<PAGE>

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

                                   FORM 10-K

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

For the Fiscal Year Ended:

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

For the Transition Period from April 2, 2000 to December 30, 2000

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 $.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 March 15, 2001 was approximately $38,289,651 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, 2001 was 28,816,515. DOCUMENTS INCORPORATED BY REFERENCE: None.
<PAGE>

                       BRITESMILE, INC. AND SUBSIDIARIES

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I.
-------
<S>                                                                                                             <C>
Item 1.  Business.............................................................................................   3

Item 2.  Properties...........................................................................................  11

Item 3.  Legal Proceedings....................................................................................  11

Item 4.  Submission of Matters to a Vote of Security Holders..................................................  12


PART II.
--------

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters................................  12

Item 6.  Selected Financial Data..............................................................................  15

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

Item 8.  Financial Statements and Supplementary Data..........................................................  32

Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure.............................................................................  32

PART III.
---------
Item 10. Directors and Executive Officers of the Registrant...................................................  32

Item 11. Executive Compensation...............................................................................  36

Item 12. Security Ownership of Certain Beneficial Owners and Management.......................................  37

Item 13. Certain Relationships and Related Transactions.......................................................  42

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....................................  45
</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
("Fiscal April 2000"), the Company adopted a 52/53-week (4 week - 4 week - 5
week quarter) fiscal calendar. This change necessitated adding one day to the
Fiscal April 2000 year. 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 39 week transition period ended December 30, 2000 (The
"Transition Period"), and the 39 week period ended December 30, 1999, and for
the 52 weeks ended April 1, 2000 and March 31, 1999, respectively.

ALL DOLLAR AMOUNTS, EXCEPT PER SHARE AMOUNTS, THROUGHOUT THIS REPORT ARE
EXPRESSED IN THOUSANDS.

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 known as BriteSmile Professional Teeth
Whitening Centers ("Centers"), and in existing 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 its proprietary gas plasma light 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. BriteSmile's unique fiberoptic delivery arm 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 to
perform the LATW procedure. In November 1999, BriteSmile introduced its BS3000
LATW keycard system (the "BS3000") into Associated Centers. The BS3000, a
compact and mobile version of the BS2000, can be installed more quickly and
provides the flexibility and mobility required in dental offices. The BS3000
incorporates a keycard system, which enables the dentists to pay for their use
of the machine on a per procedure basis. The Company is continuing its research
and development efforts to improve its current LATW systems in order to maintain
and strengthen its competitive advantage.

                                       3
<PAGE>

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.

On February 15, 1999, BriteSmile introduced the BS2000 at its Walnut Creek
Center. As of March 1, 2001, 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 impact in a market, while at the same time leveraging marketing and
advertising dollars, and optimizing consumer exposure to the BriteSmile brand.

As of March 1, 2001, BriteSmile has contracted with dentists to operate
approximately 1,800 Associated Centers, of which 1,383 are in operation
throughout the United States and around the world in countries including
Argentina, Belgium, France, Italy, Japan, the Netherlands, Singapore and
Switzerland. 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 and electric toothbrushes, to consumers in Centers,
Associated Centers, and on its e-Commerce Internet site. The Company is
currently developing other BriteSmile brand post-whitening products, including
mouthwash, toothbrushes, chewing gum, travel kits and breath mints.

The Company operates in one reportable segment. 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
30, 2000.

Recent Business Developments

Expansion and Revenue Growth
----------------------------

During the 39-week transition period ended December 30, 2000 (the "Transition
Period") and through the date of this Report, the Company opened new Centers in
New York, NY, Chicago, IL and Phoenix, AZ. In addition, BriteSmile continues to
aggressively identify and recruit dentists practicing in both Center and
non-Center Markets to establish complementary BriteSmile Associated Centers in
their respective markets.

To date, BriteSmile has contracted with dentists to operate over 1800 Associated
Centers, of which 1,383 were in operation as of March 1, 2001. This compares to
only 203 Associated Centers in operation at the same time last year. During the
quarter ended December 30, 2000, the Company placed into operation 268 new
Associated Centers, of which 30 were in international locations.

In addition, the Company is aggressively expanding distribution of its services
and products through its strategic relationships with Orthodontic Centers of
America ("OCA"), the leading provider of orthodontic practice management
services in the United States, and Blatchford Solutions, one of the largest
dental practice management organizations in the United States, and continues to
pursue other strategic partnerships. The Company is also expanding its domestic
direct selling teams to expand its network of Associated Centers. Overall, the
Company has planned openings (combined domestic and international) of
approximately 1,500 additional Associated Centers over the next 12 months. There
can be no guarantee that the Company will be successful in executing its
business plan, including opening the total additional Associated Centers
described above.

Revenues for the Transition Period increased by approximately $12,100, or 258%,
to approximately $16,800, from approximately $4,700 in the 39 weeks ended
December 30, 1999. Of the total Transition Period revenues, approximately
$10,300 was attributable to Center operations, and approximately $6,500 was
attributable to the

                                       4
<PAGE>

Associated Centers.

Strategic Partnerships and Alliances
------------------------------------

On June 3, 1999, the Company and OCA announced an agreement to provide
BriteSmile LATW in certain OCA facilities. During February 2000, BriteSmile and
OCA expanded this relationship resulting in contracts to place BS3000 systems in
approximately 99 OCA locations in the United States. As of March 1, 2001, OCA
had 387 affiliated orthodontists and 566 orthodontic centers in 43 states,
Japan, Mexico and Puerto Rico. The strategic relationship between OCA and
BriteSmile provides BriteSmile with access to a large existing customer base and
provides OCA with the best in teeth whitening technology to complement its
orthodontic services.

The Company recently formed an alliance with Blatchford Solutions to offer
BriteSmile's LATW systems to Blatchford's consulting network of approximately
1,000 dental clients in the United States and Canada. In addition to placing the
proprietary BriteSmile teeth whitening technology with dentists, Blatchford
Solutions is also working with dentists to develop marketing strategies that
will maximize the number of procedures performed.

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

In May 1999, the Company established BriteSmile International, a Dublin,
Ireland-based subsidiary, to facilitate international distribution of the
BS3000. BriteSmile International has since introduced the BS3000 to markets in
Argentina, Belgium, France, Germany, Italy, Japan, the Netherlands, Singapore
and Switzerland. BriteSmile International is continuing to explore additional
international opportunities for distribution of the Company's technology in
Europe, Latin America and Asia.

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

In addition to external expansion, the Company is actively building 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 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 and payments. The
Scheduler provides the Call Center, each BriteSmile Center and BriteSmile
Associated Centers with the capability of viewing and interacting on a real-time
basis with dentists' schedules while enabling management to closely monitor
performance of advertising campaigns, sales agents, and the operational and
financial results of Centers and Associated Centers.

Year 2000 Note Purchase Financings
----------------------------------

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 of
$20,000.

Initially, the August 2000 Notes were convertible into shares of the Company's
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") 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.

Pursuant to Registration Rights Agreements between the Investors and the
Company, the Company has registered  Commission,
effective August 25, 2000, the shares of Common Stock underlying the August 2000
Notes and Warrants for resale under the Securities Act.

                                       5
<PAGE>

Seven of the Investors, who purchased an aggregate amount of $15,700 of the
August 2000 Notes, are affiliates of the Company. The affiliated Investors
include LCO Investments Limited ("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 Pequot Partners Fund, L.P.
(shareholders and affiliated with director Gerald Poch).

Four of the Investors, who purchased a total of $4,300 principal amount of the
August 2000 Notes, are unaffiliated with the Company. These unaffiliated
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 Investments Ltd in a private
placement a Convertible Promissory Note (the "December 2000 Note") in the
aggregate principal amount of $5,000. This December 2000 Note is convertible
into shares of Common Stock of the Company at a conversion price of $5.00 per
share and, as of the date of this Report, has not been converted. In conjunction
with the placement of the December 2000 Note, LCO was granted warrants for
250,000 shares at $5.00 per share.

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.

In December 2000, LCO, the Company's principal shareholder, and John Reed, the
Company's Chief Executive Officer, 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 original Investors
other than LCO and Mr. Reed, agreed with the Company to convert an aggregate of
$13,642 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.

Of the original principal amount of $20,000 of August 2000 Notes, as of the date
of this Report, $800 in principal amount has not been converted and remains
outstanding. The current conversion price of such outstanding August 2000 Notes
is $5.00 per share.

Of the original Warrants issued in the August 2000 Note offering, all 1,618,121
Warrants remain outstanding and unexercised, at an exercise price of $5.00 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 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.

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

On December 29, 2000, as amended in February 2001, the Company secured a lease
line of credit of up to $15,000 from Excimer Vision Leasing L.P. ("EVL"). EVL
leases laser vision correction equipment to ophthalmologists.

In addition to providing working capital to the Company, the lease line of
credit will enable the Company to place up to 1,755 new BriteSmile teeth
whitening devices in Associated Centers in the US, enhancing the Company's
ability to meet its strategic objective of establishing approximately 3,700
Associated Centers by year end 2001. Pursuant to the lease line agreement, EVL
purchased from the Company 1,245 BriteSmile 3000 teeth-whitening devices
currently used in various BriteSmile Associated Centers in the United States for
$5,000. The agreement

                                       6
<PAGE>

also provides that EVL will subsequently spend up to an additional $10,000
towards the purchase of 1,755 BriteSmile 3000 systems. If the purchase price of
the additional 1,755 devices exceeds $10,000, the Company will pay the
difference. EVL will lease all devices to the Company for a term of five years.
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.

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

Effective March 1, 2001, the Company borrowed $2,500 from EVL for general
working capital. The loan matures on May 10, 2006, and is not prepayable.
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 is due on April 1, 2001, followed by monthly fixed payments of
$13 during the term of the loan. Variable payments are $25.00 for each
BriteSmile teeth whitening procedure performed at the Company's 14 current
whitening Centers. 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 $2,500 principal amount of the loan.

Management
----------

Effective March 6, 2000, the Company appointed Dennis F. Hightower, a former
senior executive with Walt Disney and professor at Harvard Business School, to
the Company's Board of Directors. Most recently Mr. Hightower served as the
Chief Executive Officer of Europe Online, a privately-held broadband company
based in Luxemborg. He has also served as a senior executive with the Walt
Disney Company. He was President of Walt Disney Television and
Telecommunications, which at the time was the largest division in terms of
revenues and operating income. Previously he was based in Paris as President of
Disney Consumer Products for Europe, the Middle East, and Africa.

On March 6, 2000 the Company also announced the appointment of Peter Hausback as
the Company's new CFO. Mr. Hausback will assume his responsibilities as CFO
effective April 2, 2001. Mr. Hausback replaces Paul Boyer, who recently left the
Company to pursue other opportunities. Mr. Hausback served as the CFO,
VP-Finance and Secretary for Il Fornaio, a $125 million, multi-state fine dining
and commercial bakery company. While at Il Fornaio, Mr. Hausback was responsible
for planning, directing and managing human resources, MIS and all financial
functions, including budget and analysis, SEC reporting, accounting, cost,
treasury, cash, credit and tax functions. Mr. Hausback also previously served as
a manager at Price Waterhouse LLP in San Francisco, and as a senior auditor with
Security Pacific Corporation in Los Angeles.

Market for Products and Services

The Company estimates, based upon a study conducted by Dental Products Report,
that approximately $1,300,000 was spent in the United States during 2000 for
professionally prescribed bleaching products and services, up from approximately
$150,000 spent in 1990, as estimated by the American Dental Association. In
addition, the consumer market for retail whitening toothpaste is substantial,
with an estimated $380,000 spent in the United States in 1998, an increase of
185% from 1995. The Company believes that the concept of teeth whitening is
becoming increasingly accepted in developed nations around the world.
Accordingly, the Company believes that the market for the Company's services
includes consumers in the United States and abroad that are inclined to whiten
their teeth and have sufficient disposable income to pay the suggested retail
price of five hundred dollars for the LATW process.

Marketing and Distribution

BriteSmile's services are marketed primarily via consumer advertising. The
Company uses radio, newsprint, magazines, the Internet and television to market
its LATW procedure. On October 20, 2000 the Company began airing 30-minute
infomercials regarding its products and services in all Center markets. The
Company tailors its marketing and advertising programs to each of its respective
markets. All forms of Company advertising include a toll free telephone number,
which routes incoming calls to BriteSmile's Call Center where the LATW procedure
is further described, and a consultation appointment can be scheduled. The
Company has retained the services of

                                       7
<PAGE>

various advertising agencies to produce and place its advertising, and to
evaluate its effectiveness. The Company has also retained a nationally
recognized public relations firm to assist in the implementation of its public
relations strategy, which consists principally of building public awareness and
establishing brand recognition in areas where Centers and Associated Centers are
located.

The Company's LATW services are distributed through retail locations known as
"BriteSmile Professional Tooth Whitening Centers" and "BriteSmile Professional
Tooth Whitening Associated Centers." Licensed dentists and trained dental
assistants provide the LATW service directly to consumers at Centers. Other
staff members at Centers are responsible for sales and administrative functions.
Associated Centers are located within existing dental offices. The dentist who
operates the Associated Center and his staff provide the BriteSmile LATW
services at that location. No customer accounted for more than 10% of net sales
of the Company during the transition period ended December 30, 2000 or the
fiscal years ended April 1, 2000 and March 31, 1999.

Prior to the end of calendar year 1999 the Company marketed and sold its
laser-based systems and bleaching chemicals directly to dentists through the
Company's internal sales staff, domestic and foreign independent representatives
and dental dealers. Sales to consumers were made through dentists who prescribed
and administered tooth-whitening treatments. The Company used trade journal
advertising, brochures, mailings, trade shows, and high profile dentists to
promote its products.

Competition

The Company's LATW process competes with all teeth whitening products and
services. Generally, competing products consist of bleaching treatments
performed within dental offices, take-home bleaching systems offered by
dentists, and over-the-counter bleaching products, including pastes and gels.
These traditional whitening products and procedures involve inconvenient and
time consuming methods and generally yield mediocre results. Standard tray
systems, which make up approximately 80% of the market, offered through dentists
and over-the-counter, require a high level of consumer compliance over a period
of several weeks. The BriteSmile LATW procedure, however, safely produces
superior whitening results in approximately 90 minutes.

Clinical studies conducted at the University of Medicine and Dentistry of New
Jersey, and confirmed by researchers at New York University, indicate that the
Company's LATW procedure, which incorporates a neutral pH and lower levels of
hydrogen peroxide in the Company's proprietary whitening gel, will not soften
tooth enamel or damage existing fillings, and is neither caustic nor corrosive.
Further independent clinical studies, recently released by the Boston-based
Forsyth Institute, found that the Company's LATW procedure resulted in an
average whitening effect of 8.34 shades of improvement. The Forsyth study found
that the combination of the proprietary BriteSmile light and gel resulted in a
significant improvement in teeth whitening not achieved by either peroxide or
light alone.

The Company has established a selling price within the range of most
professionally administered whitening processes. The Company`s Centers offer
whitening service in uniform and attractive salon-type settings intended to
differentiate and brand the Company's whitening service as well as create a more
enjoyable experience for the consumer. Additionally, the Company is continuing
research and development efforts to improve and expand its current LATW system
in order to maintain and improve competitive advantages.

Competition from dentist-prescribed home bleaching products is from Opalescence
(Ultradent), Nite White (Discus Dental), Platinum (Colgate), NuProGold
(Dentsply), Perfecta (American Dental Hygienics), and Rembrandt (DenMat). There
continue to be numerous entrants into the in-office tooth whitening market,
including Dental/Medical Diagnostic Systems Inc., Kreative, Shafu and DenMat,
which also offer both curing light-activated devices and gels. Competition for
over-the-counter whitening kits is from Natural White and DenMat, as well as
whitening toothpaste producers. Some of the Company's current and potential
competitors may have greater financial and marketing resources available to them
than the Company.

                                       8
<PAGE>

Sources of Supply

The Company has subcontracted the manufacturing of the LATW system with a single
manufacturer, Boyd Industries, Tampa Florida. Effective April, 2001, all
manufacturing of the Company's BriteSmile 3000 system will be pursuant to a new
manufacturing contract between the Company and Peak Industries located in
Frederick, Colorado. The Company leases all LATW systems used in Associated
Centers from EVL pursuant to the $15,000 lease line of credit entered into on
December 29, 2000. See Item 1--"Business, Recent Business Developments, EVL
Lease Agreement," above. The Company anticipates that there may be an
approximate two to three weeks delay in April 2001 between the date of final
shipments of LATW systems produced by our current manufacturer, and shipments of
LATW devices manufactured by Peak. Any such delays could delay receipt of
revenues from Associated Centers who receive systems from the new manufacturer.
The Company also produces or assembles its own proprietary disposable goods used
in the whitening process. 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.

Organizational Structure of Centers

A licensed dentist and licensed dental assistants administer the Company's LATW
process at Centers. Generally, the dentist creates a professional corporation
(the "PC"), which enters into various agreements with the Company relating to
the Center. 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 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 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 systems to be located at the Associated Center, the compensation to be
paid to the Company by the Associated Center Dentist, the marketing and
promotional activities of the parties, 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 are currently 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 a
method for light-activated tooth whitening, and a design for a device that
provides light to teeth for whitening procedures.

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

                                       9
<PAGE>

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 incurred $1,811, $1,748 and $3,201 of research and
development expenses during the Transition Period and the Fiscal Years ended
April 1, 2000 and March 31, 1999, respectively.

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 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, and
there is no assurance that such approvals will be obtained. If such approvals
cannot be obtained, the Company will be limited to offering its LATW procedure
through Associated 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. 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. Product liability insurance for the
nine-month Transition Period ended December 30, 2000, and the Fiscal Year ended
April 1, 2000, cost the Company approximately $30 and $16, respectively.

