
for its stock-based compensation and has adopted the disclosure only alternative
Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation".  The Company accounts for employee stock options
using the intrinsic value method and makes the required pro forma disclosures.
Compensation expense based on the difference, if any, on the date of grant,
between the estimated fair value of the Company's stock and the exercise price
of options to purchase that stock is amortized over the vesting period of the
related option.

                                      F-12
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


Product Development Cost
------------------------

Costs associated with the development of new products or services are charged to
operations as incurred. These costs are included in "Research and development
expenses" in the accompanying consolidated statements of operations.

Shipping and Handling Costs
---------------------------

Shipping and handling charges billed to customers are recorded in revenue and
the related expenses are classified in operating and occupancy costs.

Center Opening Costs
--------------------

Non-capital expenditures incurred in opening a new BriteSmile Professional Teeth
Whitening Center are expensed as incurred.

Income Taxes
------------

The Company uses the liability method of accounting for income taxes pursuant to
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under the liability method, deferred tax assets and liabilities are
provided on differences between the financial reporting and taxable loss, using
the enacted tax rates.

Impairment of Long-Lived Assets
-------------------------------

The Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company does not perform a periodic assessment of assets for
impairment in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the Company measures
fair value based on quoted market prices or based on discounted estimates of
future cash flows. Long-lived assets to be disposed of are carried at fair value
less costs to sell.

Fair Value of Financial Instruments
-----------------------------------

The following methods and assumptions were used by the Company in establishing
its fair value disclosures for financial instruments:

Cash and cash equivalents:  The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.

Accounts receivable, accounts payable, and accrued liabilities:  The carrying
amount reported in the balance sheet for accounts receivable, accounts payable,
accrued liabilities and other current liabilities approximates its fair value.

Long and short-term debt:  The carrying amounts of the Company's borrowings
under its short-term revolving credit arrangements approximate their fair value.
The fair values of the Company's long-term debt are estimated using discounted
cash flow analyses, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements. The carrying amounts of the
Company's long-term debt approximate their fair value.

                                      F-13
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


Loss Per Common Share
---------------------

The Company computes loss per common share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share."  In accordance
with FAS 128, basic net loss per share is calculated as net loss divided by the
weighted-average number of common shares outstanding less shares subject to
repurchase.  Diluted net loss per share is computed by dividing net loss by the
weighted-average number of common shares outstanding and dilutive common stock
equivalents outstanding during the period.  Common equivalent shares from stock
options and warrants (using the treasury stock method) and convertible notes
payable have been excluded from the calculation of net loss per share as their
effect is anti-dilutive.

Comprehensive Income
--------------------

In 1999, the Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
rules for the reporting of comprehensive income and its components.
Comprehensive income consists of net loss and foreign currency translation
adjustments and is presented in the Consolidated Statements of Shareholders'
Equity. The adoption of SFAS 130 had no impact on total shareholders' equity.

Recent Accounting Pronouncements
--------------------------------

In June 2001 the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" ("SFAS No. 141") and SFAS No. 142 "Goodwill and Other
intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting, and broadens the criteria for recording intangible assets separate
from goodwill. SFAS No. 142 requires the use of a non-amortization approach to
account for purchased goodwill and intangibles deemed to have indefinite lives.
Under a non-amortization approach, goodwill and intangibles deemed to have
indefinite lives will not be amortized into results of operations, but instead
would be subject to annual impairment tests in accordance with the statements.
Other intangible assets will continue to be amortized over their useful lives.
The provisions of the statements that apply to goodwill and intangible assets
acquired prior to June 30, 2001 will be adopted by the Company on January 1,
2002. The Company believes the adoption of these statements will not have a
material impact on its consolidated financial statements.

In August 2001, the PASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-lived Assets" ("SFAS 144").  SFAS 144 amends existing
accounting guidance on asset impairment and provides a single accounting model
for long-lived assets to be disposed of.  Among other provisions, the new rules
change the criteria for classifying an asset as held-for-sale.  The standard
also broadens the scope of businesses to be disposed of that qualify for
reporting as discontinued operations, and changes the timing of recognizing
losses on such operations.  This Statement is effective beginning in fiscal year
ended December 31, 2002. The Company believes the adoption of this statement
will not have a material impact on its consolidated financial statements.

Reclassifications
-----------------

Certain prior year balances have been reclassified to conform to the current
year presentation.

3. Revisions to Previously Issued Financial Statements

The Company provides equipment and sells key card and supplies (procedure kits)
to Associated Centers to enable the Associated Center to perform the whitening
procedures for its customers. The Company also provides the use of whitening
equipment to the Associated Center. Prior to December 30, 2000, the Company
recognized revenue related to the sale of the procedure kits upon shipment of
the key cards and whitening supplies. Following discussion with the staff of the
Securities and Exchange Commission

                                      F-14
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements

regarding application of Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements," the Company revised its revenue recognition policy
related to these agreements to defer revenues, and to amortize these revenues
into operations over the estimated period in which the procedures are performed
by the Associated Centers, which is generally 30 days. As a result of this
revision, the Company has restated its December 30, 2000 consolidated financial
statements to reflect this adoption as reflected below.

<TABLE>
<CAPTION>
                                                                    For the transition period ended
                                                                            December 30, 2000
                                                                     As previously
                                                                       reported        As restated
<S>                                                                 <C>                <C>
         Consolidated Statement of Operations Data:
           Total Associated Centers revenue.....................       $ 6,270           $ 5,766
           Total revenues.......................................        16,808            16,304
           Net loss.............................................        44,008            44,784
           Net loss per share, basic and diluted................       $ (1.80)          $ (1.83)
                                                                       -------           -------
</TABLE>

The restatement also resulted in an increase of $776,000 in the Company's
accumulated deficit as of December 30, 2000 from $89.3 million to $90.1 million,
as well as recognition of deferred revenue of $776,000.

4.   Restructuring and Impairment Charges

During the 52 weeks ended December 29, 2001, the Company's Board of Directors
and management decided not to continue the construction of a Center in San
Francisco, California.  As a result of this decision, the Company recorded a
non-cash impairment charge of $1.2 million related to leasehold improvements to
be abandoned, whose fair value, based on estimates of recovery on sub-leases,
was determined to be $0.  The Company also recorded a store closure accrual to
reserve for an estimated $934,000 related to the remaining lease obligation.