                                       10
<PAGE>

Employees

As of March 1, 2001, the Company had 125 full-time employees and 25 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 from Lester,
Pennsylvania to Walnut Creek, California. As of September 27, 1999, the Company
entered into a lease agreement through April 2007 for its 13,746 square foot
corporate office facility in Walnut Creek, California. Approximately 11,246
square feet of the building are used for administration, Call Center and office
space, and 2,500 square feet are used for product assembly and warehousing.
Aggregate lease payments under the Walnut Creek lease through 2007 are $1,654.

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:

     Lease Site                   Lease Term          Aggregate Lease Payments
     ----------                   ----------          ------------------------

     Atlanta, GA                       5                      $   687
     Beverly Hills, CA                10                        1,500
     Boca Raton, FL                    5                          926
     Boston, MA                        5                        1,075
     Chicago, IL                      10                        2,017
     Denver, CO                       10                        1,551
     Honolulu, HI                      5                          482
     Houston, TX                       6                          552
     Irvine, CA                       10                          870
     LaJolla, CA                      10                        1,018
     New York, NY                     10                        4,754
     Palo Alto, CA                     5                          468
     Phoenix, AZ                       6                          900
     Walnut Creek, CA                  5                        1,580

Each Center lease covers prime street level, retail spaces, approximately
3,000-7,000 square feet each, 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.

Recently the Company has closed three of its less productive Centers which
operated under the following lease agreements. 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          Aggregate Lease Payments
     ----------                   ----------          ------------------------

     Coral Gables, FL                 5                          277
     Ft. Lauderdale, FL               7                          592
     Pasadena, CA                     5                          393


ITEM 3.   LEGAL PROCEEDINGS

The Company is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these other matters will not have a material adverse effect on
the

                                       11
<PAGE>

Company's operations or financial condition.

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 Transition Period 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 the past two fiscal years, and the
Transition Period covered by this Report, 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 March 31, 1999
     --------------------------------
     June 30, 1998                                     $  3.000      $1.0000
     September 30, 1998                                $  3.375      $0.6875
     December 31, 1998                                 $  3.000      $0.8750
     March 31, 1999                                    $  7.375      $2.0625

     Fiscal Year Ended April 1, 2000
     -------------------------------
     June 30, 1999                                     $ 17.250      $ 4.125
     September 30, 1999                                $ 12.000      $ 8.625
     December 31, 1999                                 $11.1875      $ 5.625
     April 1, 2000                                     $ 13.625      $ 7.125

     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, 2001, there were 291 holders of record of the Company's 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").

                                       12
<PAGE>

Fiscal Year Ending March 31, 1999

On May 5, 1998, the Company sold 1,860,465 shares of restricted Common Stock to
LCO Investments Limited ("LCO") for $5,000. In connection with the sale, the
Company also agreed to reprice options to purchase up to 1,173,334 shares of
Common Stock previously granted to LCO, such that the purchase price of the
shares underlying the then-existing options was changed from $9.00 per share to
$4.50 per share. 773,334 of said options are exercisable through March 31, 2006.
400,000 of said options are exercisable through May 1, 2007.

On December 7, 1998, the Company sold 9,302,326 shares of restricted Common
Stock to LCO in a private placement for $10,000. Under an amendment to a prior
registration agreement, LCO acquired certain registration rights with respect to
these shares.

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 $15,000. 1,004,043 of the shares were sold to
nine private investors, including LCO, for $11,120. 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 $3,880. 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 Limited, an entity affiliated with
LCO, provided financing for the Management Purchasers. All purchasers acquired
certain registration rights.

Effective January 12, 2000, the Company sold 77,318 shares of Common Stock in a
private placement to Andrew J. McKelvey for cash proceeds of $464, 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. See "Certain
Relationships and Related Transactions," Item 13, below.

Effective January 12, 2000, the Company sold in a private placement a total of
30,927 shares of Common Stock to Quota Rabbicco II, Ltd., Argonaut Partnership,
L.P., and David E. Gerstenhaber for $186, 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 Common Stock, representing 14.2 percent of the Company's total shares then
outstanding, for aggregate proceeds of $20,000. 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 new 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
"Investors") in a private placement its 5% Subordinated Convertible Notes due
June 29, 2005 (the "August 2000 Notes") in the aggregate principal amount of
$20,000.

Initially, the August 2000 Notes were convertible into shares of the Company's
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.

                                       13
<PAGE>

Pursuant to Registration Rights Agreements between the Investors and the
Company, the Company has registered with the Securities and Exchange Commission,
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 Investors, who purchased an aggregate amount of $15,700 of the
August 2000 Notes, are affiliates of the Company. The affiliated 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 Pequot Partners Fund, L.P. (shareholders and
affiliated with director Gerald Poch).

Four of the Investors, who purchased a total of $4,300 principal amount of the
August 2000 Notes, are unaffiliated with the Company. These unaffiliated
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 Investments Ltd in a private
placement a Convertible Promissory Note (the "December 2000 Note") in the
aggregate principal amount of $5,000. This December 2000 Note is convertible
into shares of Common Stock of the Company at a conversion price of $5.00 per
share and, as of the date of this Report, has not been converted. In conjunction
with the placement of the December 2000 Note, LCO was granted warrants for
250,000 shares at $5.00 per share.

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.

In December 2000, LCO, the Company's principal shareholder, and John Reed, the
Company's Chief Executive Officer, 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 original Investors
other than LCO and Mr. Reed, agreed with the Company to convert an aggregate of
$13,642 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.

Of the original principal amount of $20,000 of August 2000 Notes, as of the date
of this Report, $800 in principal amount has not been converted and remains
outstanding. The current conversion price of such outstanding August 2000 Notes
is $5.00 per share.

Of the original Warrants issued in the August 2000 Note offering, all 1,618,121
Warrants remain outstanding and unexercised, at an exercise price of $5.00 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 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.

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

                                       14
<PAGE>

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, have not been 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 approximately 100 employees, directors, or key consultants
pursuant to the Company's 1997 Stock Option and Incentive Plan (the "1997
Plan"). Of the 6,032,600 options granted, as of March 15, 2001, 466,000 have
been forfeited and 150,000 have been exercised. Additional options for
approximately 1,627,333 shares have been granted to certain vendors and
consultants outside the 1997 Plan of which 303,000 options have been forfeited
and 373,000 options have been exercised. 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 Securities and Exchange Commission, 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 any additional options granted or to
be granted 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>
                                                                        Year Ended                           9-Month
                                                                                                            Transition
                                                                                                           Period Ended
                                                 ----------------------------------------------------------------------
                                                  March 31,     March 31,       March 31,     April 1,       Dec 30,
                                                    1997          1998            1999         2000           2000
                                                    ----          ----            ----         ----           ----
                                                                 (in thousands, except per share data)
<S>                                              <C>            <C>           <C>            <C>           <C>
Consolidated Statement of Earnings Data:

Net sales .................................      $    7,083     $   4,609     $      547     $    8,044    $   16,808
Center selling and occupancy costs.........           4,205         5,813            946         13,849         9,462
Operating expenses:........................
   Selling, general and administrative.....           3,199         4,508          4,627         14,498        30,556
   Research and Development................             233           906          3,201          1,748         1,811
   Depreciation and amortization...........             255           422            123          1,457         3,830
   Restructuring expense...................               -         2,017          1,030            472           778
   Impairment Charges......................               -             -          2,525              -         1,254
   Loss on sale/leaseback transaction......               -             -              -              -         7,138
                                                 ----------     ---------     ----------     ----------    ----------
     Total operating expenses..............           3,687         7,853         11,506         18,175        45,367
                                                 ----------     ---------     ----------     ----------    ----------
Loss from operations.......................            (809)       (9,057)       (11,905)       (23,980)      (38,021)
Other income (expense), net................              41           (56)           138            475        (5,961)
                                                 ----------     ---------     ----------     ----------    ----------
Earnings before income taxes...............            (768)       (9,113)       (11,767)       (23,505)      (43,982)
Income taxes ..............................              11             -              -             11            26
                                                 ----------     ---------     ----------     ----------    ----------
Net earnings...............................      $     (779)    $  (9,113)    $  (11,767)    $  (23,516)   $  (44,088)
                                                 ==========     =========     ==========     ==========    ==========
</TABLE>

                                       15
<PAGE>

<TABLE>
<S>                                                <C>            <C>           <C>            <C>           <C>
Earnings per share - diluted.....................  $     (.15)    $   (1.62)    $    (1.13)    $    (1.18)   $    (1.80)
                                                   ==========     =========     ==========     ==========    ==========

Weighted average shares outstanding - diluted....   5,195,000     5,630,000     10,409,212     19,995,796    24,493,676
                                                   ==========     =========     ==========     ==========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                    March 31,     March 31,     March 31,     April 1,       Dec 30,
                                                      1997          1998          1999         2000           2000
                                                      ----          ----          ----         ----           ----
                                                                   (in thousands, except per share data)
<S>                                                 <C>           <C>           <C>          <C>           <C>
Consolidated Balance Sheet Data:

Cash and cash equivalents .......................    $   55       $  503        $ 6,200      $ 10,969      $ 5,701
Working capital..................................     3,564        1,198          3,498        10,869       (4,723)
Current assets...................................     4,587        3,082          7,780        15,018        13,257
Total assets.....................................     9,718        4,662         10,432        32,390        32,169
Long-term obligations, less current maturities...       846            -              -           122         3,894
Stockholders' equity.............................     7,849        1,847          6,060        28,119        10,295
</TABLE>

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.

ALL DOLLAR AMOUNTS THROUGHOUT THIS REPORT ARE EXPRESSED IN THOUSANDS.

Results of Operations:

The following table sets forth certain information relating to the growth in the
number of BriteSmile Centers and Associated Centers for the 39 weeks ended
December 30, 2000 compared to the fiscal year ended April 1, 2000:

<TABLE>
<CAPTION>
                                          BriteSmile, Inc.                                                Fiscal Year
Roll-out Status                   Transition Period April 2, 2000                                            Ended
                                     through December 30, 2000                                            April 1, 2000
-----------------------------------------------------------------------------------------------------     --------------
                              Number of Centers at
                                       the                 Number of Centers        Number of Centers
         Centers               beginning of Period       Opened During Period       At End of Period           Total
  -----------------------    ------------------------    ----------------------     ------------------    --------------
                                     14                          3                     17 (1)                  14

                                                                                            Grand
    Associated Centers           AC's           OCA         Total U.S.        Int'l         Total              Total
------------------------------------------------------------------------- -------------- ------------     --------------
<S>                          <C>                <C>      <C>              <C>            <C>              <C>
Total Developed............      1,311           99            1,410           175          1,585              490

Contracts Received.........      1,310           98            1,408           175          1,586              375

Active - In Business (2)...        887           93              980           175          1,155              235

In Process (3).............        423            5              428             0            428             140
</TABLE>

                                       16
<PAGE>

     (1)  Since December 30, 2000, the Company has closed three of its less-
          productive Centers. See "Operating Costs and Expenses - Store Closure
          Recovery" below.

     (2)  The Company deems an Associated Center to be "active-in-business" 45
          days after the Company ships the initial keycard to the Associated
          Center.

     (3)  Represents Associated Centers for which a contract has been received
          but where the dentist who will operate the Associated Center is either
          awaiting training or shipment of the BS3000 device.

The following table sets forth, for the periods indicated, certain information
relating to the operations of the Company. During the fourth quarter of the
Company's fiscal year ended April 1, 2000 ("Fiscal April 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. This change
necessitated adding one day to the Fiscal April 2000 year. Data in the table
reflects the consolidated results of the Company for the 39 week Transition
Period ended December 30, 2000, and the 39 week period ended December 30, 1999,
and for the 52 weeks ended April 1, 2000 and March 31, 1999, respectively. All
amounts, except share data, in the following table and discussion are in
thousands.

<TABLE>
<CAPTION>
                                                                For the 39 Weeks Ended              For the 52 Weeks Ended
                                                         ------------------------------------- ----------------------------------
                                                                                    % of                                  % of
                                                                                    from                                  from
                                                           December    December    1999 to       April      March        1999 to
                                                           30, 2000    30, 1999     2000        1, 2000    31, 1999       2000
                                                           --------    --------     ----        -------    --------       ----
                                                                     (Unaudited)
<S>                                                      <C>           <C>         <C>          <C>        <C>           <C>
Statement of Operations Data:

       Center whitening fees, net.......................   $  9,315    $  3,858         141.4%  $  5,838    $     46      12,591.3%
       Associated Center whitening fees, net............      6,270         742         745.0      1,970           -
       Product sales....................................      1,223          97       1,160.8        236         501         (52.9)
                                                           --------    --------                 --------    --------
               Total revenues, net......................     16,808       4,697         257.8      8,044         547       1,370.6
                                                           --------    --------                 --------    --------
Operating Costs and Expenses:
       Selling and occupancy costs......................      9,462       6,731          40.5     13,849         946       1,364.0
       Selling, general and administrative..............     30,556      12,301         148.4     14,498       4,627         213.3
       Research and development expenses................      1,811       1,279          41.6      1,748       3,201         (45.4)
       Depreciation and amortization....................      3,830         774         394.8      1,457         123       1,084.6
       Restructuring Expense............................        778         300         159.3        472       3,555         (86.7)
       Impairment charges...............................      1,254           -             -          -           -             -
       Loss on sale/leaseback transaction...............      7,138           -             -          -           -             -
                                                           --------    --------                 --------    --------
          Total operating costs and Expenses............     54,829      21,385         156.0     32,024      12,452         157.2
                                                           --------    --------                 --------    --------
Other Income (Expense), net:
       Interest expense.................................     (6,153)        (24)     25,537.5        (26)       (102)        (74.5)
                                                           --------    --------                 --------    --------
       Interest income..................................        192         304         (36.8)       501         240         108.8
                                                           --------    --------                 --------    --------
       Income tax expense...............................         26           -             -         11           -             -
                                                           --------    --------                 --------    --------
        Net loss........................................   $(44,008)   $(16,408)        168.2%  $(23,516)   $(11,767)         99.8%
                                                           ========    ========                 ========    ========
</TABLE>

In its quarterly earnings press release dated March 15, 2001, the Company
included the following table setting forth, for the periods indicated, certain
unaudited information prepared by the Company relating to the operations of the
Company for the 52-week (full calendar) periods ended December 30, 2000 and
December 30, 1999. Although the Company has changed its fiscal reporting to a
new 52 week calendar year-end, the first such 52 week calendar period to be
audited will end in December 2001. The audited financial information in this
Annual Report on Form 10-K includes only the Transition Period (the 39 weeks
ended December 30, 2000), and the 52 weeks ended April 1, 2000, and March 31,
1999. The 52 week calendar year end figures in the following table were prepared
by the Company for the reader's information only, and are not covered by the
auditor's report contained herein.

                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                                 52 Weeks Ended           52 Weeks Ended
                                                                December 30, 2000      December 30, 1999
                                                                   (unaudited)             (unaudited)
                                                                   -----------             -----------
<S>                                                             <C>                    <C>
REVENUES:
    Center whitening fees, net.................................  $     11,295          $      4,047
    Associated Center whitening fees, net......................         7,498                   972
    Product sales..............................................         1,362                    97
                                                                 ------------          ------------
       Total revenues, net.....................................        20,155                 5,116
                                                                 ------------          ------------
OPERATING COSTS AND EXPENSES
    Center selling and occupancy costs.........................        16,580                 7,352
    Selling, General and administrative expenses...............        32,753                14,863
    Research and development expenses..........................         2,280                 1,697
    Depreciation and amortization..............................         4,513                   879
    Restructuring expense......................................           778                    --
    Impairment charges.........................................         1,254                    --
    Loss on sale/leaseback transaction.........................         7,138                   351
                                                                 ------------          ------------
       Total operating costs and expenses......................        65,296                25,142
                                                                 ------------          ------------
          Loss from operations.................................       (45,141)              (20,026)
                                                                 ------------          ------------
       OTHER INCOME (EXPENSE), net
            including debt conversion costs of $5,552 and $0:..        (5,766)                  389
                                                                 ------------          ------------
          Loss before income tax provision.....................       (50,907)              (19,637)

INCOME TAX PROVISION...........................................            26                   --
                                                                 ------------          ------------
          Net loss.............................................  $    (50,933)         $    (19,637)
                                                                 ============          ============
BASIC AND DILUTED NET LOSS PER SHARE...........................  $      (2.10)         $      (1.07)
                                                                 ============          ============
WEIGHTED AVERAGE SHARES - BASIC AND DILUTED....................    24,281,863            18,349,297
                                                                 ============          ============
</TABLE>

The following are explanations of significant period-to-period changes for the
39 weeks ended December 30, 2000 and December 30, 1999:

Revenues

Total Revenues, net. Total revenues, net increased by $12,111, or 257.8% to
$16,808 for the 39 weeks ended December 30, 2000 from $4,697 for the 39 weeks
ended December 30, 1999.

Center Whitening Fees, net. Center whitening fees, net increased by $5,457, or
141.4%, to $9,315 for the 39 weeks ended December 30, 2000 from $3,858 for the
39 weeks ended December 30, 1999. This increase was primarily due to the
operation of 17 Centers during the 39 weeks ended December 30, 2000 compared to
8 Centers that were in operation during the 39 weeks ended December 30, 1999.
The Company opened 3 new Centers during the 39 weeks

                                       18
<PAGE>

ended December 30, 2000. Since December 30, 2000, the Company has 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 $5,528, or 745.0% to $6,270 for the 39 weeks ended December 30,
2000 from $742 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 39
weeks ended December 30, 2000 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 December 30, 2000, 175 were international
locations.

During the 39 weeks ended December 30, 2000, the Company opened 1,126 new
Associated Centers, of which 175 were international locations. At December 30,
2000, there were 428 Associated Centers in the process of being placed into
operation, of which none were international locations. Due to training and
shipping requirements, there is approximately 45 days of lead-time between the
signing of an Associated Center agreement and the first paid procedures at an
Associated Center.