During the 39 weeks ended December 30, 2000, the Company's Board of Directors
and management decided to close three of its less productive wholly-owned
Centers. These Centers were located in Pasadena, California, Ft. Lauderdale,
Florida, and Coral Gables, Florida.  As a result of the decision to close these
locations, the Company recorded a non-cash impairment charge of  $1.3 million
related to leasehold improvements to be abandoned, whose fair value, based on
estimates of recovery on sub-leases, was determined to be $0.  The Company also
recorded an accrual of $161,000 related to severance costs for 12 employees, and
an accrual of $617,000 related to lease termination costs for the closed
Centers.

During the 52 weeks ended April 1, 2000, the Company incurred termination
expenses of $472,000 related to the closure of its former headquarters facility
in Lester, PA.

                                      F-15
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements

The following table sets forth the restructuring activity during the years ended
December 31, (in thousands):

<TABLE>
<CAPTION>
                                  Accrual for                                          Accrual for
                                Store Closures                                       Store Closures
                                at December 31,    Restructuring                     at December 29,
                                     2000             Charges          Cash Paid          2001          Asset Write-Offs
                               -----------------  ---------------    --------------  ---------------    ----------------
<S>                            <C>                <C>                <C>             <C>                <C>
Restructuring expense              $   617            $   987           $  (286)         $  1,318
Severance                              161                  -              (161)                -
Revision of December 30,
 2000 estimate                           -               (108)                -              (108)
                               -----------------  ---------------    --------------  ---------------
Total                              $   778            $   879           $  (447)         $  1,210
                               =================  ===============    ==============  ===============

Impairment charges                                                                                           $  1,217
                                                                                                        ================

<CAPTION>
                                                                                       Accrual for
                                  Accrual for                                        Store Closures
                                Store Closures     Restructuring                     at December 30,
                               at April 1, 2000       Charges          Cash Paid          2001          Asset Write-Offs
                               -----------------  ---------------    --------------  ---------------    ----------------
<S>                            <C>                <C>                <C>             <C>                <C>
Restructuring expense              $     -            $   617           $     -          $    617
Severance                                -                161                 -               161
                               -----------------  ---------------    --------------  ---------------
Total                              $     -            $   778           $     -          $    778
                               =================  ===============    ==============  ===============

Impairment charges                                                                                           $  1,254
                                                                                                        ================
</TABLE>

5.  Sale/Leaseback Transaction

Effective December 29, 2000, as amended in February 2001, the Company secured a
lease line of up to $15 million from Excimer Vision Leasing L.P. ("EVL"), a
related party.  Under this agreement, the Company entered into a sale-leaseback
arrangement.  During the period ended December 30, 2000, the Company sold 1,245
of its BS3000 whitening devices for $5 million and leased them back for a period
of 5 years.  The leaseback has been accounted for as a capital lease.  A loss of
$7.1 million on this transaction has been recognized in the period ended
December 30, 2000 as the fair market value of the equipment sold was less than
its carrying value. The decline in fair value resulting in the loss recognition
was the result of a decision to change to a new model of machine and outsource
manufacturer, which contributed to a significant decline in the cost to purchase
new machines.  The Company will pay EVL a monthly rental for each device
consisting of a fixed amount (ranging from twenty dollars to thirty dollars)
plus one hundred twenty-five dollars for each key card, which enables Associated
Center dentists to perform 5 teeth whitening procedures.

The agreement further provided that EVL would spend up to an additional $10
million towards the purchase of 1,755 BS3000 devices to be leased to the
Company.  To the extent the purchase price of the additional 1,755 devices
exceeded $10 million, the Company was obligated to pay the difference. As of
December 29, 2001, the Company had fully utilized the lease line made available
by EVL.

On March 8, 2002, the Company and EVL amended their lease agreement to provide
that the variable rent portion of the monthly rental payments during 2002, in
the amount of twenty-five dollars for each

                                      F-16
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements

BriteSmile procedure, will be deferred and paid to EVL in twelve equal monthly
installments beginning January 9, 2003, with interest payable on the deferred
amount at a rate equal to LIBOR as quoted by The Bank of Nova Scotia for the
applicable adjustment dates for deposits in U.S. Dollars for one month
maturities, plus 200 basis points.


6.   Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                            December 29,       December 30,
                                                                2001               2000
                                                                ----               ----
<S>                                                         <C>                <C>
           Accrued salaries and benefits...........           $  619             $  730
           Accrued incentive.......................              564                535
           Accrued professional services...........              369                  -
           Accrued advertising.....................              930                579
           Other accrued expenses..................            2,477              1,694
                                                              ------             ------

           Total...................................           $4,959             $3,538
                                                              ======             ======
</TABLE>

7.   Leases

The Company leases certain equipment under capital leases. The leases for
equipment require the payment of certain fixed payments and contingent variable
rentals based on usage. Payments related to variable rent were $2,680,000, $0
and $0 for the 52 weeks ended December 20, 2001, the 39 weeks ended December 30,
2000 and the 52 weeks ended April 1, 2000, respectively.

The cost of assets under capital lease obligations was $3.6 million and $1.2
million at December 29, 2001 and December 30, 2000, respectively. Accumulated
amortization related to assets under capital lease obligations at December 29,
2001, December 30, 2000 and April 1, 2000 was $516,000, $0 and $0, respectively.

The Company recorded amortization expenses of $516,000, $0 and $0 under capital
leases for the 52 weeks ended December 29, 2001, the 39 weeks ended December 30,
2000 and the 52 weeks ended April 1, 2000, respectively.

                                      F-17
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements

The Company also leases office and retail space under non-cancelable operating
leases with initial terms of five to ten years, including various renewal
options and escalation clauses.  Future minimum payments under capital leases
and noncancelable operating leases with initial terms of one year or more
consisted of the following at December 29, 2001 (in thousands):

<TABLE>
<CAPTION>
                                                              Capital           Operating
                                                              Leases             Leases
                                                              ------             ------
<S>                                                           <C>               <C>
     2002...............................................      $  900             $ 3,284
     2003...............................................         900               3,208
     2004...............................................         900               2,869
     2005...............................................         900               2,227
     2006...............................................         231               1,934
     Thereafter.........................................           -               4,683
                                                              ------             -------
     Total minimum lease payments.......................       3,831             $18,205
                                                                                 =======
     Amount representing interest.......................         653
                                                              ------
     Present value of net minimum
        lease payments..................................       3,178
     Less current portion...............................        (641)
                                                              ------
     Long-term capital lease obligations................      $2,537
                                                              ======
</TABLE>

Rent expense was $3.7 million, $2.6 million and $1.4 million for the 52 weeks
ended December 29, 2001, the 39 weeks ended December 30, 2000, and the 52 weeks
ended April 1, 2000, respectively.

8.   Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial purposes
and for income tax purposes.  Significant components of the Company's deferred
tax liabilities and assets are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 December 29,             December 30,
                                                                     2001                    2000
                                                                     ----                    ----
  <S>                                                            <C>                      <C>
  Deferred tax assets (liabilities):
    Net operating loss carryforwards...................            $ 38,542                 $ 28,743
    Research and development and
       other tax credit carryforwards..................                 378                      378
    Reserves and accruals..............................                 433                      151
    Property and Equipment.............................               2,687                    1,565
    Other, net.........................................                 605                       98
                                                                   --------                 --------
  Total deferred tax assets............................              42,645                   30,935
  Valuation allowance for deferred tax assets..........             (42,645)                 (30,935)
                                                                   --------                 --------
  Net deferred tax assets..............................            $      -                 $      -
                                                                   ========                 ========
</TABLE>


                                      F-18
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements



Significant components of the income tax expense are as follows (in thousands):

<TABLE>
<CAPTION>
                                                              52 weeks                   39 weeks              52 weeks
                                                                ended                      ended                 ended
                                                              December 29,              December 30,            April 1,
                                                                  2001                      2000                  2000
                                                                  ----                      ----                  ----
<S>                                                           <C>                      <C>                     <C>
     Current:
          Federal....................................               $   -                    $   -                $   -
          State......................................                  57                       26                   11
                                                                    -----                    -----                -----
     Total current...................................                  57                       26                   11
                                                                    -----                    -----                -----
     Deferred:
          Federal....................................               $   -                    $   -                $   -
          State......................................                   -                        -                    -
                                                                    -----                    -----                -----
     Total deferred..................................                   -                        -                    -
                                                                    -----                    -----                -----
          Total current and deferred.................               $  57                    $  26                $  11
                                                                    =====                    =====                =====
</TABLE>

The provision for income taxes reconciles to the amounts computed by applying
the statutory federal rate to earnings (loss) before taxes as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                 52 Weeks                 39 Weeks               52 Weeks
                                                                  ended                    ended                  ended
                                                               December 29,              December 30,            April 1,
                                                                   2001                     2000                   2000
                                                                   ----                     ----                   ----
<S>                                                            <C>                       <C>                     <C>
     Income tax benefit at U.S.
          statutory rates.....................                   $(8,997)                 $(14,956)              $(7,995)
     State income tax benefits, net
          of Federal benefit..................                    (1,588)                   (2,639)               (1,411)
     Non-deductible items.....................                    (1,861)                    2,219                (2,995)
     Loss for which no tax benefit
          is currently recognizable...........                    12,503                    15,402                12,412
                                                                 -------                  --------               -------
                                                                 $    57                  $     26               $    11
                                                                 =======                  ========               =======
</TABLE>

Realization of deferred tax assets is dependent on future earnings, the timing
and the amount of which are uncertain. Accordingly, a valuation allowance, in an
amount equal to the net deferred tax asset as of December 29, 2001, December 30,
2000 and April 1, 2000, has been established to reflect these uncertainties. The
change in the valuation allowance was a net increase of approximately
$11,710,000, $12,896,000 and $12,094,000, for the 52 weeks ended December 29,
2001, the 39 weeks ended December 30, 2000 and the 52 weeks ended April 1, 2000,
respectively. At December 29, 2001, December 30, 2000 and April 1, 2000
approximately $5,220,000, $3,253,000 and $3,005,000, respectively, of the
valuation allowance for deferred tax assets relates to benefits of stock options
deductions which, when recognized, will be allocated directly to contributed
capital.

The Company has approximately $99,834,000 and $78,819,000 of federal and state
net operating loss carryforwards, respectively, that expire in years 2010
through 2021 for federal income tax purposes and years 2002 through 2011 for
state income tax purposes. Additionally, the Company has approximately
$1,812,000 of net operating losses from the Republic of Ireland that may be
carried forward indefinitely. A significant portion of the federal and state
losses is attributable to professional corporations formed to comply with the
corporate practice of medicine statutes in the jurisdictions where the Company
has operations. These professional corporations are not consolidated for income
tax purposes.

The Company has approximately $378,000 of tax credits that under current tax law
can be used to offset future income tax liabilities. These credits will begin
expiring in 2005 if not utilized.

                                     F-19
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


Utilization of net operating loss and tax credit carryforwards may be subject to
a substantial annual limitation due to the ownership change limitation
provisions provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in expiration of net
operation loss and tax credit carryforwards before full utilization.

9.  Note Receivable

Effective August 22, 2000 the Company entered into a Settlement Agreement in
connection with the full settlement and termination of the lawsuit first filed
by Natural White, Inc. and its affiliated corporations against the Company in
the Supreme Court of the State of New York, Erie County in April 2000.

Pursuant to the Settlement Agreement, Natural White dismissed with prejudice all
claims alleged in the lawsuit. Under the Settlement Agreement, Natural White
purchased from IDEX for the sum of $950,000 a worldwide, royalty free, fully
paid-up, exclusive license covering the tooth whitening products and technology
it is currently using to manufacture and sell its products outside the
professional field. In order to facilitate Natural White's purchase of its
license from IDEX, the Company made a secured loan to Natural White in the
principal amount of $838,000 to cover a portion of the purchase price. Natural
White is obligated to repay the loan at the rate of $30,000 per month for 30
months, including interest of $2,000.

10.    Financing Arrangements

Following is a summary of the Company's long and short term debt financing
arrangements (in thousands):

<TABLE>
<CAPTION>
                                                               December 29,      December 30,
                                                                   2001              2000
                                                                  ------            ------
<S>                                                            <C>               <C>
          Note Payable to EVL, a related party,
             due May 10, 2006                                      $ 2,083            $    -
          5% Subordinated Convertible Notes due and
             payable on June 29, 2005 (including discount
             of $71 and $91)                                           729               709
          Convertible Promissory Note due December 5,
             2001 to LCO Investments Ltd, a related party,
             interest at 7.52% (including discount of $253)              -             4,747
                                                             -------------------------------
                                                                   $ 2,812            $5,456
                                                            ================================
</TABLE>

The following table presents the approximate annual maturities of debt, net of
discounts, for the 52 weeks ended December (in thousands):


               2002                       $  500
               2003                          500
               2004                          500
               2005                        1,229
               2006                           83
                                         -------
               Total                      $2,812
                                         =======

On June 29 and August 3, 2000, the Company sold to eleven investors (the
"Investors"), in a private placement, its 5% Subordinated Convertible Notes due
June 29, 2005 (the "August 2000 Notes") in the aggregate principal amount $20
million.