Although the Company does not believe that its business follows seasonal trends,
it has recognized that during the months of July and August and again during
December and January, a substantial number of Associated Center locations (both
domestic and international) shut down their practices for vacation. As a result,
the frequency of key card purchases by Associated Centers during these months
declines as well. In addition, during the 39 weeks ended December 30, 2000, the
Company changed the number of procedures on the key cards sold to Associated
Centers, from 20 procedures to 5 procedures. The Company also modified the
payment terms on the first key card only that is sold to a new Associated Center
location, from Net 30 to Net 60. These changes allow an Associated Center to
have the necessary time to receive both training and the BS3000 device and begin
performing paid procedures. The Company implemented these changes in response to
requests from the Associated Center dentists.

The Company is aggressively executing its strategic plan of expanding
distribution into the professional dental practice channel through its
Associated Centers. This plan includes the expansion of strategic partnerships
such as the OCA relationship and other special dental groups, identifying and
expanding the international distributor base, and expanding domestic direct
selling teams while enhancing the support of new and existing Associated
Centers. Additionally, the Company anticipates opening approximately 1,500
additional Associated Centers in domestic and international locations over the
next twelve months. As a result, Associated Center whitening fees are expected
to increase during 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 $1,126, or 1,160.8% to $1,223 for the
39 weeks ended December 30, 2000 from $97 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. 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 E-Commerce website.

Operating Costs and Expenses

Center Selling and Occupancy Costs. Center selling and occupancy costs increased
by $2,731, or 40.5%, to $9,462 for the 39 weeks ended December 30, 2000 from
$6,731 for the 39 weeks ended December 30, 1999. This increase is primarily due
to the operation of 17 Centers at the end of the 39 weeks ended December 30,
2000 compared to 8 Centers that were in operation at the end of the 39 weeks
ended December 30, 1999. Of this increase, $2,326 related to Center salaries and
benefits, $2,357 related to rent, utilities, repairs and telephone at the 17
existing Centers, and $529 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 101.6% for the 39 weeks ended December 30, 2000 from 98.3% 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 34.5% for
the 39 weeks ended December 30, 2000 from 30.0% for the 39 weeks ended December
30, 1999. This increase is primarily due to the introduction of the

                                       19
<PAGE>

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 has not
affected the number of paid procedures performed at its Centers in relationship
to historical trends.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $18,255, or 148.4%, to $30,557 for the 39
weeks ended December 30, 2000 from $12,301 for the 39 weeks ended December 30,
1999. During the 39 weeks ended December 30, 2000, the Company added 26
additional market managers, executive, selling and administrative personnel to
effectively execute the Company's business strategy, including the introduction
of 17 new Centers, the addition of 1,126 Associated Centers, and costs incurred
to open future Centers and Associated Centers.

Of this increase, $10,297 related to advertising, promotional and call center
costs directed to increase consumer awareness, and sales of the whitening
service to prospective Associated Center dentists, $1,923 to increased salaries
and benefits, $400 to postage, $396 to travel and entertainment and $932 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 $1,566 related to the
development and expansion of international Associated Centers in Japan,
Argentina, Venezuela, Switzerland, Italy, Holland, France, Singapore, Germany,
Netherlands and Belgium. Additionally, management has and is implementing
several cost saving initiatives totaling over $8,400 over the next twelve
months. These cost savings will be achieved in the areas of Center operations,
procedure kit production, legal and consulting fees and management 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.

Research and Development Expenses. Research and development expenses increased
by $532, to $1,811 for the 39 weeks ended December 30, 2000 from $1,279 for the
39 weeks ended December 30, 1999. Research and development costs incurred during
the 39 weeks ended December 30, 2000 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 keycard 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
$3,056, or 394.8%, to $3,830 for the 39 weeks ended December 30, 2000 from $774
for the 39 weeks ended December 30, 1999. This increase was primarily
attributable to the operation of 17 existing Centers and the operation of 1,155
BS3000 systems in Associated Centers.

Stock Option Expense. During the 39 weeks ended December 30, 2000, the Company
recognized non-cash charges totaling $313 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, to $778 for the
39 weeks ended December 30, 2000 from $300 for the 39 weeks ended December 30,
1999. During the 39 weeks ended December 30, 2000, the Company's Board of
Directors and management decided to close three of its wholly-owned Teeth
Whitening Centers. These Centers are located in Pasadena, CA., Ft. Lauderdale,
FL., and Coral Gables, FL. The Company's decision to close the three was due to
the underperformance of the Centers. In addition, the Company believed that
there was an over saturation of wholly-owned Centers in those markets. As a
result of the Company's decision to close these Centers, it is anticipated that
the remaining wholly-owned Teeth Whitening Centers as well as the Associated
Centers in those areas will pick up the procedures that were being performed in
the closed Centers. These costs consisted primarily of lease termination
accruals, the write-down of leasehold improvements and employee severance. On
February 21, 2001 the Pasadena, CA. Center was closed and on February 28, 2001
both the Ft. Lauderdale and Coral Gables, FL. Centers were closed.

                                       20
<PAGE>

Impairment Charges and Loss on Sale/Leaseback Transaction. Impairment charges
and loss on sale/leaseback transaction increased by $8,392 to $8,392 for the 39
weeks ended December 30, 2000 from $-0- for the 39 weeks ended December 30,
1999. During the 39 weeks ended December 30, 2000, the Company recorded a $7,138
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. In addition, the Company recorded a $1,254 charge
related to the impairment of assets with the closing of the three wholly owned
Teeth Whitening Centers discussed above.

Interest Expense. Interest expense increased $6,129, or 25,537.5%, to $6,153 for
the 39 weeks ended December 30, 2000 from $24 for the 39 weeks ended December
30, 1999. Interest expense for the 39 weeks ended December 30, 2000 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 with the debt. In connection
with Securities Purchase Agreements dated June 27, 2000, as amended August 3,
2000, the Company issued Warrants for 1,618,121 shares of the Company's common
stock to eleven investors in connection with a private placement of Notes. The
fair value of the Warrants was recorded as a discount of the notes and was being
amortized over the life of the notes to interest expense. For the 39 weeks ended
December 30, 2000, the Company recorded $191 of interest expense related to this
amortization. Additionally, upon conversion of the notes, the related
unamortized discount of $2,174 was immediately recorded as interest expense. The
Company also recorded $3,377 of interest expense related to the beneficial
conversion rate offered certain 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 notes and the related warrants. Interest expense for the 39
weeks ended December 30, 1999 consisted primarily of mortgage interest paid on
the Company's former headquarters facility. The Warrants are presently
exercisable at $5.00 per share and expire on June 29, 2005.

Interest Income. Interest income decreased $112, or 36.8%, to $192 for the 39
weeks ended December 30, 2000 from $304 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 $27,601, or 168.2%, to $44,008 for the 39
weeks ended December 30, 2000 from $16,408 for the 39 weeks ended December 30,
1999 due to a combination of the factors described above.

The following are explanations of significant period-to-period changes for the
52 weeks ended April 1, 2000 and March 31, 1999:

Revenues

Total Revenues, net. Total net revenues increased by $7,497, or 1,370.6%, to
$8,044 for the 52 weeks ended April 1, 2000 from $547 for the 52 weeks ended
March 31, 1999.

Center Whitening Fees, net. Center whitening fees, net, increased by $5,792 or
12,591.8% to $5,838 for the 52 weeks ended April 1, 2000 from $46 for the 52
weeks ended March 31, 1999. During the 52 weeks ended April 1, 2000, the Company
opened a total of 13 Centers for a total of 14 compared to 1 Center opened
during the fourth quarter of the 52 weeks ended March 31, 1999. Center whitening
fees are expected to increase during the next twelve months as a result of a
full year operating experience over the next twelve months at existing Centers.
Additionally, the Company will continue to refine its marketing strategy to
expand consumer awareness within each respective market for which a Center or
Centers exist. As a result, management anticipates that the number of procedures
performed at each Center will also increase. However, there can be no guarantee
that the Company will be successful in executing its marketing strategy or that
Center performance will be enhanced. During the 52 weeks ended March 31, 1999,
the Company discontinued its laser-based teeth whitening device business. As a
result, there were no sales of these devices during the 52 weeks ended March 31,
1999.

                                       21
<PAGE>

Associated Center Whitening Fees. Associated Center whitening fees for the 52
weeks ended April 1, 2000 totaled $1,970. During the 52 weeks ended April 1,
2000, the Company executed contracts with 490 Associated Center locations of
which 235 were in operation at April 1, 2000. There are generally 45 days of
lead-time between the signing of agreements with Associated Center Dentists and
the performance of paid procedures by the Dentists, due to training and shipping
requirements. The Company had no Associated Center locations sold or open during
the 52 weeks ended March 31, 1999.

The Company is aggressively executing its strategic plan of expanding
distribution utilizing its Associated Center model. See discussion above under
Revenues - Associated Center Whitening Fees.

Product Sales. Product sales decreased $265, or 52.9% to $236 for the 52 weeks
ended April 1, 2000 from $501 for the 52 weeks ended March 31, 1999. Product
sales for the 52 weeks ended April 1, 2000 represent the Company's toothpaste
and newly introduced Sonicare toothbrush products sold at Centers. Product sales
for the 52 weeks ended March 31, 1999 represent chemical products related to
laser-based teeth whitening devices that are no longer sold by the Company.

Operating Costs and Expenses

Center Selling and Occupancy Costs. Center selling and occupancy costs increased
$12,903, or 1,364.2% to $13,849 for the 52 weeks ended April 1, 2000 from $946
for the 52 weeks ended March 31, 1999. The increase was primarily the result of
the Company's opening 13 Centers during the 52 weeks ended April 1, 2000, for a
total of 14 Centers, compared to 1 Center opened during the fourth quarter of
the 52 weeks ended March 31, 1999. Of this increase, $7,625 was advertising and
promotional costs directed to increase consumer awareness, $3,251 related to
Center salaries and benefits and $1,259 related to rent at the 14 existing
Centers. Center selling and occupancy costs, as a percentage of Center whitening
fees was 228.2% for the 52 weeks ended April 1, 2000 compared to 1,085.4% for
the 52 weeks ended March 31, 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 was 33.8% for the 52 weeks ended April 1,
2000. Product cost of sales consisted primarily of the Company's toothpaste and
Sonicare toothbrush products. For the 52 weeks ended March 31, 1999, product
cost of sales represents the chemical products related to the old laser-based
teeth whitening devices that are no longer sold by the Company.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $9,871, or 213.2%, to $14,498 for the 52 weeks
ended April 2000 from $4,627 for the 52 weeks ended March 31, 1999. The Company
added 53 additional executive, selling and administrative personnel during
Fiscal April 1 2000 to effectively execute the Company's business strategy.
Additionally, during that period the Company introduced 13 new Centers, 490
Associated Centers, and incurred costs related to the opening of future Centers
and Associated Centers.

Included in the selling, general and administrative expenses for the 52 weeks
ended April 1, 2000 were $3,505 of advertising, promotional, and call center
costs directed to increase consumer awareness, and sales of the whitening
service to prospective Associated Center dentists. The Company also incurred
$7,649 of professional service costs during the 52 weeks ended April 1, 2000,
related to public relations, executing Center and Associated Center agreements,
executing leases, intellectual property protection, legal fees, employee
recruitment and general corporate matters. Included in professional service
costs are non-cash charges totaling $1,765 for the fair value of stock options
granted to various consultants to the Company. The Company expects to issue
options to consultants in the future at or above fair market value. The Company
also incurred $746 related to the development and expansion of international
Associated Centers in Japan, Argentina, Switzerland, Italy, Holland, France,
Singapore and Belgium.

During the 52 weeks ended April 1, 2000, the Company consolidated its Call
Center operations from Los Angeles and its general and administrative operations
from Lester, Pennsylvania, to its headquarters facility in Walnut Creek.,
California.

Research and Development Expenses. Research and development expenses decreased
by $1,453, or 45.4%, to

                                       22
<PAGE>

$1,748 for the 52 weeks ended April 1, 2000 from $3,201 for the 52 weeks ended
March 31, 1999. This decrease was primarily attributable to the development of
the BS3000 LATW system and keycard that was introduced into Associated Centers
during the three months ended December 31, 1999. Research and development
expenses incurred during the 52 weeks ended March 31, 1999 related to the
development of the BS2000 system, which was introduced at the Company's first
Center in Walnut Creek, California in February 1999. The Company also incurred
expenses related to clinical and efficacy studies, and to develop the Company's
next-generation light activated device.

Depreciation and Amortization. Depreciation and amortization increased by
$1,334, or 1,080.0% to $1,457 for the 52 weeks ended April 1, 2000 from $123 for
the 52 weeks ended March 31, 1999. This increase was primarily attributable to
the 14 Centers, and the introduction of the BS3000 system into 235 Associated
Centers in operation during the 52 weeks ended April 1, 2000. The Company only
had 1 Center in operation during the fourth quarter of the 52 weeks ended March
31, 1999.

Restructuring Expense. Restructuring expense decreased by $3,083, or 86.7% to
$472 for the 52 weeks ended April 1, 2000 from $3,555 for the 52 weeks ended
March 31, 1999. During the 52 weeks ended April 1, 2000, the Company recorded a
$472 charge related to the relocation of its Lester, Pennsylvania office to
California. These costs consisted primarily of lease termination accruals and
employee severance.

During the 52 weeks ended March 31, 1999, the Company's Board of Directors and
management decided to close its Utah operating facility, discontinue all
activities related to the industrial and scientific laser lines of business,
discontinue development and sales of its laser-based device, and move its
headquarters to Pennsylvania. As a result of the Company's decision to relocate
its operations to Pennsylvania and to focus exclusively on the tooth whitening
market, nearly all of the Company's 63 employees located in Utah were scheduled
for termination. A termination benefits liability of $200 was established and
charged to expense during the three-month period ended June 30, 1998. At
September 30, 1998, the Company completed its termination plan and paid benefits
of approximately $200 to former employees. In October 1998, the Company
discontinued sales of take-home and in-office tooth whitening chemical products
as a result of management's shift in focus to the LATW technology to be
distributed at Centers and Associated Centers.

In addition to employee termination costs, the Company recorded other charges of
$2,927 in the 52 weeks ended March 31, 1999. These charges include the
write-down of $418 of inventories classified as cost of products sold, the
impairment and write-down of patents and a joint venture related to discontinued
technology (assets which will provide limited or no future benefit to the
Company) for $657, settlement of canceled purchase commitments for $402,
write-down on assets available for sale at fair value for $367, property
write-downs and losses on sale of properties for $425, and $658 of charges
related to uncollectable accounts receivable and accrued expenses associated
with discontinued product lines.

Interest Expense. Interest expense decreased $76, or 74.9%, to $26 for the 52
weeks ended April 1, 2000 from $102 for the 52 weeks ended March 31, 1999.
Interest expense consisted primarily of mortgage interest paid on the Company's
former headquarters facility.

Interest Income. Interest income increased $261, or 108.6%, to $501 for the 52
weeks ended April 1, 2000 from $240 for the 52 weeks ended March 31, 1999. This
increase was primarily related to increased average available cash on-hand to
invest.

Net Loss. The net loss increased by $11,749, or 99.7%, to $23,516 for the 52
weeks ended April 1, 2000 from $11,676 for the 52 weeks ended March 31, 1999,
due to a combination of the factors described above.

Liquidity and Capital Resources

General

The Company's principal sources of liquidity have been issuances of convertible
debt, common stock and common

                                       23
<PAGE>

stock equivalents. At December 30, 2000, the Company had $5,701 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 operating losses will continue through most of calendar year ending
December 31, 2001, and 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.

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 of
$20,000.

Initially, the August 2000 Notes were convertible into shares of the Company's
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") 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.

Pursuant to Registration Rights Agreements between the Investors and the
Company, the Company has registered with the Securities and Exchange Commission,
effective August 25, 2000, the shares of Common Stock underlying the August 2000
Notes and Warrants for resale under the Securities Act.

On December 5, 2000, the Company sold to LCO Investments Ltd in a private
placement a Convertible Promissory Note (the "December 5th Note") in the
aggregate principal amount of $5,000. This December 5/th/ Note is convertible
into shares of Common Stock of the Company at a conversion price of $5.00 per
share and, as of the date of this Report, has not been converted.

As a result of the issuance of the December 5/th/ Note, the conversion price of
the August 2000 Notes, and the exercise price of the Warrants, was automatically
adjusted to $5.00 per share.

In December 2000, LCO, the Company's principal shareholder, and John Reed, the
Company's Chief Executive Officer, 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 original Investors
other than LCO and Mr. Reed, agreed with the Company to convert an aggregate of
$13,642 in principal amount of their Notes into 3,568,560 shares of Common Stock
at an amended conversion price of $3.8625 per share.

Of the original principal amount of $20,000 of August 2000 Notes, as of the date
of this Report, $800 in principal amount have not been converted and remain
outstanding. The current conversion price of such outstanding August 2000 Notes
is $5.00 per share.

Of the original Warrants issued in the Note offering, all 1,618,121 Warrants
remain outstanding and unexercised, at an exercise price of $5.00 per share.

On December 29, 2000, the Company secured a lease line of credit of up to
$15,000 from Excimer Vision Leasing (EVL). EVL leases laser vision correction
equipment to ophthalmologists.