                                     F-20
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements

Initially, the August 2000 Notes were convertible into shares of the Company's
common stock at a per share conversion price of $6.18. The Company also issued
to the Investors, pro rata, warrants (the "Warrants") to purchase a total of
1,618,121 shares of common stock, which have a term of five years and initially
had an exercise price of $7.21 per share. The fair value of the warrants issued
of $2.1 million was recorded as a discount of the August 2000 Notes and was
being amortized over the life of the notes to interest expense. Seven of the
Investors, who purchased an aggregate amount of $15.7 million of the August 2000
Notes, are affiliates of the Company.

On December 5, 2000, the Company sold to LCO Investments Ltd in a private
placement a Convertible Promissory Note (the "December 2000 Note") in the
aggregate principal amount of $5 million. In conjunction with the issuance of
the December 2000 Note, warrants to purchase 250,000 shares of common stock were
issued at an exercise price of 5.00 per share. The warrants have a contractual
life of 5 years and remain outstanding and unexercised. The fair value of the
warrants issued of $253,000 was recorded as a discount of the December 2000 Note
and was being amortized over the life of the note to interest expense. The
December 2000 Note was convertible into shares of common stock of the Company at
a conversion price of $5.00 per share. On April 10, 2001, LCO Investments Ltd.
converted its Promissory Note in the original principal amount of $5 million,
together with accrued interest of $132,644, into 1,026,529 shares of restricted
common stock. The unamortized fair value of the warrants was immediately
recorded as interest expense upon conversion of the Note.

As a result of the issuance of the December 2000 Note, the conversion price of
the August 2000 Notes, and the exercise price of the Warrants, was automatically
adjusted to $5.00 per share. Additionally, the fair value of the Warrants was
adjusted to $2.3 million based upon the change in conversion price and the
discount of the August 2000 Notes was adjusted accordingly.  The new fair value
of the warrants was amortized on a straight-line basis over the life of the
notes to interest expense.

In December 2000, two investors converted their original August 2000 Notes,
together with accrued interest, into an aggregate of 1,122,323 shares of common
stock.  This conversion was effected at the $5.00 conversion price.

Subsequently, effective December 14, 2000, certain of the other original
Investors agreed with the Company to convert an aggregate of $13.6 million in
principal amount of their August 2000 Notes, together with interest, into
3,568,560 shares of common stock at an amended conversion price of $3.8625 per
share.

Upon conversion of the notes, the related unamortized discount of $2.2 million
arising from the fair value of the Warrants was immediately recorded as interest
expense.

The Company also recorded $314,000 of additional interest expense related to the
$5.00 per share beneficial conversion rate offered the Investors, and $3.1
million of additional interest expense related to the $3.86 per share inducement
to convert offered to Investors as noted above.  The amounts represent the
difference between the stated conversion rates of the August 2000 Notes and the
effective conversion rates considering the relative fair value attributed to the
notes and the related warrants.

As of December 29, 2001, $800,000 of the original August 2000 Notes remain
outstanding. The unamortized discount on these notes is $71,000 as of December
29, 2001 and is being amortized over the life of the notes to interest expense.

Of the original Warrants issued in the August 2000 Note Offering, 1,506,311
Warrants remain outstanding and unexercised.

As a result of the issuance of warrants as discussed in Note 1, "Additional
Working Capital Guarantees," the conversion price of the remaining August 2000
Notes, and the exercise price of the Warrants was automatically adjusted to
$4.70 per share.

                                     F-21
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Finanical Statements


The conversion price of the remaining August 2000 Notes, and the exercise price
of the outstanding Warrants, continues to be subject to additional adjustments
from time to time upon the occurrence of certain other events described in the
August 2000 Notes and Warrants, including future issuances of Common Stock for
consideration less than the conversion price then in effect, stock splits or
reverse stock splits, and the occurrence of certain major corporate events such
as mergers, sale of assets, tender offers or exchange offers.

At any time after the third anniversary of the issuance date of the August 2000
Notes, the Note holder has the right, but not the obligation, to elect to cause
the Company to redeem all or a portion of its August 2000 Notes.

Effective March 1, 2001, the Company borrowed $2.5 million from EVL for general
working capital.  The loan matures on May 10, 2006.  In October 2001, this loan
was amended to allow for early prepayments without penalty.  Payments under the
loan consist of "fixed payments" of interest, "variable payments" of principal,
and a "final payment" of principal.  An initial fixed payment of $10,417 was
paid on April 1, 2001.  Additional monthly payments of $12,500 are due during
the loan period.  Variable payments are twenty-five dollars for each BriteSmile
teeth whitening procedure performed at the Company's 14 whitening Centers.
Variable payments totaled $664,000 for the year ended December 29, 2001. The
final payment, due at maturity, will be the amount by which the aggregate of
variable payments paid during the term of the loan is less than the original
$2.5 million principal amount of the loan.

In December 2001, as amended in March 2002, BriteSmile International, a wholly-
owned subsidiary of the Company, entered into Credit and Security Agreements
with CAP Advisers Limited.  The Credit Agreements provide for secured loans to
the Company of up to $1.5 million, and an unsecured line of credit of up to $1
million.  Any principal advanced under the unsecured portion of the line of
credit is payable on demand, and bears interest at a fluctuating rate equal to
LIBOR plus 200 basis points.  Interest payments on the unsecured portion are
payable monthly.  Advances under the unsecured $1 million line may be used for
general business purposes, including use by the Company.  Mr. Pilaro, the
Company's Chairman of the Board, is also Chairman of CAP Advisers.  CAP is the
sole trustee of the ERSE Trust.  The ERSE Trust owns 100% of LCO Investments,
Ltd, the Company's major shareholder.

11. Shareholder's Equity

On April 30, 2001, the Company completed a private offering (the "Offering") of
its restricted common stock, par value $0.001 per share ("common stock").   The
Offering involved sales of a total of 5,371,428 shares of restricted common
stock to 17 accredited investors and their affiliated funds (the "Investors").
None of the Investors was affiliated with the Company before the completion of
the Offering.   The Company sold the shares of common stock issued in connection
with the Offering for $5.25 per share, yielding gross proceeds to the Company of
$28.2 million.