In addition to providing working capital to the Company, the lease line of
credit will enable the Company to place up to 1,755 new BriteSmile teeth
whitening devices in Associated Centers in the US, enhancing the Company's
ability to meet its strategic objective of establishing approximately 3,700
Associated Centers by year end 2001. Pursuant to the lease line agreement, EVL
purchased from the Company 1,245 BriteSmile 3000 teeth-whitening devices
currently used in various BriteSmile Associated Centers in the United States for
$5,000. The agreement also provides that EVL will subsequently purchase 1,755
additional devices for up to $10,000. EVL will lease all

                                       24
<PAGE>

devices to the Company for a term of five years. The Company will pay EVL a
monthly rental for each device consisting of a fixed amount (ranging from twenty
to thirty dollars), plus one hundred twenty-five dollars for each key card which
enables Associated Center dentists to perform 5 teeth whitening procedures.

Effective March 1, 2001, the Company borrowed $2,500 from EVL for general
working capital. The loan matures on May 10, 2006, and is not prepayable.
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 is due on April 1, 2001, followed by monthly fixed payments of
$12.5 during the term of the loan. Variable payments are twenty-five dollars for
each BriteSmile teeth whitening procedure performed at the Company's 14 current
whitening Centers. 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 $2,500 principal amount of the loan.

Management believes that the Company can continue its current operating strategy
with additional funding through current private placements of its equity
securities, new borrowings, and/or cash receipts in excess of current
projections (collectively, "Additional Cash") of approximately $5,000 in 2001.
In that connection, in March 2001 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, 2001,
shares of Common Stock of the Company (or to otherwise make available funds to
the Company) in an aggregate amount representing the difference between the
Additional Cash realized in 2001, and $5,000. In consideration for the
Guarantors' commitment to purchase Common Stock in the amount of the shortfall,
the Company has agreed to issue to the Guarantors five-year warrants to purchase
an aggregate of 100,000 shares of Common Stock of the Company at an exercise
price of $5.00 per share. In addition, if the Guarantors are required to
purchase shares, or otherwise fund, pursuant to their Commitment Letters, the
Company will issue the Guarantors additional five-year warrants to purchase
shares of Common Stock of the Company at $5.00 per share. The number of
additional warrants issued would equal 50% of the aggregate purchase price paid
by the Guarantors for the Common Stock, divided by five (5).

Cash flows are difficult to forecast accurately. There can be no assurance that
additional capital, even beyond the $5 million referred to above, 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.

On May 26, 2000, the Company entered into a Revolving Credit Line Agreement with
Bank of Hawaii. Under the Credit Facility, the Company may borrow from time to
time through May 25, 2001 up to $2,000. Loan proceeds must be used for working
capital, capital expenditures, and general corporate purposes only, and are
secured by a Letter of Credit from Scotiabank. The Credit Facility requires
monthly payments to the Bank of interest only, with all principal and accrued
interest due May 25, 2001. As of December 30, 2000, the line had not been used.
As of the date of this Report, $700 had been drawn on the line of credit. In
addition, the line expires May 25, 2001.

December 30, 2000 Compared to April 1, 2000

As of December 30, 2000, the Company had liquid assets (cash and cash
equivalents and trade accounts receivable and notes receivable) of $9,166, a
decrease of 24.6%, or $2,984, from April 1, 2000 when liquid assets were
$12,150. Cash and cash equivalents decreased $5,268, or 48.0%, to $5,701 at
December 30, 2000 from $10,969 at April 1, 2000. This decrease in cash was
primarily the result of $44,008 of net loss and $14,968 in capital expenditures,
offset in part by the $20,000 of proceeds from the Notes received in June and
August 2000, the $5,000 of proceeds from the Bridge Loan received on December 7,
2000, and the first tranche of $5,000 proceeds received on December 29, 2000 in
connection with the Company's equipment lease line facility with EVL. Trade
accounts receivable increased $1,949, or 165.0%, to $3,130 at December 30, 2000
from $1,181 at April 1, 2000. This increase was primarily the result of the
increased number of Associated Centers in operation during the 39 weeks ended
December 30, 2000. Although accounts receivable has increased significantly as a
result of new Associated Centers placed into operation, DSO ("Days Sales
Outstanding", or the amount of time required to collect on an outstanding
invoice) has decreased to 73.4 days at December 30, 2000, from 122.5 days at
April 1, 2000. The Company will continue to aggressively manage its accounts
receivable.

                                       25
<PAGE>

The Company's working capital decreased by $15,285, or 140.6% to a deficit of
$4,416 at December 30, 2000 from $10,869 at April 1, 2000, for the reasons
described above. Current ratio (current assets divided by current liabilities)
was 0.75:1 at December 30, 2000 compared to 3.62:1 at April 1, 2000.

Current assets decreased by $1,761, or 11.7%, to $13,257 at December 30, 2000
from $15,018 at April 1, 2000. The decrease was primarily the result of a
decrease in cash of $5,686 as described above. The decrease was offset by an
increase in accounts receivable of $1,949, described above, as well as an
increase in inventory of $1,174 primarily resulting from increased production of
the BS3000 device being shipped to Associated Center locations.

Long-term assets decreased by $498, or 2.9%, to $16,874 at December 30, 2000
from $17,372 at April 1, 2000. This decrease was primarily the result of the
sale of BS3000 device to EVL and offset by leasehold improvements at the 3
Centers opened during the period, and deferred warrant expense during the 39
weeks ended December 30, 2000.

Current liabilities increased by $13,524, or 326.0%, to $17,673 at December 30,
2000 from $4,149 at April 1, 2000. This increase was primarily the result of an
increase in trade payables of $6,565, accrued expenses of $668, accrued gift
certificate liability of $585, store closure reserve of $778 and notes payable
of $4,747.

The Company used net cash of $20,527 in operating activities during the 39 weeks
ended December 30, 2000, primarily as a result of the net loss incurred during
the period.

The Company used net cash of $9,968 in investing activities during the 39 weeks
ended December 30, 2000, primarily for capital expenditures relating to the
Company's expansion efforts in Centers and Associated Centers.

The Company provided net cash of $25,227 from financing activities during the 39
weeks ended December 30, 2000, primarily due to the private placement of $20,000
of Notes, $5,000 bridge loan and $227 in proceeds from the exercise of stock
options.

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

                                       26
<PAGE>

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 and our
BS3000 since November 1999. We opened our first BriteSmile Center in Walnut
Creek, California in February 1999, and BriteSmile Associated Centers began
performing teeth whitening 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 Transition Period ended December 30, 2000 we had a net loss of
approximately $44.0 million, and for the full fiscal year ended April 1, 2000 we
had a net loss of approximately $23,500. As of December 30, 2000, our
accumulated deficit was approximately $89,300. 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.

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, including mouthwash, toothbrushes, chewing gum, travel kits and
breath mints. 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
design or 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

                                       27
<PAGE>

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 Centers and
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 us or our stockholders. If needed
funds are not available, we may be required to close existing Centers, and/or
limit or forego the establishment of new Centers or 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.

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 $5,000 per occurrence and $5,000 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 our Centers, Associated
Centers, customers, advertisers and other business partners grows, we will be
required to manage multiple relationships with various 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

                                       28
<PAGE>

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, Boyd Industries in Tampa Florida.
Effective April, 2001, the Company's LATW systems will be manufactured by Peak
Industries, Frederick, Colorodo, pursuant to a new agreement between the Company
and Peak. EVL will finance the Company's purchase of the LATW systems, and will
then lease the LATW systems to the Company pursuant to the EVL Lease Line
Agreement described above under Item 1--"Recent Business Developments, EVL Lease
Agreement." We anticipate that there may be an approximate two to three weeks
delay in April 2001 between the date of final shipments of LATW devices produced
by our current manufacturer, and shipments of LATW devices manufactured by Peak.
Any such delays could delay receipt of revenues from Associated Centers who
receive systems from the new manufacturer. 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
BriteSmile Centers and 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.
Successful introduction of any new Centers is subject to, among other things,
securing suitable sites on satisfactory terms, hiring, training and retaining
qualified dentists, support staff and other personnel, having adequate capital
resources and successfully integrating new Centers into existing operations. It
is possible that any new Centers, if opened, will not achieve sales levels
comparable to existing 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.

A large volume of sales of our common stock resulting from the conversion of
notes and/or the exercise of warrants and subsequent resales of those shares,
may result in downward pressure or increased volatility in the trading price of
our common stock.

Because we have registered for resale the shares of Common Stock issued upon the
conversion in December 2000 of $19,200 in principal amount of Notes originally
granted in June and August 2000, and registered for resale the shares of Common
Stock issuable upon the exercise of the Warrants granted in June and August
2000, the holders thereof who are not in positions of control or management with
the Company may sell without regard to any volume restrictions, including the
volume restrictions set forth in Rule 144 promulgated under the Securities Act.
As a result, resales by the holders of the Notes and the Warrants could lead to
an excess supply of shares of our Common Stock being sold which could, in turn,
result in downward pressure or increased volatility in the trading price of our
Common Stock.

BriteSmile has certain debt.

BriteSmile has $5,800 of debt outstanding as of December 30, 2000. The degree to
which BriteSmile is leveraged could have important consequences to the
shareholders, including the following:

                                       29
<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.

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.

Third parties may assert infringement or other intellectual property claims
against us. We may have to pay

                                       30
<PAGE>

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 or other intellectual property claims asserted or
threatened 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 potential future
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 our Company and, therefore, have ultimate
authority to make all major decisions affecting our business, including the
identity and make-up of our 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.

                                       31
<PAGE>

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-28.

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 following sets forth the name, age and position of each director and
executive officer of the Company as of the date of this Report:

NAME                     AGE       CURRENT POSITION(S) /(1)/ /(2)/
----                     ---       ---------------------------

John Reed                59        Chief Executive Officer and Director
Paul Dawson              46        Chief Executive Officer of BriteSmile
                                   International Limited, a subsidiary of the
                                   Company
Linda S. Oubre           42        President, Chief Operating Officer and
                                   Director
Michael Whan             36        President Worldwide Marketing
Stephen Miller           54        Executive Vice-President, Manufacturing and
                                   Distribution
Anthony M. Pilaro        65        Chairman of the Board
R. Eric Montgomery       46        Director
Peter Schechter          41        Director
Bradford G. Peters       33        Director
Harry Thompson           71        Director
Gerald Poch              54        Director
Dr. Gasper Lazzara, Jr.  58        Director
Dennis F. Hightower      59        Director since March, 2001

________

                                       32
<PAGE>

(1)  All directors serve for one year and until their successors are elected and
     qualified and, unless otherwise noted, have served as a director during the
     entire Transition Period through the date of this Report. All officers
     serve at the pleasure of the Board of Directors. There are no family
     relationships between any of the officers and directors.

(2)  Paul A. Boyer served as CFO during the Transition Period. Mr. Boyer's
     employment with the Company as Chief Financial Officer terminated effective
     March 2, 2001.

John Reed

Prior to joining the Company as its Chief Executive Officer in June 1999, Mr.
Reed was Chairman of the Pacific Retailing Division of Duty Free Shoppers Group
Limited ("DFS"), the world's leading specialty retailer catering to
international travelers. At DFS he was responsible for the operations of
multiple retail stores, including the largest single, self-standing retail
operation in the world. During his 21-year career at DFS, prior to being named
Chairman of the Pacific Retail Division in 1997, Mr. Reed was President of DFS
Hawaii. From 1982 to 1988, Mr. Reed was President of the DFS U.S. Mainland
Operation. Mr. Reed has also served as Vice President of Merchandising for both
Federated Departments Stores and John Wanamaker.

Paul Dawson

Mr. Dawson, prior to joining the Company's subsidiary, BriteSmile International,
as its Chief Executive Officer, was Chief Executive Officer of Camus
International, a global marketer of luxury goods. During his nine-year tenure
with Camus, he spearheaded an aggressive worldwide market expansion program of
the company's premium cognac market. Prior to Camus, Mr. Dawson held the
position of Engagement Manager at McKinsey & Company, an international
consulting firm. While at McKinsey, he advised a broad range of multinational
consumer companies on international expansion strategies. Mr. Dawson has lived
and worked in the United States, Europe, Asia and the Middle East. He holds
masters degrees from Cambridge University and UC Berkeley, and an MBA from
Stanford University.

Linda S. Oubre

Linda S. Oubre commenced serving as a director of the Company in May 1998. In
July 1998, she was named to the position of President, Center Division of the
Company. In September 2000, she was named the Company's President, Chief
Operating Officer. Prior to joining the Company, Ms. Oubre served for 3 years as
President of Tri Com Ventures in Walnut Creek, California. Tri Com specialized
in new venture planning and implementation consulting. At Tri Com, Ms. Oubre's
clients included McGraw Hill's Business Week Magazine, Prodigy Online Service,
and the United Nations Business Development Project in the Republic of Belarus.
Prior to starting Tri Com Ventures in 1996, Ms. Oubre was General Manager, New
Business Development, for the Los Angeles Times, and also served as Director of
Operations for Walt Disney's Consumer Products Division and Manager of Financial
Planning for the Times Mirror Company. She has also been a visiting instructor
at the Wharton Business School. Ms. Oubre is a graduate of the University of
California, Los Angeles and received her MBA from the Harvard Business School.

Stephen Miller

In October 2000, Stephen Miller was appointed Executive Vice President,
Manufacturing and Distribution. Prior to joining BriteSmile in May 1999 as it
Executive Vice President, Real Estate and Construction, Mr. Miller was for 11
years Vice President of Facility Development for DFS. While at DFS, Mr. Miller
was responsible for the development of the flagship retail gallerias, high-end
boutiques, duty free stores and entertainment complexes in the U.S., Oceania and
the Pacific. Prior to DFS, Mr. Miller was Senior Vice President of Commercial
and Industrial Development for Castle and Cooke, Inc. where for 17 years he was
responsible for commercial, industrial and retail development for Hawaii's
second largest private landowner.

Michael P. Whan

Mr. Whan joined BriteSmile as its President of World Wide Marketing in May 2000.
Prior to joining BriteSmile, Mr. Whan had served as Vice President, General
Manager of Taylor Made Golf from 1996 to 2000. From 1987 to 1995 Mr. Whan held
various posts at Proctor & Gamble Company, including Director of Marketing, oral
care and Brand Manager of Crest toothpaste. Mr. Whan is a graduate of Miami
(Ohio) University.

                                       33
<PAGE>

Anthony M. Pilaro

Mr. Pilaro has been a director of the Company since August 1997. Presently, he
serves as Chairman of CAP Advisers Limited, which maintains offices in Dublin,
Ireland. He is also founder and Chairman of Excimer Vision Leasing L.P., a
partnership engaged in the business of leasing Excimer laser systems. Mr. Pilaro
has been involved in private international investment banking. He was a Founding
Director and former Chief Executive Officer of DFS and a founder of the
predecessor of VISX, Inc. A graduate of the University of Virginia `57, and the
University of Virginia Law School `60, Mr. Pilaro practiced law in New York City
through 1964.

Gerald Poch

Mr. Poch has served as a director of the Company since May 1999. Mr. Poch has
served as managing director of Pequot Capital Management, Inc., a venture
capital fund management company, since January 2000. From August 1998 through
January 2000, he was a principal of Pequot Capital Management. From August 1996
to June 1998 he was the chairman, president and chief executive officer of GE
Capital Information Technology Solutions, Inc., a technology solutions provider.
Prior to that, he was a founder, and served as co-chairman and co-president, of
AmeriData Technologies, Inc., a value added reseller and systems integrator of
hardware and software systems. Mr. Poch is co-chairman of MessageMedia, Inc.,
and a director of FutureLink Corp., BriteSmile, Inc., and Elastic Networks.

Dr. Gasper Lazzara, Jr.

Dr. Gasper Lazzara, Jr. has served as Chairman of the Board and a director of
the Orthodontic Centers of America, Inc. ("OCA") since its inception in July
1994. He has served as Co-Chief Executive Officer of Orthodontic Centers since
September 1998, and he served as Chief Executive Officer of OCA from July 1994
to September 1998. Dr. Lazzara also served as President of OCA from July 1994 to
June 1997. From 1989 to 1994, Dr. Lazzara served as President or Managing
Partner of certain predecessor entities of OCA. He is a licensed orthodontist
and, prior to founding OCA, maintained a private orthodontic practice for over
25 years. He is a member of the American Association of Orthodontists and is a
Diplomat of the American Board of Orthodontists.

R. Eric Montgomery

Mr. Montgomery has been a director of the Company since May 1998. He is an
experienced consultant, researcher and entrepreneur in the oral care and
cosmetic products industries, and has been granted over 65 US and foreign
patents since 1981. Previously, from November 1997 until May 1998, he served as
an independent consultant to the Company through Applied Dental Sciences, Inc.
(Monterey, MA), the oral care products research and development firm of which he
has been President since 1992. Mr. Montgomery is also the Founding Manager and
President of Oraceutical LLC (Lee, MA), an organization dedicated to the
development of innovative products and technologies for dentistry and consumer
oral care. Oraceutical is currently negotiating with the Company to provide
technology development services. Mr. Montgomery's organizations have provided
consulting services to and developed products for companies including The Dial
Corporation, Natural White, Virbac SA, Zila Pharmaceuticals, ProHealth
Laboratories, OPI Products, American Dental Hygienics, Premiere Dental, and
Boots PLC. Mr. Montgomery is also President of IDEX Dental Sciences, Inc. (Lee,
MA), an intellectual property-holding firm established by Mr. Montgomery in
March 1996.

Brad Peters

Mr. Peters has been a director of the Company since December 1999. He is the
President of Blackfin Capital, a privately held investment company based in New
York. Prior to founding Blackfin Capital, from July 1993 to June 1998, Mr.
Peters was with Morgan Stanley Private Wealth Management Group. Mr. Peters holds
an MBA degree from Duke University.

Harry Thompson

Mr. Thompson has served as a director of the Company since December 1999. Mr.
Thompson is currently the President of The Strategy Group and Managing Director
of Swiss Army Brands, Inc. Prior to founding The Strategy

                                       34
<PAGE>

Group, Mr. Thompson served in senior management of several core units of the
Interpublic Group of Companies, one of the world's leading advertising groups.
Mr. Thompson also has served as either manager or chairman of several
telecommunication companies of The Galesi Group. Mr. Thompson holds an MBA
degree from Harvard Business School. Currently, Mr. Thompson is a director of
Schwinn/GT Corp.