In connection with the Offering, the Company engaged Stonegate Securities, Inc.,
Dallas, Texas (the "Placement Agent"), to act as placement agent for the
Offering.  For its services, the Company agreed to pay the Placement Agent five
percent of the gross proceeds of the Offering, or $1,410,000 and issue to the
Placement Agent warrants to purchase a total of 537,142 shares of restricted
common stock for a per share purchase price of $5.25.  The warrants have a five
year term.  The fees paid to the Placement Agent and the fair value of the
warrants of $2,239,886 were netted against the Offering proceeds.

In connection with the Offering, on March 14, 2001, the Company issued warrants
to purchase 100,000 shares of common stock for a per share price of $5.00 to
Pequot Partners Fund, L.P., Pequot Private Equity Fund II, L.P., Pequot
International Fund, Inc., LCO Investment Limited, P de P Tech Limited, John Reed
and Brad Peters, in exchange for agreeing to cover any cash shortfall in the
Offering up to $5 million. The
                                     F-22
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements

warrants have a five-year term. The fair value of the warrants of $225,000 was
netted against the Offering proceeds.

Effective February 1, 2000, the Company issued an aggregate of 30,927 shares of
restricted common stock to three affiliated purchasers ("Quota Rabbicco II,
Ltd., Argonaut Partnership, L.P. and David E. Gerstenhaber), in a private
placement for cash proceeds to the Company of $186,000.

Effective February 1, 2000, the Company issued an aggregate 77,318 shares of
restricted common stock to Andrew J. McKelvey, an affiliated purchaser, in a
private placement for cash proceeds to the Company of $464,000.

On January 18, 2000, the Company issued and sold in a private placement
3,333,333 shares of its common stock at $6.00 per share for aggregate proceeds
of $20 million. The shares were issued to three private investors, Pequot
Private Equity Fund II, L.P. (1,666,667 shares), Pequot Partners Fund, L.P.
(833,333 shares), and Pequot International Fund, Inc. (833,333 shares).

On October 29, 1999, LCO Investments Limited ("LCO"), the principal shareholder
of the Company, exercised options to purchase 1,173,334 shares of common stock
of the Company, resulting in proceeds of $5.28 million to the Company. The
Company granted the options to LCO in April 1996 and May 1997 in connection with
private placements of the Company's common stock.

In June 1999 the Company completed a private placement of 1,355,555 shares of
its common stock for $15 million. 1,004,043 shares were sold to private
investors, and the remaining 351,512 were sold to a group of individuals,
including members of senior management, the Company's Board of Directors and key
consultants.

Stock Option Plans
------------------

During 1990, the Company adopted the 1990 Stock Option Plan ("1990 Plan"), and
subsequently, in January 1997, adopted the 1997 Stock Option and Incentive Plan
("1997 Plan").  Under the terms of the 1997 Plan, initially up to 2,000,000
shares of the Company's common stock were reserved for issuance.  An additional
3,000,000 shares were reserved for issuance under the 1997 Plan in January 1999.
In June 2001, the Plan was increased to 7,000,000 shares.  Options may be
granted at exercise prices of no less than the fair market value on the date of
the grant, as determined by the Board of Directors and quoted market prices.
Options generally vest over a five-year period and have a maximum term of ten
years.

A summary of the Company's stock option activity and related information for the
52 weeks ended December 29, 2001, the 39 weeks ended December 30, 2000 and, the
52 weeks ended April 1, 2000 follows:

<TABLE>
<CAPTION>
                                52 weeks ended             39 weeks ended             52 weeks ended
                              December 29, 2001           December 30, 2000            April 1, 2000
                           -------------------------  -------------------------    -------------------------
                                          Weighted-                  Weighted-                   Weighted-
                                           Average                    Average                     Average
                                          Exercise                   Exercise                    Exercise
                                            Price                      Price                       Price
                             Options      Per Share     Options      Per Share      Options      Per Share
                           ----------   ------------  ----------  -------------    ----------- -------------
<S>                        <C>            <C>          <C>           <C>          <C>          <C>
Outstanding at
 beginning Of year          6,370,933       $5.50      6,142,683      $4.78         5,423,267       $2.90
Granted                     1,352,740        5.27      1,158,000       5.93         3,012,000        8.55
Exercised                    (461,044)       2.87       (163,750)      1.51        (2,040,334)       3.17
Forfeited/expired          (1,176,100)       6.21       (766,000)      6.64          (252,250)       4.77
                           ----------                 ----------                  -----------       -----
Outstanding at end of
 year                       6,086,529        5.22      6,370,933       5.50         6,142,683       $4.78
                           ==========                 ==========                  ===========       =====

</TABLE>

                                     F-23
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


Exercise prices for outstanding options as of December 29, 2001 ranged from
$1.00 to $13.75 per share and the weighted-average remaining contractual life of
those options outstanding at December 29, 2001 and December 30, 2000 was 6.30
years and 7.87 years, respectively. The weighted average fair market value of
options granted during the 52 weeks ended December 29, 2001, the 39 weeks ended
December 30, 2000 and the 52 weeks ended April 1, 2000 were $5.27, $5.93, and
$8.55, respectively.

A summary of the status of options outstanding at December 29, 2001 follows:

<TABLE>
<CAPTION>
                               Outstanding Options                                            Exercisable Options
                               -------------------                                            -------------------

                                              Weighted
                                               Average             Weighted
     Range of                                 Remaining             Average                                  Weighted
  Exercise Price           Number            Contractual        Exercise Price           Number          Average Exercise
    Per Share           Outstanding        Life (in Years)         Per Share          Exercisable        Price Per Share
------------------  -------------------  -------------------  ------------------  -------------------  --------------------
<S>                 <C>                  <C>                  <C>                 <C>                  <C>
 $ 1.00 - $ 1.75          1,036,000              4.41                 1.52               743,000               1.58
   2.31 -   2.50            996,336              8.22                 2.46               620,836               2.47
   2.63 -   3.50            383,000              3.77                 2.98               192,000               2.94
   3.75 -   5.88          1,146,360              6.18                 4.94               500,893               5.32
   6.00 -   6.88            584,500              7.11                 6.15               304,500               6.18
   7.13 -   8.89            577,000              7.42                 7.66               243,000               7.70
   9.00 -  10.50            820,333              6.62                 9.29               503,833               9.17
  10.80 -  13.75            543,000              6.66                12.17               241,000              11.89
                          ---------              ----                -----             ---------              -----
Total                     6,086,529                                                    3,349,062
                          =========                                                    =========
</TABLE>

As of December 29, 2001, options granted to employees and directors for
3,349,062 shares of common stock are exercisable.