Peter Schechter

Mr. Schechter was appointed a director of the Company in July 1999. Mr.
Schechter is a founder of Chlopak, Leonard, Schechter and Associates, an
international communications consulting firm. Previously, Mr. Schechter was
Managing Director in charge of international business at the Sawyer/Miller
Group, specializing in the management of international financial issues,
political campaigns and country image programs. A graduate of the School of
Advanced International Studies at Johns Hopkins University, Mr. Schechter has
lived in Europe and Latin America and has extensive experience in the area of
governmental relations. He is fluent in six languages.

Dennis F. Hightower

Mr. Hightower was named a director of the Company in March 2001. Most recently,
Mr. Hightower served as Chief Executive Officer of Europe Online. Previously, he
was one of the highest-ranking executives at Walt Disney, having served as
President of Walt Disney Television and Telecommunications, and President,
Disney Consumer Products for Europe, Middle East and Africa. He was also
Professor of Management at the Harvard Business School. His career includes
positions with Xerox, McKinsey & Co., General Electric, Mattel and Russell
Reynolds. In addition, he is a member of the Board of Directors of The Gillette
Company, Northwest Airlines, Pan Am Sat Corporation, Phillips Van-Huessen and
the TJX Companies. Mr. Hightower received his MBA from the Harvard Business
School.

Significant Employees or Consultants
------------------------------------

Dr. John W. Warner

Dr. Warner accepted the position of Research and Development Director for the
Company in May 1998. Mr. Warner is an experienced research and technology
consultant and entrepreneur who was one of the leading contributors to the
development of ophthalmic applications of laser technology. Dr. Warner leads the
Company's assessment of existing products and LATW development efforts at
research and development facilities established by the Company in Evanston,
Illinois. Dr. Warner has served as a consultant to Northwestern University in
the areas of technology development and commercialization. From March 1986 to
December 1990 he was the founder and CEO of Taunton Technologies, Inc., a
predecessor of VISX, Inc., engaged in the business of developing and
manufacturing Excimer laser systems to perform ophthalmic surgery.

Salim A. Nathoo, D.D.S.

Dr. Nathoo was formerly employed by Colgate-Palmolive Co. as a Senior Researcher
from 1990 to 1998 and was a key member in the successful worldwide launch of the
Colgate Whitening program during his tenure there. Dr. Nathoo has lectured
globally on both the clinical and scientific aspects of teeth whitening, and he
is recognized as one of the leading authorities on the subject. Dr. Nathoo is
one of the founders of Oral Health Clinical Services, LLC ("Oral Health"). The
Company has entered into a consulting agreement with Oral Health in order to
assist the Company in obtaining an American Dental Association ("ADA") seal of
approval for its LATW system. Dr. Nathoo holds both a PhD and DDS from New York
University, and has published over 40 papers in major scientific journals.

                                       35
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who beneficially own more than 10 percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than 10 percent shareholders are required by regulation of
the Securities and Exchange Commission to furnish the Company with copies of all
Section 16(a) forms they file.

Based solely upon its review of the copies of such forms furnished to it during
the Transition Period, and representations made by certain persons subject to
this obligation that such filings were not required to be made, the Company
believes that all reports required to be filed by these individuals and persons
under Section 16(a) were filed in a timely manner, except as follows (all such
transactions have since been reported to the SEC on Form 5 reports filed in
March 2001): Form 4 report of J. Reed for reporting transaction in December
2000; Form 4 report of G. Lazzara for reporting transaction in December 2000;
Form 4 report of B. Peters for reporting transaction in December 2000; Form 4
report of R. Montgomery for reporting transactions in December 2000.

Except as disclosed, the Company is not aware of any transactions in its
outstanding securities by or on behalf of any director, executive officer or 10
percent holder, which would require the filing of any report pursuant to Section
16(a) during the Transition Period that has not been filed with the Securities
and Exchange Commission.

ITEM 11.  EXECUTIVE COMPENSATION

The following Summary Compensation Table shows compensation paid by the Company
for services rendered during the nine-month Transition Period, and during the
fiscal years ended March 31, 1999 and April 1, 2000, to John Reed, the Company's
Chief Executive Officer and to the Company's four most highly compensated
executive officers during the Transition Period other than the CEO. Paul Boyer's
employment as CFO of the Company terminated in March 2001. Peter Hausback, the
Company's new CFO, will commence employment in April 2001.

                                       36
<PAGE>

                          Summary Compensation Table



<TABLE>
<CAPTION>
                                                                                           Long Term
                                                                                         Compensation
                                                                                     ----------------------
                                                                   Annual
                                                                Compensation                Awards
                                                             -------------------     ----------------------

                                                                                          Securities
                                                                                          Underlying
Name and                                                                                   Options/
Principal Position                     Period                    Salary ($)                SARs (#)
--------------------------     ------------------------      -------------------     ----------------------
<S>                            <C>                           <C>                     <C>
John Reed, CEO                 Transition Period FY            $     187,500                          0
                               April 1, 2000 FY March                201,923                    250,000/(1)/
                               31, 1999                                    0/(2)/               750,000/(2)/


Paul Dawson                    Transition Period FY           $      150,000                          0
CEO, BriteSmile                April 1, 2000 FY March                167,723                    320,000/(3)/
International, Ltd.            31, 1999                                    0/(4)/                     0


Paul A. Boyer                  Transition Period FY           $      148,333                          0
Chief Financial                April 1, 2000 FY March                 67,692                    150,000/(5)/
Officer                        31, 1999                                    0                          0


Linda S. Oubre                 Transition Period FY            $     148,958                          0
President, Chief               April 1, 2000 FY March                176,058                     25,000/(6)/
Operating Officer              31, 1999                              117,883                    200,000/(7)/


Michael P. Whan                Transition Period FY            $     428,987/(8)/               200,000/(9)/
President, Worldwide           April 1, 2000 FY March                      0                          0
Marketing                      31, 1999                                    0                          0
</TABLE>


(1)  Options vest 50,000 each year over 5 years beginning on March 24, 2001.

(2)  Mr. Reed received no cash compensation from the Company in fiscal 1999.
     Prior to commencing full-time work for the Company at the Company's
     offices, Mr. Reed performed occasional services for the Company beginning
     January 1999. Mr. Reed's employment contract with the Company provides for
     an annual salary of $250,000, commencing June 1999, and options to purchase
     750,000 shares granted January 22 1999, 250,000 of which vested
     immediately, and the remainder of which vest 100,000 per year beginning
     January 22, 2000.

(3)  Mr. Dawson was granted options to purchase 20,000 shares on November 1,
     1999, which options vested on November 20, 2000, and options to purchase
     300,000 shares on April 19, 1999, of which 100,000 options vested
     immediately and the remainder vest 40,000 per year beginning on April 19,
     2000.

(4)  Mr. Dawson received no compensation from the Company in fiscal 1999. Mr.
     Dawson's employment commenced with the Company

                                       37
<PAGE>

     effective April 19, 1999.

(5)  50,000 vested on December 1, 1999, and the remainder vest 20,000 per year
     beginning on October 18, 2000.

(6)  Options vested on November 1, 2000.

(7)  50,000 of the options granted vested immediately, and the remainder vest
     30,000 per year beginning on July 1, 1999.

(8)  Mr. Whan received $200,000 for relocation expenses during the Transition
     Period.

(9)  100,000 of the options granted vested immediately and the remainder vest
     20,000 per year beginning on April 23, 2001.


The following table lists individual grants of stock options made during the
Company's last completed fiscal year as compensation for services rendered as an
officer of the Company:


                    OPTION/SAR GRANTS IN TRANSITION PERIOD

<TABLE>
<CAPTION>
                                                                                                           Potential Realizable
                                                                                                          Value at Assumed Annual
                                                                                                           Rates of Stock Price
                                                                                                          Appreciation for Option
                                                      Individual Grants                                            Term
                           ------------------------------------------------------------------------      --------------------------
                                               % of Total
                            Number of         Options/SARs
                            Securities         Granted to
                            Underlying        Employees in        Exercise or
                           Options/SARs        Transition          Base Price         Expiration
Name                       Granted (#)           Period            ($/Share)             Date             5%                10%
---------------------      -------------     ---------------     ---------------     --------------      --------------------------
<S>                        <C>               <C>                 <C>                 <C>                 <C>               <C>
John L. Reed                       0              N/A                   N/A                N/A               N/A           N/A
Paul Dawson                        0              N/A                   N/A                N/A               N/A           N/A
Linda S. Oubre                     0              N/A                   N/A                N/A               N/A           N/A
Michael P. Whan              200,000             15.1%                7.391            4-23-10          $929,632    $2,335,870
Paul A. Boyer                      0              N/A                   N/A                N/A               N/A           N/A
</TABLE>


               AGGREGATED OPTION EXERCISES IN TRANSITION PERIOD
                      AND DECEMBER 30, 2000 OPTION VALUES


<TABLE>
<CAPTION>
                                                          Number of Securities
                                                         Underlying Unexercised        Value of Unexercised
                            Shares                             Options at            In the Money Options at
                         Acquired on        Value         December 30, 2000 (1)       December 30, 2000 (1)
Name                     Exercise (#)   Realized ($)    Exercisable/Unexercisable   Exercisable/Unexercisable
----                     ------------   ------------    -------------------------   -------------------------
<S>                      <C>            <C>             <C>                         <C>
John L. Reed                  0               0             350,000 / 650,000          $109,200 / $124,800

Paul Dawson                   0               0             160,000 / 160,000                 0 / 0

Linda S. Oubre                0               0             135,000 / 90,000            $143,370 / $95,580

Michael P. Whan               0               0             100,000 / 100,000                 0 / 0

Paul A. Boyer (2)             0               0              70,000 / 80,000                  0 / 0
</TABLE>

1    Potential unrealized value is calculated as the fair market value at
     December 30, 2000 ($2.813 per share), less the option exercise price, times
     the number of shares.

2    Mr. Boyer's employment with the Company as Chief Financial Officer
     terminated effective March 2, 2001.

                                       38
<PAGE>

     Peter Hausback, Mr. Boyer's successor as Company CFO, will commence
     employment on April 1, 2001.

Compensation of Directors

Outside directors of the Company (non-employees, non-consultants) receive
options to purchase 20,000 shares of common stock per year for each year during
which they serve as a director. The exercise price of such options is 100% of
the fair market price on the date of grant. Actual expenses incurred by outside
directors are reimbursed.

Certain directors of the Company have been granted Units of Company equity
participation by LCO. As of May 11, 1998, LCO adopted an Incentive Compensation
Plan (the "LCO Plan"). Under the LCO Plan, certain key employees, consultants or
directors of the Company may be given the opportunity to benefit from the
appreciation in the value of the LCO's present equity holdings in the Company.
Such appreciation rights are granted by way of incentive compensation units
("Units"), whose value is determined by the increase in value of LCO's present
holdings of Company Common Stock above a prescribed base value of $4.75 per
share. Each Unit represents a percentage interest (determined by the total
number of Units granted under the LCO Plan) in such increase in value of LCO's
holdings. LCO has granted Units to the following directors or former directors
of the Company as incentive compensation: John Reed, Brian Delaney, and Linda
Oubre.

Employment Contracts and Termination of Employment Arrangements

Certain of the Company's executive officers whose compensation is required to be
reported in the Summary Compensation Table are parties to written employment
agreements with the Company as follows:

John Reed

Pursuant to a letter agreement between the Company and John Reed dated January
20, 1999, Mr. Reed agreed to serve as Chief Executive Officer of the Company.
The agreement provides that the Company will pay Mr. Reed $250,000 a year for
his services. Mr. Reed also received options to purchase 750,000 shares of the
Company's common stock at the closing price on the date of the agreement. Mr.
Reed's employment began full-time and on location on June 2, 1999. On March 24,
2000, Mr. Reed was granted options to purchase 250,000 shares of the Company's
common stock at the closing price on that date.

Linda Oubre

The Company entered into an employment agreement with Linda Oubre on January 22,
1999. Under the terms of the agreement, Ms. Oubre initially served as President,
Center Division. The agreement expired on June 30, 2000. Her employment with the
Company continues on an at-will basis. She currently serves as President, Chief
Operating Officer of the Company. The Company paid Ms. Oubre $165,000 per annum
from January 22, 1999 through June 30,1999 and $175,000 per annum from July 1,
1999 through June 30, 2000. On July 1, 2000, Ms. Oubre's salary increased to
$200,000 per annum. Ms. Oubre is eligible to receive bonus compensation under
such cash bonus plan as the Company may adopt for its key executives. If no such
plan is adopted, Ms. Oubre will be eligible for bonus compensation based on the
attainment of annual profitability and management objectives relating to the
Company's Center Division as agreed upon by Ms. Oubre and the Company. Ms. Oubre
was also granted options to purchase 200,000 shares of the Company's common
stock at $1.75 per share. Options to purchase 110,000 of the 200,000 shares have
vested and are currently exercisable; the right to purchase an additional 30,000
of such shares will vest each of July 1, 2001, July 1, 2002 and July 1, 2003 if
Ms. Oubre has remained in the employ of the Company from the date of the
agreement to such date.

Paul Dawson

BriteSmile International, Ltd. entered into an employment agreement with Paul
Dawson on April 19, 1999. Under the terms of the agreement, Mr. Dawson has
served as Chief Executive Officer of BriteSmile International, a wholly-owned
subsidiary of the Company. The Company pays Mr. Dawson $16,666 per month for his
services. Mr. Dawson is eligible for a bonus based on the number of paid teeth
whitening procedures performed in a designated international area. The bonus
will be paid in cash and Common Stock of the Company. In addition, Mr. Dawson

                                       39
<PAGE>

received options to purchase 300,000 shares of the Company's common stock at the
closing price on the date of the agreement. Options to purchase 100,000 shares
vested on the date of the agreement. The remaining 200,000 options vest in equal
installments over the next five years.

Michael Whan

Pursuant to a letter agreement between the Company and Michael Whan dated March
17, 2000, Mr. Whan agreed to serve as President, Worldwide Marketing of the
Company. The agreement provides that the Company will pay Mr. Whan a base salary
of $350,000 a year for his services. Mr. Whan also received options to purchase
200,000 shares of the Company's common stock at the closing price on the date of
the agreement. Options for 100,000 shares vested upon commencement of
employment. The remaining 100,000 options vest 20,000 per year over five years.
Mr. Whan is entitled to bonus plan payments based upon the average number of
teeth whitening procedures performed per day per chair at both Centers and
Associated Centers. He is entitled to 12 months severance pay in the event the
Company is sold or otherwise acquired by a new buyer or shareholder group. Mr.
Whan received one-time housing relocation benefits of $200,000.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of March 15, 2001 regarding
beneficial stock ownership of (i) all persons known to the Company to be
beneficial owners of more than 5% of the outstanding common stock; (ii) each
director or director nominee, and any other executive officer of the Company
whose compensation is required to be reported in Item 11 of this Report, and
(iii) all officers and directors of the Company as a group. Each of the persons
in the table below has sole voting power and sole dispositive power as to all of
the shares shown as beneficially owned by them, except as otherwise indicated.

<TABLE>
<CAPTION>
                                                                     Number of     Percent of
                                                                       Shares      Outstanding
                       Name and Address                             Beneficially   Shares (2)
                                                                      Owned (1)
                       <S>                                          <C>            <C>
                                        Executive Officers and Directors

                       Paul A. Boyer (former CFO, See Note 16)         92,831/(3)/      *
                       490 North Wiget Lane
                       Walnut Creek, California 94598

                       Paul Dawson                                    427,397/(4)/     1.5%
                       36 Fitzwilliam Place
                       Dublin 2, Ireland

                       Dr. Gasper Lazzara, Jr.                        533,754/(5)/     1.8%
                       Orthodontic Centers of America
                       500 Sawgrass Village Circle
                       Ponte Vedra Beach, Florida 32082

                       R. Eric Montgomery                             221,250           *
                       29 Fairview Road
                       P. O. Box 487
                       Monterey, Massachusetts 01245

                       Linda S. Oubre                                 180,331/(6)/      *
                       490 North Wiget Lane
                       Walnut Creek, California 94598

                       Bradford Peters                              2,086,639/(7)/     7.2%
                       Blackfin Capital, LLC
                       622 Third Avenue, 38/th/ Floor
                       New York, New York 10017

                       Anthony M. Pilaro                           15,446,294/(8)/    50.9%
                       36 Fitzwilliam Place
                       Dublin 2, Ireland
</TABLE>

                                       40
<PAGE>

<TABLE>
               <S>                                                  <C>                 <C>
               Gerald Poch                                           4,780,426/(9)/     16.4%
               Pequot Capital Management, Inc.
               500 Nyala Farm Road
               Westport, Connecticut 06880

               John L. Reed                                          1,286,367/(10)/     4.3%
               490 North Wiget Lane
               Walnut Creek, California 94598

               Peter Schechter                                          32,000/(11)/      *
               Chlopak, Leonard, Schechter & Assoc.
               3021 O Street, N.W.
               Washington, D.C. 20007

               Harry Thompson                                          100,000/(12)/      *
               169 E. 78th Street
               New York, New York 10021

               Dennis F. Hightower                                          -0-           *

               Michael P. Whan                                         120,000/(13)/      *
               490 North Wiget Lane
               Walnut Creek, California 94598

               All Officers and  Directors as a Group (13 persons)  25,396,857/(14)/    78.4%

                                     5% Beneficial Owners

               LCO Investments Limited                              15,446,294/(8)/     50.9%
               Canada Court
               Upland Road
               St. Peter Port
               Guernsey
               Channel Islands

               Pequot Capital Funds                                  4,780,426/(9)/     16.4%
               c/o Pequot Capital Management, Inc.
               500 Nyala Farm Road
               Westport, CT 06880

               Andrew J. McKelvey                                    2,066,639/(15)/     7.1%
               c/o Blackfin Capital, LLC
               622 Third Avenue, 38/th/ Floor
               New York, New York 10017
</TABLE>

*    Constitutes less than 1%.

1    Includes any options or warrants to purchase shares which are presently
     exercisable or exercisable within 60 days.

2    All percentages are calculated based upon a total number of shares
     outstanding which includes 28,748,320 shares of the Company issued and
     outstanding as of March 15, 2001, plus that number of options or warrants
     presently exercisable or exercisable within 60 days by the named security
     holder.

3    Consists of 22,831 shares owned beneficially, and options to purchase
     70,000 shares at $7.25 per share.

4    Consists of 227,397 shares owned beneficially, options to purchase 180,000
     shares at $6.00 per share, and options to purchase 20,000 shares at $5.88
     per share.

5    Consists of 392,395 shares held indirectly through OCAI Two Limited
     Partnership, warrants to purchase 121,359 shares at $5.00 per share, and
     options to purchase 20,000 shares at $9.25 per share.

6    Consists of 45,331 shares owned beneficially, options to purchase 110,000
     shares at $1.75 per share, options to purchase 25,000 shares at $5.88 per
     share.

                                       41
<PAGE>

7    Consists of 1,704,584 shares held of record by Andrew J. McKelvey in which
     Mr. Peters has an economic interest in any appreciation, and in which he
     shares control over their disposition, warrants held by Mr. McKelvey to
     purchase 362,055 shares at $5.00 per share, and options held by Mr. Peters
     to purchase 20,000 shares at 9.38 per share.

8    Consists of 12,497,497 shares owned of record and beneficially by LCO,
     1,330,000 shares held indirectly through PdeP Tech Limited, a subsidiary of
     LCO, 1,000,000 shares issuable upon the conversion of a Convertible
     Subordinated Note in the principal amount of $5,000 at a conversion rate of
     $5.00 per share, and 618,797 warrants to purchase shares at $5.00 per
     share. LCO is a wholly owned subsidiary of the ERSE Trust. The sole trustee
     of the ERSE Trust is CAP. Mr. Pilaro, a director of the Company, is
     Chairman of CAP.

9    Consists of 2,211,660 shares held of record by Pequot Private Equity Fund
     II, L.P., 1,105,829 shares held of record by Pequot Partners Fund, L.P.,
     1,105,829 shares held of record by Pequot International Fund, Inc.,
     warrants held by Pequot Private Equity Fund II, L.P. to purchase 168,554
     shares at $5.00 per share, warrants held by Pequot Partners Fund, L.P. to
     purchase 84,277 shares at $5.00 per share, warrants held by Pequot
     International Fund, Inc. to purchase 84,277 shares at $5.00 per share, and
     options held by Mr. Poch to purchase 20,000 shares at $11.25 per share. Mr.
     Poch is a Managing Director of Pequot Capital Management, Inc., which holds
     voting and dispositive power for all shares held of record by the Pequot
     Funds. Mr. Poch disclaims beneficial ownership of the shares held by the
     Pequot Funds, except to the extent of his pecuniary interest therein.

10   Consists of 805,461 shares owned beneficially, warrants to purchase 80,906
     shares at $5.00 per share, options to purchase 350,000 shares at $2.50 per
     share, and options to purchase 50,000 shares at $9.25 per share.

11   Consists of 2,000 shares owned beneficially in a Revocable Living Trust,
     options to purchase 20,000 shares at $11.25 per share, and options to
     purchase 10,000 shares at $4.25 per share.

12   Consists of options to purchase from LCO 100,000 shares at $1.50 per share.

13   Consists of options to purchase 120,000 shares at $7.39 per share.

14   Includes exercisable options and warrants to purchase 3,625,225 shares.

15   Consists of 1,704,584 shares held of record by Andrew J. McKelvey, and
     warrants held by Mr. McKelvey to purchase 362,055 shares at $5.00 per
     share.

16   Mr. Boyer's employment with the Company as Chief Financial Officer
     terminated effective March 2, 2001. Peter Hausback, Mr. Boyer's successor
     as Company CFO, will commence employment on April 1, 2001.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Year 2000 Note Purchase Financings
----------------------------------

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 of
$20,000.

Initially, the August 2000 Notes were convertible into shares of the Company's
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") 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.

Pursuant to Registration Rights Agreements between the Investors and the
Company, the Company has registered

                                       42
<PAGE>

with the Securities and Exchange Commission, 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 Investors, who purchased an aggregate amount of $15,700 of the
August 2000 Notes, are affiliates of the Company. The affiliated Investors
include LCO Investments Limited ("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 Pequot Partners Fund, L.P.
(shareholders and affiliated with director Gerald Poch).

Four of the Investors, who purchased a total of $4,300 principal amount of the
August 2000 Notes, are unaffiliated with the Company. These unaffiliated
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 Investments Ltd in a private
placement a Convertible Promissory Note (the "December 2000 Note") in the
aggregate principal amount of $5,000. This December 2000 Note is convertible
into shares of Common Stock of the Company at a conversion price of $5.00 per
share and, as of the date of this Report, has not been converted. In conjunction
with the placement of the December 2000 Note, LCO was granted warrants for
250,000 shares at $5.00 per share.

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.

In December 2000, LCO, the Company's principal shareholder, and John Reed, the
Company's Chief Executive Officer, 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 original Investors
other than LCO and Mr. Reed, agreed with the Company to convert an aggregate of
$13,642 in principal amount of their August 2000 Notes into 3,568,560 shares of
Common Stock at an amended conversion price of $3.8625 per share.

Of the original principal amount of $20,000 of August 2000 Notes, as of the date
of this Report, $800 in principal amount have not been converted and remain
outstanding. This amount is due to non-affiliated parties. The current
conversion price of such outstanding August 2000 Notes is $5.00 per share.

Of the original Warrants issued in the August 2000 Note offering, all 1,618,121
Warrants remain outstanding and unexercised, at an exercise price of $5.00 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 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.

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 is a limited partnership which leases laser vision correction equipment to
ophthalmologists. Anthony Pilaro, the Company's Chairman, serves as Chairman of
EVL. However, he does not directly or indirectly own any interest in EVL or any
of its partners. EVL is owned 78.21 percent by CAP America Trust, the
beneficiary of which is one of Anthony Pilaro's sons.

                                       43
<PAGE>

In addition to providing working capital to the Company, the lease line of
credit will enable the Company to place up to 1,755 new BriteSmile teeth
whitening devices in Associated Centers in the US, enhancing the Company's
ability to meet its strategic objective of establishing approximately 3,700
Associated Centers by year end 2001. Pursuant to the lease line agreement, EVL
purchased from the Company 1,245 BriteSmile 3000 teeth-whitening devices
currently used in various BriteSmile Associated Centers in the United States for
$5,000. The agreement also provides that EVL will subsequently spend up to an
additional $10,000 towards the purchase of 1,755 BriteSmile 3000 devices. If the
purchase price of the additional 1,755 devices exceeds $10,000 the Company will
pay the difference. EVL will lease all devices to the Company for a term of five
years. 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.

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

Effective March 1, 2001, the Company borrowed $2,500 from EVL for general
working capital. The loan matures on May 10, 2006, and is not prepayable.
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 is due on April 1, 2001, followed by monthly fixed payments of
$13 during the term of the loan. Variable payments are twenty-five dollars for
each BriteSmile teeth whitening procedure performed at the Company's 14 current
whitening Centers. 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 $2,500 principal amount of the loan.

Guarantees of Working Capital Shortfall
---------------------------------------

Management believes that the Company can continue its current operating strategy
with additional funding through current private placements of its equity
securities, new borrowings, and/or cash receipts in excess of current
projections (collectively, "Additional Cash") of approximately $5,000 in 2001.
In that connection, in March 2001 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, 2001,
shares of Common Stock of the Company (or to otherwise make available funds to
the Company) in an aggregate amount representing the difference between the
Additional Cash realized in 2001, and $5,000. The Guarantors include LCO; P de P
Tech Limited, a subsidiary of LCO managed by Andrew Pilaro, the son of Company
Chairman Anthony Pilaro; John Reed, the Company's Chief Executive Officer; the
Pequot Investors, affiliated with director Gerald Poch; and Andrew McKelvey,
affiliated with director Bradford Peters. In consideration for the Guarantors'
commitment to purchase Common Stock in the amount of the shortfall, the Company
has agreed to issue to the Guarantors five-year warrants to purchase an
aggregate of 100,000 shares of Common Stock of the Company at an exercise price
of $5.00 per share. If the Guarantors are required to purchase shares or
otherwise fund pursuant to their Commitment Letters, the Company will issue the
Guarantors additional five-year warrants to purchase shares of Common Stock of
the Company at $5.00 per share. The number of additional warrants issued would
equal 50% of the aggregate purchase price paid by the Guarantors for the Common
Stock, divided by five (5).

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. 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 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.

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

                                       44
<PAGE>

communications counselors to the Company for consideration of $23 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 ("Oral Health"), Salim A. Nathoo and R. Eric
Montgomery. Mr. Montgomery is a director of the Company. Pursuant to the
agreement, Oral Health and Dr. Nathoo will devote their services to obtaining
American Dental Association ("ADA") Certification for the BS2000 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 which 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 May 17, 1998, 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. The Company and
Oraceutical are currently negotiating an extension of their agreement beyond its
original term. In consideration for its services, Oraceutical has been paid $35
a month, plus options to purchase 200,000 shares of Common Stock, subject to
vesting provisions, exercisable at $1.75 per share.

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

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

      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

                                       45
<PAGE>

                     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).

      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          LCO Investments Limited Incentive Compensation Plan, dated
                     as of May 11, 1998 (incorporated by reference to the
                     Company's Quarterly Report on Form 10-QSB for the quarter
                     ended June 30, 1998).

      10.10          Form of Units Agreement between the Company and certain
                     directors or executive officers of the Company
                     (incorporated by reference to the Company's Quarterly
                     Report on Form 10-QSB for the quarter ended June 30, 1998).

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

      10.12          Revised 1997 Stock Option and Incentive Plan of the
                     Company, as amended on January 22, 1999 (incorporated by
                     reference to the Company's Annual Report on Form 10-KSB for
                     the year ended March 31, 1999).

      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).

                                       46
<PAGE>

      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).

      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          Employment letter dated August 2, 1999 between the Company
                     and Adam Flint (incorporated by reference to the Company's
                     Annual Report on Form 10-KSB for the fiscal year ended
                     April 1, 2000).

      10.23          Revolving Line of Credit Agreement dated as of May 26, 2000
                     between the Company and Bank of Hawaii (incorporated by
                     reference to the Company's Annual Report on Form 10-KSB for
                     the fiscal year ended April 1, 2000).

      10.24          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).

      10.25          Employment letter dated March 17, 2000 between the Company
                     and Michael Whan (incorporated by reference to the
                     Company's Quarterly Report on Form 10-Q for the quarter
                     ended July 1, 2000).

      10.26          Securities Purchase Agreement dated as of June 27, 2000
                     between the Company and certain purchasers of 5%
                     Convertible Subordinated Notes (filed herewith).

      10.27          Form of Convertible Notes issued pursuant to the Securities
                     Purchase Agreement dated as of June 27, 2000 (filed
                     herewith).

      10.28          Form of Warrants granted to note purchasers pursuant to the
                     Securities Purchase Agreement dated as of June 27, 2000
                     (filed herewith).

      10.29          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 (filed
                     herewith).

      10.30          Amendment Agreement dated as of August 3, 2000 between the
                     Company and the purchasers of notes identified therein
                     (filed herewith).

                                       47
<PAGE>

      10.31          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).

      10.32          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).

      10.33          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).

      10.34          Amended and Restated Agreement between Excimer Vision
                     Leasing L.P. and the Company dated February, 2001 (filed
                     herewith).

      10.35          Loan Agreement between Excimer Vision Leasing L.P. and the
                     Company dated as of March 1, 2001 (filed herewith).

      21             Subsidiaries of the Company (filed herewith).

(b)     Reports on Form 8-K

The Company filed a Current Report on Form 8-K dated December 5, 2000 for the
purpose of reporting under Item 5 thereof the purchase by LCO Investments Ltd of
a Convertible Promissory Note of the Company in the principal amount of $5,000.
See Part II, Item 5 herein, "Recent Sales of Unregistered Securities."

                                       48
<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/ Dan Cunningham
                                    ------------------
                                    Dan Cunningham
                                    Controller

                                Date: March 27, 2001


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/ Anthony Pilaro                                 Chairman of the Board of Directors            March 23, 2001
-----------------------------------------
Anthony M. Pilaro

/s/ John L. Reed                                   Chief Executive Officer                       March 23, 2001
-----------------------------------------          and Director (Principal Executive Officer)
John L. Reed

/s/ Linda S. Oubre                                 Director                                      March 23, 2001
-----------------------------------------
Linda S. Oubre

/s/ R. Eric Montgomery                             Director                                      March 23, 2001
-----------------------------------------
R. Eric Montgomery

/s/ Gerald Poch
-----------------------------------------          Director                                      March 28, 2001
Gerald Poch

/s/ Dr. Gasper Lazzara, Jr.                        Director                                      March 23, 2001
-----------------------------------------
Dr. Gasper Lazzara, Jr.

/s/ Brad Peters                                    Director                                      March 23, 2001
-----------------------------------------
Brad Peters

/s/ Harry Thompson                                  Director                                     March 23, 2001
-----------------------------------------
Harry Thompson

/s/ Peter Schechter                                Director                                      March 23, 2001
-----------------------------------------
Peter Schechter

/s/ Dennis F. Hightower                            Director                                      March 23, 2001
-----------------------------------------
Dennis F. Hightower
</TABLE>

                                       49
<PAGE>

PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



                               BRITESMILE, INC.
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Auditors............................................ F-2

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

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

Consolidated Statements of Cash Flows..................................... F-7

Consolidated Statements of Shareholder's Equity........................... F-10

Notes to Consolidated Financial Statements................................ F-11


                                      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 30, 2000 and April 1, 2000, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the 39 weeks
ended December 30, 2000 and each of the 52 week periods ended April 1, 2000 and
March 31, 1999.  These financial statements are the responsibility of BriteSmile
Inc.'s management.  Our responsibility is to express an opinion on these
financial statements 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 30, 2000 and April 1, 2000, and the consolidated results of its
operations and its cash flows for the 39 weeks ended December 30, 2000 and each
of the 52 week periods ended April 1, 2000 and March 31, 1999, in conformity
with accounting principles generally accepted in the United States.


/s/ Ernst & Young, LLP


March 2, 2001, except for Note 1 as to
which the date is March 28, 2001
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 30,          April 1,
                                                                             2000                2000
                                                                             ----                ----
<S>                                                                        <C>                <C>
CURRENT ASSETS:
 Cash and cash equivalents....................................             $ 5,701            $10,969
 Cash and short term investment, restricted as to use.........                 843                843
 Trade accounts receivable, net of allowance for doubtful
  accounts of $163 and $83, respectively......................               3,130              1,181

 Inventories..................................................               2,365              1,191
 Prepaid expenses and other...................................                 883                834
 Notes receivable-current portion.............................                 335                  -
                                                                           -------

         Total current assets.................................              13,257             15,018
                                                                           -------            -------

PROPERTY, EQUIPMENT AND IMPROVEMENTS:
 Furniture, fixtures and equipment............................               7,906              7,153
 Leasehold improvements.......................................              10,095              7,605
                                                                           -------            -------
                                                                            18,001             14,758

 Less accumulated depreciation and amortization...............              (4,060)            (1,700)
                                                                           -------            -------

                                                                            13,941             13,058
                                                                           -------            -------

 Construction in progress.....................................                 907              2,845
                                                                           -------

         Net property, equipment and improvements.............              14,848             15,903
                                                                           -------            -------

 NOTE RECEIVABLE..............................................                 391                  -
                                                                           -------

OTHER ASSETS..................................................               1,635              1,469
                                                                           -------            -------

                                                                           $30,131            $32,390
                                                                           =======            =======
</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 30,               April 1,
                                                                        ------------               --------
                                                                            2000                     2000
                                                                            ----                     ----
<S>                                                                       <C>                     <C>
CURRENT LIABILITIES:
 Accounts payable...............................................          $  8,429                $  1,864
 Accrued liabilities............................................             2,830                   2,162
 Accrual for store closures.....................................               778                       -
 Note payable, net of discount..................................             4,747                       -
 Accrued gift certificate liability.............................               708                     123
 Capital lease obligation- current portion......................               181                       -
                                                                          --------                --------

       Total current liabilities................................            17,673                   4,149

LONG TERM LIABILITIES
       Subordinated convertible debenture, net of discount......               709                       -
       Capital lease obligations................................             1,018                       -
       Other long term liabilities..............................               436                     122
                                                                          --------                --------

                Total long term liabilities.....................             2,163                     122

       Total liabilities........................................            19,836                   4,271
                                                                          --------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
 Common stock, $.001 par value; 50,000,000 shares authorized;
 28,748,323 and 23,860,683 shares issued and outstanding as of
 December 30, 2000 and April 1, 2000, respectively                              29                      24
 Additional paid-in capital.....................................            99,568                  73,389
 Accumulated deficit............................................           (89,302)                (45,294)
                                                                          --------                --------

       Total Shareholders' equity...............................            10,295                  28,119
                                                                          --------                --------