Shares Reserved for Future Issuance
-----------------------------------

The Company has reserved shares of common stock for future issuance as follows:

                                                       December 29, 2001
                                                   -------------------------
Stock options outstanding......................            6,086,529
Stock options, available for grant.............              913,471
Warrants.......................................            1,991,905

Pro Forma Disclosures of the Effect of Stock-Based Compensation
---------------------------------------------------------------

The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options.  The alternative fair value
accounting provided for under Financial Accounting Standards Board Statement No.
123, "Accounting for Stock-Based Compensation" ("FAS 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options.  Under APB 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

Pro forma information regarding net income (loss) is required by FAS 123, which
also requires that the information be determined as if the Company has accounted
for its employee stock options under the fair value method of FAS 123.  The fair
value of these options was estimated at the date of grant using a Black-Scholes
option pricing valuation model with the following weighted-average assumptions:
volatility of 1.13, 1.31 and 1.28 for the 52 weeks ended December 29, 2001, the
39 weeks ended December 30, 2000 and the 52 weeks ended April 1, 2000,
respectively; an average risk-free interest rate of 4.75%, 5.72% and 5.72% for
the 52 weeks ended December 29, 2001, the 39 weeks ended December 30, 2000 and
the 52 weeks

                                      F-24
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


ended April 1, 2000, respectively; dividend yield of 0%; and a weighted-average
expected life of the option of 5 years.

Option valuation models were developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable.  In
addition, option valuation models require the input of highly subjective
assumptions, including the expected life of the option.  Because the Company's
employee stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.

Had compensation cost for the Company's stock-based compensation plans been
determined using fair value at the grant award dates using the Black-Scholes
option pricing valuation method, the Company's historical net loss applicable to
common shareholders and basic and diluted net loss per share would have been
increased to the pro forma amounts indicated below (in thousands, except per
share data):

<TABLE>
<CAPTION>
                                      December 29,       December 30,          April 1,
                                          2001               2000                2000
                                    ----------------   ----------------    ---------------
                                                         (As restated)
<S>                                 <C>                <C>                 <C>
Compensation expense..............        $ 5,733           $ 3,641            $ 2,473
Pro forma loss....................        $32,232           $48,425            $25,989
Pro forma basic and diluted
   loss per share.................        $  0.96           $  1.98            $  1.30
</TABLE>

The pro forma impact of compensation expense measured under FAS 123 on the net
loss for the 52 weeks ended December 29, 2001, the 39 weeks ended December 30,
2000 and, the year ended April 1, 2000 is not representative of the effects on
net income (loss) for future years, as future years will include the effects of
additional years of stock option grants.

Options Issued to Non-employees
-------------------------------

On November 30, 1998, the Company issued options to purchase 300,000 shares of
common stock at $1.1875 to Oral Health Clinical Services.  Seventy-five thousand
(75,000) options vested immediately and on October 31, 2001, another 75,000
options vested as a result of submission of clinical data to the American Dental
Association (ADA).  The balance of 150,000 shares will only vest upon the
Company receiving ADA approval.  As a result of the submission in 2001, the
Company recognized a non-cash expense of $305,000.

12. Warrants

On September 21, 2001, the Company issued warrants to purchase 100,000 shares of
the Company's common stock to Dr. Salim Nathoo and Dr. John Warner as
compensation for consulting services to the Company for the period October 1,
2001 to December 31, 2002.

The warrants are exercisable at $5.55 per share and expire September 21, 2003.
The fair market value of these warrants utilizing the Black-Scholes valuation
model resulted in a non-cash charge of $154,000 during the 52 weeks ended
December 29, 2001.

13. Net Loss Per Share of Common Stock

The calculation of basic and diluted net loss per share is as follows (in
thousands, except share data):

                                      F-25
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                              December 29,     December 30,        April 1,
                                                                  2001             2000              2000
                                                                  ----             ----              ----
                                                                               (As restated)
<S>                                                           <C>              <C>              <C>
Net loss before cumulative effect of change in accounting
 principle.................................................   $    (26,499)    $    (44,512)    $    (23,516)
Cumulative effect of change in accounting principle........              -             (272)               -
                                                              ------------     ------------     ------------
Net loss...................................................   $    (26,499)    $    (44,784)    $    (23,516)
                                                              ============     ============     ============
Weighted-average shares of common stock outstanding used
 in computing basic and diluted net loss per share.........     33,550,316       24,493,676       19,995,796

Basic and diluted net loss per common share before
 cumulative effect of change in accounting principle.......   $      (0.79)    $      (1.82)    $      (1.18)
                                                              ============     ============     ============
Cumulative effect of change in accounting principle........   $          -     $      (0.01)    $          -
                                                              ============     ============     ============
Basic and diluted net loss per common share................   $      (0.79)    $      (1.83)    $      (1.18)
                                                              ============     ============     ============
</TABLE>

                                      F-26
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


If the Company had reported net income, the calculation of historical diluted
earnings per share would have included an additional 1,354,600, 411,727, and
3,598,420 common equivalent shares related to outstanding stock options and
warrants not included above (determined using the treasury stock method) for the
52 weeks ended December 29, 2001, the 39 weeks ended December 30, 2000 and the
52 weeks ended April 1, 2000, respectively.

14.  Commitments and Contingencies

Litigation
----------

On November 30, 2001, Banc of America Securities, LLC ("BAS") commenced an
action against the Company in the United States District Court for the Southern
District of New York for breach of contract seeking to recover approximately
$1.7 million as a commission fee on a private placement offering of the
Company's securities. BAS alleges that the Company breached its contract with
BAS by employing another investment bank to carry out its private placement and
by refusing to pay a fee to BAS based upon the proceeds thereof.

The Company has filed an answer denying the material allegations of BAS'
complaint and alleging affirmatively that BAS itself breached its contract with
the Company by abandoning its efforts to market and sell the Company's
securities. The Company further alleges that after BAS advised the Company of
its inability to place the Company's securities, BAS acquiesced in the
appointment of another placement agent for the sale of the Company's securities.
The Company has filed counterclaims against BAS for $2 million alleging that
BAS' performance under the agreement was careless, negligent and indifferent and
that the abandonment of its duties constituted a breach of contract.

Pretrial discovery is in its initial stages and there have been no depositions
conducted to date. Due to the inherent uncertainties of litigation, the Company
cannot accurately predict the ultimate outcome of this litigation.

15.  Related Party Transactions

LCO Properties Sublease
-----------------------

On December 1, 1999 the Company, as lessee, entered into an Agreement of
Sublease with LCO Properties, Inc., a Delaware corporation, as lessor. LCO
Properties, Inc. is affiliated with the Company's principal shareholder, LCO
Investments Limited ("LCO"). The Sublease covers approximately 4,821 square feet
of space located in the building known as 16-18 West 57th Street in the Borough
of Manhattan, New York City. The sublease term is for ten years and calls for
initial lease payments of $402,000 per year, subject to increase in the event of
increases in the rent payable under the parent lease for the property between
LCO Properties, Inc. and its lessor.

Stock Grants by Principal Shareholder
-------------------------------------

In 2001, the Company recorded non-cash compensation expense of $621,000 related
to the granting of 210,000 shares of Company common stock held by a principal
shareholder to two Company executives, an employee, and an outside consultant
for services performed on behalf of the Company.

Harry Thompson Consulting Agreement
-----------------------------------

In August 1999 Harry Thompson, a director of the Company, agreed to provide
marketing consulting services to the Company. In consideration for Mr.
Thompson's services to the Company, and pursuant to a letter agreement dated
August 17, 1999, the Company's principal shareholder, LCO granted Mr. Thompson
the right to purchase from LCO up to 100,000 shares of common stock of the
Company at a price of $1.50 per share. The option to purchase from LCO expires
on August 31, 2004.

                                      F-27
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


Public Relations Services Agreement
-----------------------------------

On April 7, 1999, the Company entered into a Letter Agreement with Chlopak,
Leonard, Schechter and Associates ("CLS") Washington, D.C. Pursuant to the
agreement, CLS provides public relations advice and serves as communications
counselors to the Company for consideration of $23,000 per month, plus expenses.
The agreement was entered into for a minimum of six months, and remains in
force. Peter Schechter, a director of the Company, is one of three managing
partners of CLS.

Oral Health Clinical Services Agreement
---------------------------------------

On March 24, 1999, the Company entered into a Consulting Agreement with Oral
Health Clinical Services, LLC, Salim A. Nathoo and R. Eric Montgomery. Mr.
Montgomery is a director of the Company. Pursuant to the agreement, Oral Health,
Nathoo will devote their services to obtaining American Dental Association (ADA)
Certification for the BriteSmile 2000 Tooth Whitening Procedure. The term of the
contract is for two years or until ADA Certification, whichever is earlier. In
consideration for the services, the Company granted 75,000 stock options to Dr.
Nathoo that are vested. The Company will grant up to 225,000 additional stock
options, of which the number and exercise price is dependent upon obtaining ADA
Certification, at the date the Certification is obtained. To date, certification
has not been obtained.

Oraceutical Agreement
---------------------

On November 27, 2000, the Company entered into a Consulting Agreement with
Oraceutical, LLC. R. Eric Montgomery, a director of the Company, is the founding
Manager and President of Oraceutical. Pursuant to the agreement, Oraceutical
provides technology development services to the Company for various light-
activated teeth whitening products and procedures. In consideration for its
services, Oraceutical has been paid $25,000 a month, plus options to purchase
200,000 shares of common stock, subject to vesting provisions, exercisable at
$3.75 per share.

EVL Lease Agreement
-------------------

On December 29, 2000, as amended in February 2001 and March 2002, the Company
secured a lease line of credit of up to $15 million from Excimer Vision Leasing
L.P. ("EVL") (See note 5 - Sale/Leaseback Transaction) Anthony Pilaro, the
Company's Chairman, serves as Chairman of EVL. Effective June 30, 2001, CAP
America Limited increased its ownership in EVL from 1.79% to 70% and CAP America
Trust decreased its ownership interest from 78.21% to 10%. On the same day, CAP
America Limited was sold to LCO Investments, the Company's major shareholder.
The remaining 20% ownership interest in EVL is held by persons unrelated to the
Company.

CAP Advisers Line of Credit
---------------------------

In December 2001, as amended in March 2002, BriteSmile International, a wholly-
owned subsidiary of the Company, entered into Credit and Security Agreements
with CAP Advisers Limited which provides for a $2.5 million line of credit
facility to the Company and its subsidiary (See note 1 - Liquidity).

Additional Working Capital Guarantees
-------------------------------------

In March 2002 the Company received written commitments from certain existing
shareholders and directors of the Company to severally purchase, on or before
December 31, 2002, up to $4 million of additional shares of common stock of the
Company (or to otherwise secure, collateralize, or make available such funds to
the Company) (See note 1 - Liquidity).

                                      F-28
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


16.  Benefit Plans

In March 2000, the Company adopted a 401(k) defined contribution plan covering
substantially all employees. Employees become eligible to participate in the
plan beginning the first month following their hire date. The plan contains
provisions for an employer contribution at the discretion of management. To
date, the Company has made no contributions to the plan.

17.  Unaudited Quarterly Financial Data

On December 3, 1999, the SEC staff issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements." The SEC Staff addresses
several issues in SAB No. 101, including the timing for recognizing revenue
derived from selling arrangements that involve a continuing obligation of the
seller. The Company's previous revenue recognition policy was to recognize
Associated Center revenue at the time the key card was shipped. After
discussions with the SEC regarding application of SAB No. 101, the Company
modified its revenue recognition policies and recorded a non-cash charge of
$272,000 or $(0.01) per share to reflect the cumulative effect of the accounting
change as of the beginning of the transition period ended December 31, 2000, to
recognize revenue over the estimated period in which the procedures are
performed by the Associated Center. The Company's revenue recognition policies
are disclosed in Note 1.