                                                                          $ 30,131                $ 32,390
                                                                          ========                ========
</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>
                                                                 39 Weeks Ended      39Weeks Ended
                                                                   December 30,       December 30,
                                                                   ------------       ------------
                                                                       2000              1999
                                                                       ----              ----
                                                                                      (Unaudited)
                                                                                      -----------
<S>                                                              <C>                  <C>
REVENUES:
 Center whitening fees, net...........................           $     9,315           $     3,858
 Associated Center whitening fees, net................                 6,270                   742
 Product sales........................................                 1,223                    97
                                                                 -----------           -----------

   Total revenues, net................................                16,808                 4,697
                                                                 -----------           -----------

OPERATING COSTS AND EXPENSES:
 Center selling and occupancy costs...................                 9,462                 6,731
 Selling, General and administrative expenses.........                30,556                12,301
 Research and development expenses....................                 1,811                 1,279
 Depreciation and amortization........................                 3,830                   774
 Restructuring expense................................                   778                   300
 Impairment charges...................................                 1,254                     -
 Loss on sale/ leaseback transaction..................                 7,138                     -
                                                                 -----------           -----------

   Total operating costs and expenses.................                54,829                21,385
                                                                 -----------           -----------

     Loss from operations.............................               (38,021)              (16,688)
                                                                 -----------           -----------

OTHER INCOME (EXPENSE), net:
 Interest expense, including $5,552 related to debt
 conversion expense for the 39 weeks ended December                   (6,153)                  (24)
  30, 2000............................................
 Interest income......................................                   192                   304
                                                                 -----------           -----------

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

     Loss before income tax provision.................               (43,982)              (16,408)

INCOME TAX PROVISION                                                                             -
                                                                                       -----------

     Net loss.........................................           $   (44,008)          $   (16,408)
                                                                 ===========           ===========

BASIC AND DILUTED NET LOSS PER SHARE..................                $(1.80)               $(0.87)
                                                                 ===========           ===========

WEIGHTED AVERAGE SHARES - BASIC AND DILUTED...........            24,493,676            18,783,918
                                                                 ===========           ===========
</TABLE>

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

                                      F-5
<PAGE>

                               BRITESMILE, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     -------------------------------------
                                  (continued)

                       (In Thousands, except share data)

<TABLE>
<CAPTION>

                                                                                  52 Weeks Ended               52 Weeks Ended
                                                                                  April 1, 2000                March 31, 1999
                                                                                  -------------                --------------
<S>                                                                               <C>                          <C>
REVENUES:
 Center whitening fees, net.........................................                $     5,838                    $        46
 Associated Center whitening fees, net..............................                      1,970                              -
 Product sales......................................................                        236                            501
                                                                                    -----------                    -----------

   Total revenues, net                                                                    8,044                            547

OPERATING COSTS AND EXPENSES:
 Center selling and occupancy costs.................................                     13,849                            946
 Selling, General and administrative expenses.......................                     14,498                          4,627
 Research and development expenses..................................                      1,748                          3,201
 Depreciation and amortization......................................                      1,457                            123
 Restructuring expense..............................................                        472                          1,030
 Impairment charges.................................................                          -                          2,525
 Loss on sale/leaseback transaction.................................                          -                              -
                                                                                    -----------                    -----------

   Total operating costs and expenses...............................                     32,024                         12,452
                                                                                    -----------                    -----------

                                                                                        (23,980)                       (11,905)
                                                                                    -----------                    -----------

OTHER INCOME (EXPENSE), net:
 Interest expense...................................................                        (26)                          (102)
 Interest income....................................................                        501                            240
                                                                                    -----------                    -----------

   Total other income (expense), net................................                        475                            138
                                                                                    -----------                    -----------

     Loss before income tax provision...............................                    (23,505)                       (11,767)

INCOME TAX PROVISION................................................                         11                              -
                                                                                    -----------                    -----------

     Net loss.......................................................                $   (23,516)                   $   (11,767)
                                                                                    ===========                    ===========

BASIC AND DILUTED NET LOSS PER SHARE................................                     $(1.18)                        $(1.13)
                                                                                    ===========                    ===========

WEIGHTED AVERAGE SHARES - BASIC
 AND DILUTED........................................................                 19,995,796                     10,409,212
                                                                                    ===========                    ===========
</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
                                (In Thousands)

<TABLE>
<CAPTION>
                                                                                               39 Weeks        39 Weeks
                                                                                                Ended           Ended
                                                                                             December 30,    December 30,
                                                                                                2000            1999
                                                                                                ----            ----
                                                                                                             (Unaudited)
                                                                                                             ------------
<S>                                                                                          <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                                    $(44,008)        $(16,408)
 Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization.....................................................         3,830              774
     Amortization of discount on debt..................................................           198                -
     Loss on sale/leaseback transaction................................................         7,138                -
     Impairment charges................................................................         1,254                -
     Debt conversion expense, including accrued interest converted to equity...........         5,736                -
     Cost recognized for issuance of stock and stock options...........................           313            1,653
     Changes in assets and liabilities:
        Trade accounts receivable......................................................        (1,949)            (339)
        Inventories....................................................................        (1,174)            (117)
        Prepaid expenses and other.....................................................           (49)            (285)
        Note receivable................................................................          (726)               -
        Other assets...................................................................             -               40
        Accounts payable...............................................................         6,565              801
        Accrued liabilities............................................................         1,446              432
        Accrued gift certificate liability.............................................           585              125
        Other long term liabilities....................................................           314                -
                                                                                             --------         --------

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

CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from sale of assets..........................................................         5,000              462
 Purchase of property and equipment....................................................       (14,968)         (11,579)
                                                                                             --------         --------

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

CASH FLOWS FROM FINANCING ACTIVITIES:
 Principal payments on long-term debt..................................................             -                -
 Payments under Letters of Credit......................................................             -                -
 Proceeds from convertible debentures..................................................        25,000                -
                                                                                             --------         --------
 Proceeds from common stock offerings..................................................             -           15,707
                                                                                             --------         --------
 Proceeds from exercise of stock options...............................................           227            5,413
                                                                                             --------         --------

          Net cash provided by financing activities....................................        25,227           21,120
                                                                                             --------         --------

NET  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..................................        (5,268)          (3,321)

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

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD.........................................      $  5,701         $  2,878
                                                                                             ========         ========
</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 CASH FLOWS (continued)
                                (In Thousands)

<TABLE>
<CAPTION>
                                                                                                      52 Weeks
                                                                              52 Weeks Ended           Ended
                                                                                 April 1,            March 31,
                                                                                 --------            ---------
                                                                                   2000                1999
                                                                                   ----                ----

<S>                                                                           <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                      $(23,516)              $(11,767)
 Adjustments to reconcile net loss to net cash used in operating
  activities:
     Depreciation and amortization....................................            1,457                    171
     Loss on sale/leaseback transaction...............................                -                      -
     Impairment charges...............................................                -                  2,525
     Debt conversion expense..........................................                -                      -
     Cost recognized for issuance of stock and stock options..........            1,765                    734
     Gain on sale of assets...........................................                -                    101
     Changes in assets and liabilities:
        Trade accounts receivable.....................................           (1,106)                   312
        Note receivable...............................................                -                      -
        Inventories...................................................           (1,175)                  (113)
        Prepaid expenses and other....................................             (515)                  (270)
        Other assets..................................................               45                      -
        Accounts payable..............................................             (168)                   722
        Accrued liabilities...........................................              688                    (85)
        Accrued gift certificate liability............................              123                      -
        Other long term liabilities...................................              122                      -
                                                                               --------               --------

          Net cash used in operating activities.......................          (22,280)                (7,670)

CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from assets held for sale, net..............................            1,260                    146
 Purchase of property and equipment...................................          (14,838)                (1,564)

          Net cash used in investing activities.......................          (13,578)                (1,418)

CASH FLOWS FROM FINANCING ACTIVITIES:
 Principal payments on long-term debt.................................             (866)                  (228)
 Payments under Letters of Credit.....................................             (843)                     -
 Proceeds from convertible debentures.................................                -                      -
                                                                               --------               --------
 Proceeds from common stock offering..................................           40,935                 14,982
                                                                               --------               --------
 Proceeds from exercise of stock option...............................            1,401                     31
                                                                               --------               --------

          Net cash provided by financing activities...................           40,627                 14,785
                                                                               --------               --------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..................            4,769                  5,697

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD..................            6,200                    503
                                                                               --------               --------

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD........................         $ 10,969               $  6,200
                                                                               ========               ========
</TABLE>

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

                                      F-8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                39 Weeks        39 Weeks            52 Weeks       52 Weeks
                                                                 Ended            Ended              Ended           Ended
                                                               December 30     December 30                         March 31
                                                                  2000            1999               2000            1999
                                                                                  ----               ----
                                                                              (Unaudited)
                                                                              ---------
<S>                                                           <C>             <C>                  <C>              <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Cash paid for interest.............                          $   232         $    23              $   26           $   101
                                                              =======         =======              ======           =======

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

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

 Stock options issued to
  consultants, the fair value of which
  was capitalized as other assets                             $   352         $     -              $1,474           $     -
                                                              =======         =======              ======           =======

 Warrants issued in financing
  arrangements, the fair value of
  which was capitalized as a
  discount on debt                                            $ 2,787         $     -              $    -           $     -
                                                              =======         =======              ======           =======
</TABLE>

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

                                      F-9
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                                            Additional                     Other          Total
                                                   Common        Shares      Paid-In      Accumulated  Comprehensive  Shareholder
                                                   Shares        Amount      Capital        Deficit         Loss         Equity
                                               ----------------------------------------------------------------------------------
<S>                                            <C>             <C>          <C>           <C>           <C>           <C>
Balance at March 31, 1998                           5,809      $    6       $ 11,902      $(10,011)     $    (50)     $  1,847
 Comprehensive
 Loss:
 Reclassification adjustment for
     amount included in net loss                     --            --           --            --              50            50
 Net loss                                            --            --           --         (11,767)         --         (11,767)
                                                                                                                      --------
                                                                                                                       (11,717)
 Total comprehensive loss
 Exercise of Stock Options                             28          --             31          --            --              31
 Stock option compensation cost                      --            --            734          --            --             734
  Private Placement of common Stock                11,163          11         14,971          --            --          14,982
 Other issuance of common stock                       138          --            183          --            --             183
                                                 --------      --------     --------      --------      --------      --------
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          --            --          19,390
 Issuance of warrants in connection with
   financing agreement                               --            --          2,705          --            --           2,705
 Net loss and comprehensive loss                     --            --           --         (44,008)         --         (44,008)
                                                 --------      --------     --------      --------      --------      --------
Balance at December 30, 2000                       28,748          29       $ 99,568      $(89,302)     $   --        $ 10,295
                                                 ========      ========     ========      ========      --------      ========
</TABLE>

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

                                      F10
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (in thousands, except share data)

1.  Description of Business

BriteSmile, Inc., a Utah corporation ("BriteSmile" or the "Company"), and its
affiliates develop, produce sell and lease 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.  In February 1999 the Company introduced its new Light
Activated Teeth Whitening System technology (the "BriteSmile Light Activated
Teeth Whitening System" or "LATW", patents pending), including its new
BriteSmile 2000 system ("BS2000"), new whitening gel and new whitening process.
The LATW is distributed in Company-owned salon settings known as BriteSmile
Professional Teeth Whitening Centers ("Centers") and in existing dental offices
known as BriteSmile Professional Teeth Whitening Associated Centers ("Associated
Centers"). In November 1999 the Company introduced its new BriteSmile 3000 LATW
keycard system ("BS3000") into Associated Centers. This new mobile version of
the BS2000 can be installed more quickly and provides the needed flexibility and
mobility in dental offices.

In February 1999 the LATW was introduced in the Company's first Center in Walnut
Creek, California. In March 1999, the Company opened its first Associated Center
in Louisville, Kentucky.  As of December 30, 2000, the Company had 17 Centers
and 1,155 Associated Centers in operation.

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.

Although the Company does not believe that its business follows seasonal trends,
it has recognized that during the months of July and August and again during
December and January, a substantial number of Associated Center locations (both
Domestic and International) shut down their practices for vacation. As a result,
the frequency of key card purchases by Associated Centers during these months
declines as well.

The Company's principal sources of liquidity have been issuances of convertible
debt, common stock and common stock equivalents. At December 30, 2000, the
Company had $5,701 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 operating losses will continue through most
of calendar year ending December 31, 2001, and 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.

Management believes that the Company can continue its current operating strategy
with additional funding through current private placements of its equity
securities, new borrowings, and/or cash receipts in excess of current
projections (collectively, "Additional Cash") of approximately $5,000 in 2001.
In that connection, in March 2001 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, 2001,
shares of Common Stock of the Company (or to otherwise make available funds) in
an aggregate amount representing the difference between the Additional Cash
realized in 2001, and $5,000. In consideration for the Guarantors' commitment to
purchase Common Stock in the amount of the shortfall, the Company has agreed to
issue to the Guarantors five-year warrants to purchase an aggregate of 100,000
shares of Common Stock of the Company at an exercise price of $5.00 per share.
In addition, if the Guarantors are required to purchase shares (or to otherwise
fund) pursuant to their Commitment Letters, the Company will issue the
Guarantors additional five-year warrants to purchase shares of Common Stock of
the Company at $5.00 per share.  The number of additional warrants issued would
equal 50% of the aggregate purchase price paid by the Guarantors for the Common
Stock, divided by five (5).

                                      F-11
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (in thousands, except share data

The Company may choose to defer capital expenditure plans if funding beyond the
Additional Cash is necessary.

The Company operates in one reportable segment.  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
30, 2000


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 nine-month Transition Period ended December
30, 2000.

The accompanying consolidated financial statements include the accounts of the
Company, its subsidiaries, and entities in which the Company has a controlling
financial interest. All intercompany balances and transactions have been
eliminated in consolidation.

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

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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 from those estimates.

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

The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

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

At December 30, 2000 and April 1, 2000, $843 of the Company's cash and short-
term investments were  used to collateralize letters of credit and is restricted
as to use until September 2008.

Concentration of Credit Risk
----------------------------

Financial instruments that potentially subject the Company to significant
concentration of credit risk consist principally of cash 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 the Company's policy is designed to limit exposure to any one
institution.  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.

                                       F-12
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (in thousands, except share data

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

The Company recognizes revenue from teeth whitening procedures performed at its
Centers when the procedures have been performed. The Company recognizes revenue
at Associated Centers when the key card for the BS3000 device used at the
Associated Center is shipped. Revenue is reported net of discounts.
Additionally, Associated Center revenue for the 39 weeks ended December 30, 2000
and December 30, 1999, and the years ended April 1, 2000 and March 31, 1999, has
been reduced by $122, $0 (unaudited), $163 and $0 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 30, 2000 and April 1, 2000 consist primarily of dental
supplies and component parts for the manufacturing of teeth whitening systems,
as follows:

                         December 31, 2000        April 1, 2000
                         -----------------        -------------

Supplies                     $1,811                 $  290
Work in Progress                554                    901
                             ------                 ------

Total Inventory              $2,365                 $1,191

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

Costs incurred to produce advertising are expensed the first time the
advertising takes place. Costs incurred to deliver advertising are expensed in
the period the advertising reaches the market. Advertising costs were $16,314,
$5,351 (unaudited), $10,218 and $1,361 for the 39 weeks ended December 30, 2000
and December 30, 1999, and the years ended April 1, 2000 and March 31, 1999,
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 the lower of cost or fair market value.
Expenditures for maintenance and repairs are charged to expense as incurred, and
expenditures for additions and betterments are capitalized. Capital lease
equipment and amortization expense is included in depreciation.  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.

Patents
--------

The cost of establishing patents are capitalized and amortized over their
estimated useful lives 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 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".

                                      F-13
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (in thousands, except share data


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.

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.  Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the assets.  If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair market value of the asset.  Assets to be
disposed of are reported at the lower of the carrying amount or 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
and accrued 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.

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.  Commons 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.

                                       F-14
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (in thousands, except share data


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.

New Accounting Pronouncements
-----------------------------

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133").  FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair market value.
Changes in fair market value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designed as part of a hedge transaction, and if so, the type of hedge
transaction.

In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133" ("FAS 137"), which amends FAS 133
to be effective for all fiscal quarters or all fiscal years beginning after June
15, 2000.  Management does not currently expect that adoption of FAS 137 will
have material impact on the Company's financial position or results of
operations.


3.  Restructuring and Impairment Charges

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 are located in Pasadena, CA., Ft. Lauderdale, FL., and
Coral Gables, FL.  As a result of the decision to close these locations, the
Company recorded an impairment charge of  $1,254 related to leasehold
improvements whose fair value was determined to be $0.  The Company also
recorded an accrual of $161 related to severance costs for 12 employees, and an
accrual of $617 related to lease termination costs for the closed Centers.

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

During the fiscal year ended March 31, 1999, the Company's Board of Directors
and management decided to close its Utah operating facility, discontinue all
activities related to the industrial and scientific laser lines of business,
discontinue development and sales of its laser-based device, and move its
headquarters to Pennsylvania. As a result of the Company's decision to relocate
its operations to Pennsylvania and to focus exclusively on the teeth whitening
market, nearly all of the Company's 63 employees located in Utah were scheduled
for termination. A termination benefits liability of $200 was established and
charged to expense during the three-month period ended June 30, 1998. At
September 30, 1998, the Company completed its termination plan and paid benefits
of approximately $200 to former employees. In October 1998, the Company
discontinued sales of take-home and in-office tooth whitening chemical products
as a result of management's shift in focus to the LATW technology as well as the
BriteSmile Professional Teeth Whitening Centers and Associated Centers.  As a
result, the Company recorded charges of $3,355 in the 52 weeks ended March 31,
1999. These charges included contract cancellation and employee termination
costs of $830 and impairment charges of $2,525 based upon the fair value of
assets held for sale.

4.  Sale/Leaseback Transaction

Effective December 29, 2000, the Company secured a lease line of up to $15,000
from Excimer Vision Leasing L.P. ("EVL").  Under this agreement, the Company
entered into a sale-leaseback arrangement.  The Company sold 1,245 of its BS3000
whitening devices for $5,000 and leased them back for a period of 5 years.  The
leaseback has been accounted for as a capital lease.  A loss of $7,138 on this
transaction has

                                       F-15
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (in thousands, except share data

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 agreement further
provides that EVL will spend up to an additional $10,000 towards the purchase of
1,755 BS3000 devices. To the extent the purchase price of the additional 1,755
devices exceeds $10,000, the Company is obligated to pay the difference. EVL
will lease all devices to the Company for a term of five years. 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.

5.  Accrued Liabilities

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                          December 30,       April 1,
                                                              2000             2000
                                                              ----             ----
<S>                                                         <C>              <C>
Accrued salaries and benefits........................       $  730           $  672
Accrued incentive....................................          535              266
Accrued professional services........................            -              572
Accrued advertising..................................          579              277
Other accrued expenses...............................          986              375
                                                            ------           ------

Total................................................       $2,830           $2,162
                                                            ======           ======
</TABLE>


6.  Leases

The Company leases certain equipment under capital leases.  The leases for
equipment require the payment of certain fixed payments and contingent rentals
based on usage.

Property, equipment and improvements includes the following amounts for leases
that have been capitalized:

<TABLE>
<CAPTION>
                                                        December 31, 2000        April 1, 2000
                                                        -----------------        -------------
<S>                                                     <C>                      <C>
Equipment                                                    $1,199               $     -

Less allowance for amortization                                   -                     -
                                                             ------               -------
                                                             $1,199               $
                                                             ======               =======
</TABLE>

The Company recorded amortization expense of $0 on assets recorded under capital
leases for the 39 weeks ended December 30, 2000 and December 30, 1999, and the
years ended April 1, 2000 and March 31, 1999.

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 30, 2000:

                   Capital      Operating
                   Leases         Leases
                   ------         ------
2001              $  274         $ 2,762
2002                 299           2,894
2003                 299           2,978
2004                 299           2,661

                                       F-16
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (in thousands, except share data


2005                                         299          1,971
Thereafter                                    25          5,485
                                          ------        -------
Total minimum lease payments               1,495         18,751
Executory cost                                 -
Amount representing interest                 296
                                          ------
Present value of net minimum
   Lease payments                          1,199
Less current portion                        (181)
                                          ------
Long-term capital lease obligations        1,018
                                          ======

Rent expense for the 39 weeks ended December 30, 2000 and December 31, 1999, and
the 52 weeks ended April 1, 2000 and March 31, 1999, was $2,627, $748
(unaudited), $1,420 and $149, respectively.


7.   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:

<TABLE>
<CAPTION>
Deferred tax assets (liabilities):                     December 30,           April 1,
                                                           2000                 2000
                                                           ----                 ----
      <S>                                                <C>                 <C>
      Net operating loss carryforwards                   $ 29,033            $ 15,451
      Research and development and
      Other tax credit carryforwards                          378                 378
      Reserves and accruals                                   151                 292
      Property and Equipment                                1,565                 331
      Other, net                                               98               1,587
                                                         --------            --------
Total deferred tax assets                                  31,225              18,039
Valuation allowance for deferred tax assets               (31,225)            (18,039)
                                                         --------            --------
Net deferred tax assets                                  $      -            $      -
                                                         ========            ========
</TABLE>

Significant components of the income tax expense are as follows:

<TABLE>
<CAPTION>
                                                       39 weeks                            52 weeks
                                                        ended              52 weeks          ended
                                                      December 30,       ended April 1,     March 31
                                                        2000                2000             1999
                                                        ----                ----             ----
<S>                                                   <C>                <C>                <C>
Current:
    Federal                                            $   -               $   -              $    -
    State                                                 26                  11                   -
                                                       -----               -----              ------
Total current                                             26                  11                   -
                                                       -----               -----              ------

Deferred:
    Federal                                            $   -               $   -              $    -
    State                                                  -                   -                   -
                                                       -----               -----              ------
Total deferred                                             -                   -                   -
                                                       -----               -----              ------
      Total current and deferred                          26                  11                   -
                                                       =====               =====              ======
</TABLE>


                                       F-17
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (In thousands, except share data)

The provision for income taxes reconciles to the amounts computed by applying
the statutory federal rate to before taxes as follows:


<TABLE>
<CAPTION>
                                                                                           52 weeks ended
                                                               39 Weeks
                                                                ended
                                                             December 30,            April 1,             March 30,
                                                                2000                  2000                  1999
                                                                ----                  ----                  ----
<S>                                                         <C>                     <C>                   <C>
Income tax benefit at U.S. statutory rates                  $(14,956)               (7,995)               (4,001)
State income tax benefits, net of Federal                     (2,639)               (1,411)                 (706)
benefit
Non-deductible items                                           2,219                (2,995)                2,892
Loss for which no tax benefit is currently
 recognizable                                                 15,402                12,412                 1,815
                                                            --------                ------                 -----
                                                            $     26                    11                     0
                                                            ========                ------                ======
</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 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 $13,186 and $12,094, for
the 39 weeks ended December 30, 2000 and the 52 weeks ended April 1, 2000,
respectively.  At December 30, 2000 and April 1, 2000 approximately $3,253 and
$3,005, 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 $75,103 and $59,952 of federal and state net
operating loss carryforwards, respectively, that begin to expire in March 31,
2010 for federal income tax purposes and March 31, 2002 for state income tax
purposes.  A significant portion of the losses are 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 of tax credits that under current tax law can
be used to offset future income tax liabilities. These credits will begin
expiring March 31, 2005 if not utilized.  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
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.


8.  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.  Also
named as a defendant in the original action was R. Eric Montgomery, a director
of the Company and the principal owner of IDEX Dental Sciences ("IDEX").
BriteSmile  removed the case to the United States District Court for the Western
District of New York and filed a motion to dismiss the complaint.

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 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

                                     F-18
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (In thousands, except share data)

loan to Natural White in the principal amount of $838 to cover a portion of the
purchase price. Natural White is obligated to repay the loan at the rate of $30
per month for 30 months, including interest of $2.

9.  Financing Arrangements

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

<TABLE>
<CAPTION>
                                                 December 30, 2000      April 1, 2000
                                                 -----------------      -------------
<S>                                              <C>                    <C>
5% Subordinated Convertible Notes
   due and payable on June 29, 2005                    $  709                $0
   (including discount of $91)

Convertible Promissory Note due
   December 5, 2001, interest at 7.52%
   (including discount of $253)                        $4,747                $0
</TABLE>


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
$20,000.

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 $2,085 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 $15,700 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 $5,000.  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.  The fair value of the warrants issued of $253 was recorded as
a discount of the December 2000 Note and is being amortized over the life of the
note to interest expense.  The December 2000 Note is convertible into shares of
Common Stock of the Company at a conversion price of $5.00 per share and, as of
the date of this Report, has not been converted.

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 $2,267 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 $13,642 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.

                                      F-19
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (In thousands, except share data)

Upon conversion of the notes, the related unamortized discount of $2,174 arising
from the fair value of the Warrants was immediately recorded as interest
expense.

As of December 30, 2000, $800 of the original August 2000 Notes remain
outstanding at a conversion price of $5.00 per share.  The unamortized discount
on these notes is $91 as of December 30, 2000 and is being amortized over the
life of the notes to interest expense.

The Company also recorded $314 of additional interest expense related to the
$5.00 per share beneficial conversion rate offered the Investors, and $3,063 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.

10. Shareholder's Equity

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.

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.

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 $20,000.  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 $5,280 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 $15,000. 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.

On December 7, 1998, the Company sold 9,302,326 shares of restricted Common
Stock to LCO in a private placement for $10,000. Under an amendment to a prior
registration agreement, LCO acquired certain registration rights with respect to
these shares.

On May 5, 1998, the Company sold 1,860,465 shares of its Common Stock to LCO for
$5,000 pursuant to a Stock Purchase Agreement dated as of May 4, 1998. Effective
January 12, 2000, the Company sold in a private placement 77,318 shares of
Common Stock to Andrew J. McKelvey for cash proceeds of $464, or $6.00 per
share. Mr. McKelvey also acquired certain registration rights with respect to
the shares. Brad 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.

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.
Options may be granted at exercise prices of no less than the fair market value
on the date of the grant, as

                                     F-20
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (In thousands, except share data)

     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 39 weeks ended December 30, 2000 and the 52-weeks ended April 1,
     2000 and March 31, 1999 follows:

<TABLE>
<CAPTION>
                                            39 weeks                         52 weeks                          52 week
                                             ended                            ended                             ended
                                            December                         April 1,                          March 31,
                                            30, 2000                           2000                              1999
                                   -------------------------                 (restated)                        (restated)
                                                                    -------------------------           -----------------------
                                                   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                         6,142,683         $4.78          5,423,267         $2.90             1,781,667       $4.63
Granted                            1,158,000          5.93          3,012,000          8.55             3,657,600        1.98
Exercised                           (163,750)         1.51         (2,040,334)         3.17               (16,000)       1.25
Forfeited/expired                   (766,000)         6.64           (252,250)         4.77                     -           -
                                   ---------                       ----------         -----             ---------       -----
Outstanding at end of year         6,370,933          5.50            614,683         $4.78             5,423,267       $2.90
                                   =========                       ==========         =====             =========       =====
</TABLE>

     Exercise prices for outstanding options as of December 30, 2000 ranged from
     $1.00 to $13.75 and the weighted-average remaining contractual life of
     those options is 8.48 years. The weighted average fair market value of
     options granted during the 39 weeks ended December 30, 2000, and the 52
     weeks ended April 1, 2000 and March 31, 1999, were $5.93, $8.55 and $1.98,
     respectively.

     A summary of the status of options outstanding at December 30, 2000
     follows:

<TABLE>
<CAPTION>
                          Outstanding Options                                   Exercisable Options
                          -------------------                                   -------------------
                                         Weighted
                                          Average           Weighted
       Exercise Price                    Remaining          Average                             Weighted
          Range Per                     Contractual      Exercise Price                     Average Exercise
           Share         Number        Life in Years        Per Share        Number          Price Per Share
     --------------    ---------       -------------     --------------     -------         ----------------
<S>                    <C>             <C>               <C>                <C>             <C>
     $ 1.00 - $1.75    1,415,000           6.64              1.58           881,000                1.64
       2.31 -  2.50      969,600           8.08              2.48           489,000                2.46
       2.63 -  2.94      347,000           8.10              2.75           137,000                2.74
       3.75 -  5.88      769,000           9.21              5.00           271,000                5.75
       6.00 -  6.88      628,500           9.03              6.14           217,500                6.20
       7.13 -  8.88      647,000           8.86              7.59           236,000                7.57
       9.00 - 10.50      917,833           8.36              9.32           466,483                9.18
      10.94 - 13.75      677,000           8.82             12.20           145,000               11.71
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                     December 30, 2000    April 1, 2000
                                                                     -----------------    -------------
     <S>                                                             <C>                  <C>

     Stock options outstanding...................................            5,679,933        5,432,183
     Stock options, available for grant..........................                  -0-        1,058,000
     Warrants....................................................            1,868,123          300,000
</TABLE>

     As of December 30, 2000, options granted to employees and directors for
     2,072,650 shares of common

                                      F-21
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (In thousands, except share data)


stock are exercisable.

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 1.31 for the 39 weeks ended December 30, 2000 and 1.28 and 0.99
for the 52 weeks ended April 1, 2000 and March 31, 1999, respectively; an
average risk-free interest rate of 5.72% for the 39 weeks ended December 30,
2000 and 5.72% and 5.30% for the 52 weeks ended April 1, 2000 and March 31,
1999, respectively; a dividend yield of 0%; and a weighted-average expected life
of the option of 5 years.

The 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 the fair value at the grant dates for awards under those plans
calculated 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:

                                          December 30,   April 1,    March 31,
                                             2000          2000        1999
    Compensation expense                  $  3,641       $  2,473    $  1,129
    Pro forma loss                        $ 47,649       $ 25,989    $ 12,896
    Pro forma basic and diluted loss
    per share                             $   1.94       $   1.30    $   1.24

The pro forma impact of compensation expense measured under FAS 123 on the net
loss for the 39 weeks ended December 30, 2000 and the 52 weeks ended April 1,
2000 and March 31, 1999 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
-------------------------------

For the 39 weeks ended December 30, 2000 and the 52 weeks ended April 1, 2000
and March 31, 1999, the Company recognized expenses of $313, $1,765 and $734
related to stock options granted to non-employees. These options generally vest
upon meeting certain performance goals and have contractual terms up to ten
years.  Expense related to these stock options is adjusted from time to time
upon attainment of certain performance goals based upon the fair value of the
Company's stock on the date of vesting.  As of December 30, 2000, options
granted to non-employees for 770,333 shares of common stock are exercisable.

                                      F-22
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (In thousands, except share data)

11. Warrants

On June 2, 1999, the company issued warrants for 300,000 shares of the Company's
common stock to OCA in consideration for OCA entering into an agreement to
install BS 3000 machines in OCA Centers. The warrants were exercisable at
$11.0625 per share and expired on June 2, 2000. The fair market valve of these
warrants utilizing the Black-Scholes valuation model is $1,632 and is being
amortized over the life of the agreement, which is ten years. The remaining fair
market value is reflected in other assets on the balance sheet. The compensation
expense for the warrants issued to OCA has been offset against Associated Center
Revenue.


12.  Net Loss Per Share of Common Stock

The calculation of historical basic and diluted net loss per share is as
follows:

<TABLE>
<CAPTION>
Historical                                                      December 30, 2000   April 1, 2000   March 31, 1999
----------                                                      ------------------  --------------  ---------------
<S>                                                             <C>                 <C>             <C>
Net loss......................................................            (44,008)        (23,516)         (11,767)

Weighted-average shares of common stock outstanding used in
computing basic and diluted net loss per share ...............         24,493,676      19,995,796       10,409,212
Basic and diluted net loss per common share ..................              (1.80)          (1.18)           (1.13)
</TABLE>

If the Company had reported net income, the calculation of historical diluted
earnings per share would have included approximately an additional 6,944,977,
5,682,183 and 5,423,267 common equivalent shares related to outstanding stock
options and warrants not included above (determined using the treasury stock
method) for the 39-week period ended December 30, 2000 and the 52 weeks ended
April 1, 2000 and March 31, 1999, respectively.


13. Commitments and Contingencies

Litigation

The Company is party to certain litigation and claims arising in the normal
course of business. Management believes that such matters will not have a
material impact on the Company's financial position or results of operations.

Bank Line of Credit

On May 26, 2000, the Company entered into a Revolving Credit Line Agreement
("Credit Facility") with Bank of Hawaii.  Under the terms of the Credit
Facility, the Company may borrow from time to time through May 25, 2001, up to
$2,000.  Loan proceeds must be used for working capital, capital expenditures,
and general corporate purposes only, and are secured by a Letter of Credit from
Scotiabank.  The Credit Facility requires monthly payments to the bank of
interest only, with all principal and accrued interest due May 25, 2001.  As of
December 30, 2000 no amount had been drawn under the Credit Facility.


14. 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. 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 per year, subject to increase in the event of
increases in the rent payable under the parent lease for the property between
LCO and its lessor.

                                      F-23
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (In thousands, except share data)


     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.

     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 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 which 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 May 17, 1998, the Company entered into a Consulting Agreement with
     Oraceutical, LLC. 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. The
     Company and Oraceutical are currently negotiating an extension of their
     agreement beyond its original term. In consideration for its services,
     Oraceutical has been paid $35 a month, plus options to purchase 200,000
     shares of Common Stock, subject to vesting provisions, exercisable at $1.75
     per share.


     15. 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.


     16. Quarterly Results (unaudited)

<TABLE>
<CAPTION>
                                                                      13 Weeks Ended               13 Weeks Ended
                                                                      December 30, 2000            September 30, 2000
<S>                                                                   <C>                          <C>
REVENUES:
  Center whitening fees, net..............................             $     3,851                   $     3,253
  Associated Center whitening fees, net...................                   2,870                         1,515
  Product sales...........................................                     582                           411
                                                                       -----------                   -----------

    Total revenues, net...................................                   7,303                         5,179
                                                                       -----------                   -----------
</TABLE>

                                      F-24
<PAGE>

                               BriteSmile, Inc.
                  Notes to Consolidated Financial Statements
                       (In thousands, except share data)

<TABLE>
<S>                                                                    <C>                           <C>
OPERATING COSTS AND EXPENSES:
 Center selling and occupancy costs.......................                   6,346                         2,774
 Selling, General and administrative expenses.............                   9,338                        10,350
 Research and development expenses........................                     868                           557
 Depreciation and amortization............................                   1,577                         1,243
 Restructuring expense....................................                     778                             -
 Impairment charges.......................................                   1,254                             -
 Loss on sale/leaseback transaction.......................                   7,138                             -
                                                                       -----------                   -----------

   Total operating costs and expenses.....................                  27,299                        14,924
                                                                       -----------                   -----------

     Loss from operations.................................                 (19,996)                       (9,745)
                                                                       -----------                   -----------

OTHER INCOME (EXPENSE), net:

   Total other income (expense), net......................                  (5,721)                         (308)
                                                                       -----------                   -----------

     Loss before income tax provision.....................                 (25,717)                      (10,053)

INCOME TAX PROVISION......................................                       3                             -
                                                                       -----------                   -----------

     Net loss.............................................             $   (25,720)                  $   (10,053)
                                                                       ===========                   ===========

BASIC AND DILUTED NET LOSS PER SHARE......................                  $(1.00)                       $(0.42)
                                                                       ===========                   ===========

WEIGHTED AVERAGE SHARES - BASIC AND DILUTED...............              25,621,063                    23,931,977
                                                                       ===========                   ===========
</TABLE>

                                      F-25