                                      F-29
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


The Company has included the following information below to demonstrate the
effect on Q1 through Q4 of the 52 weeks ended December 29, 2001 and Q1 through
Q3 of the 39 week transition period ended December 30, 2000, as if the
provisions of SAB 101 had been applied as of the beginning of the 39 week
transition period ended December 30, 2000 (in thousands, except share data):

<TABLE>
<CAPTION>
Amounts for the 52 weeks ended December 29, 2001
                                  March 31, 2001            June 30, 2001           September 29, 2001          December 29, 2001
                             Previously                Previously                 Previously                 Previously
                              Reported     Restated     Reported     Restated      Reported     Restated      Reported    Restated
<S>                          <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Revenue                      $     9,704  $     8,917  $    12,337  $    11,570  $    12,701  $    13,359  $     8,475  $     9,384
Operating Costs and
 Expenses:
 Operating and occupancy
  costs                            3,197        3,197        4,383        4,383        4,376        4,376        4,788        4,788
 Selling, general and
  administrative expense           9,370        9,833       10,824       11,156       11,675       11,675       11,623       10,828
 Research and development
  expenses                           548          548           19           19          334          334          948          948
 Depreciation and
  amortization                     1,214        1,214        1,166        1,166        1,059        1,059        1,276        1,276
 Restructuring expense                 -            -            -            -            -            -          879          879
 Impairment charges                    -            -            -            -            -            -        1,217        1,217
                             -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Total operating costs and
 expenses                         14,329       14,792       16,392       16,724       17,444       17,444       20,731       19,936
                             -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Loss from operations              (4,625)      (5,875)      (4,055)      (5,154)      (4,743)      (4,085)     (12,256)     (10,552)

Other                               (268)        (268)        (319)        (319)         (47)         (47)        (199)        (199)
Loss before cumulative
 effect of accounting
 changes
Cumulative effect of
 accounting changes
                             -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Net loss                     $    (4,893) $    (6,143) $    (4,374) $    (5,473) $    (4,790) $    (4,132) $   (12,455) $   (10,751)
                             ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========

Basic and diluted net loss
 per share:
  Loss before cumulative
   effect of change in
   accounting principle      $     (0.17) $     (0.21) $     (0.13) $     (0.16) $     (0.13) $     (0.12) $     (0.34) $     (0.30)
                             ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========
  Cumulative effect of
   change in accounting
   principle                 $            $            $            $            $            $            $            $
                             ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========
Basic and diluted net
   loss per share            $     (0.17) $     (0.21) $     (0.13) $     (0.16) $     (0.13) $     (0.12) $     (0.34) $     (0.30)
                             ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========

Weighted-average shares -
   basic and diluted          28,816,515   28,816,513   33,301,498   33,301,498   35,873,103   35,873,103   36,210,148   36,210,148
                             ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========
</TABLE>

                                      F-30
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
Amounts for the 39 week transition period ended December 30, 2000
                                                           June 30, 2000           September 30, 2000         December 30, 2000
                                                       Previously                Previously                Previously
                                                        Reported     Restated     Reported     Restated     Reported     Restated
<S>                                                    <C>          <C>          <C>          <C>          <C>          <C>
Revenue                                                $     4,326  $     4,270  $     5,179  $     5,319  $     7,303  $     6,715
Operating Costs and Expenses:
 Operating and occupancy costs                                 342          342        2,774        2,774        6,346        6,346
 Selling, general and administrative expense                10,868       10,868       10,350       10,350        9,338        9,338
 Research and development expenses                             386          386          557          557          868          868
 Depreciation and amortization                               1,010        1,010        1,243        1,243        1,577        1,577
 Restructuring expense                                           -            -            -            -          778          778
 Impairment charges                                              -            -            -            -        1,254        1,254
 Loss on sale/leaseback transaction                              -            -            -            -        7,138        7,138
                                                       -----------  -----------  -----------  -----------  -----------  -----------
Total operating costs and expenses                          12,606       12,606       14,924       14,924       27,299       27,299
                                                       -----------  -----------  -----------  -----------  -----------  -----------
Loss from operations                                        (8,280)      (8,336)      (9,745)      (9,605)     (19,996)     (20,584)

Other                                                           45           45         (308)        (308)      (5,724)      (5,724)
Loss before cumulative effect of accounting changes         (8,235)      (8,291)     (10,053)      (9,913)     (25,720)     (26,308)
Cumulative effect of accounting changes                          -         (272)           -            -            -            -
                                                       -----------  -----------  -----------  -----------  -----------  -----------
Net loss                                               $    (8,235) $    (8,563) $   (10,053) $    (9,913) $   (25,720) $   (26,308)
                                                       ===========  ===========  ===========  ===========  ===========  ===========

Basic and diluted net loss per share:
  Loss before cumulative effect of
   change in accounting principle                      $     (0.34) $     (0.35) $     (0.42) $     (0.41) $     (1.00) $     (1.03)
                                                       ===========  ===========  ===========  ===========  ===========  ===========
  Cumulative effect of change in accounting principle  $            $     (0.01) $            $            $            $
                                                       ===========  ===========  ===========  ===========  ===========  ===========

Basic and diluted net loss per share                   $     (0.34) $     (0.36) $     (0.42) $     (0.41) $     (1.00) $     (1.03)
                                                       ===========  ===========  ===========  ===========  ===========  ===========

Weighted-average shares - basic and diluted             23,920,694   23,920,694   23,931,977   23,931,977   25,621,063   25,621,063
                                                       ===========  ===========  ===========  ===========  ===========  ===========
</TABLE>

     During the fourth quarter of 2001, in addition to those adjustmemts related
     to revenue recognition discussed above, the Company recorded an increase to
     first quarter selling, general and administrative expenses of $463,000 for
     the fair value of stock grants by a principal shareholder, and an increase
     to second quarter selling, general and administrative expenses of $174,000
     and $158,000 for the revaluation of options issued to a consultant and the
     fair value of stock grants by a principal shareholder, respectively.

                                      F-31
<PAGE>

                14a. Exhibits and Financial Statement Schedules


1. Financial Statement Schedules

Schedule II--Valuation and Qualifying Accounts for the three fiscal periods
ended December 29, 2001.

All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements and notes
thereto in Item 8 above.

                                                                     Schedule II
                               BriteSmile, Inc.
                       Valuation and Qualifying Accounts

                                                        Periods ended
                                           December 29,  December 30,   April 1,
                                              2001          2000          2000
                                           -------------------------------------
                                                       (in thousands)
Allowance for doubtful accounts - trade
   accounts receivable:
  Balance, beginning of period                $     163     $      83   $   486
  Additions to allowance                            676           137        60
  Deductions, net of recoveries                    (224)          (57)     (463)
                                           -------------------------------------
  Balance, end of period                      $     615     $     163   $    83
                                           =====================================

                                      F-32