<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM TO .
Commission file number 1-11064
BRITESMILE, INC.
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(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 with Zip Code)
(925) 941-6260
-------------------
(Issuer's telephone number)
-----------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of common stock of the Registrant outstanding as of
September 30, 1999 was 18,824,516.
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TABLE OF CONTENTS
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1999 and March 31, 1999 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended September 30, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 14
Item 2 - Changes in Securities 14
Item 4 - Submission of Matters to a Vote of
Security Holders 14
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBITS 17
2
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ITEM I. FINANCIAL STATEMENTS
BRITESMILE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 9,060 $ 6,200
Accounts receivable, net of
allowance for doubtful accounts of $51 and
$273,respectively 117 75
Inventories 62 16
Prepaid expenses and deposits 711 329
Assets held for sale 1,250
------- --------
Total current assets 9,950 7,870
------- --------
Property and equipment, net 7,157 2,522
Other assets 186 40
------- --------
Total assets $17,293 $10,432
======== ========
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED BALANCE SHEETS
3
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BRITESMILE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
(Unaudited)
<S> <C> <C>
Current liabilities: $ 60 $ 69
Notes payable 1,776 2,032
Accounts payable 3,161 1,474
Accrued liabilities
Mortgage obligations and other debt -- 797
-------- --------
Total current liabilities 4,997 4,372
-------- --------
Stockholders' equity:
Common stock, $.001 par value,
50,000,000 shares Authorized
and 18,824,516 and 17,137,854
shares outstanding, respectively 19 17
Additional paid-in capital 44,477 27,821
Accumulated deficit (32,200) (21,778)
-------- --------
Total stockholders' equity 12,296 6,060
-------- --------
Total liabilities and $ 17,293 $ 10,432
stockholders' equity ======== ========
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED BALANCE SHEETS
4
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BRITESMILE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months ended Three Months ended
September 30, September 30,
------------------ -------------------
1999 1998 1999 1998
-------- ------- ------- -------
Unaudited Unaudited
<S> <C> <C> <C> <C>
Revenues:
Whitening fees, net $ 2,318 $ -- $ 1,444 $ --
Product Sales, net 27 501 27 141
-------- ------- ------- -------
Total sales, net 2,345 501 1,471 141
-------- ------- ------- -------
Cost of sales:
Whitening center expenses 2,130 -- 1,277 --
Product sales 10 423 10 41
Inventory write-downs -- 418 -- 64
-------- -------- -------- -------
Total cost of sales 2,140 841 1,287 205
-------- -------- -------- -------
Gross margin 205 (340) 184 (64)
-------- -------- -------- -------
Operating Costs and Expenses:
Selling and administrative 9,571 1,140 6,243 790
Research and development 946 1,397 655 628
Termination benefits, impairment
charges and write-down of assets 300 2,709 300 1,972
-------- -------- -------- --------
Total Operating Costs and Expenses 10,817 5,246 7,198 3,390
-------- -------- -------- -------
Loss From Operations (10,612) (5,586) (7,014) (3,454)
Interest income and other, net 190 32 119 15
-------- -------- -------- -------
Loss before income tax provision (10,422) (5,554) (6,895) (3,439)
Income tax provision -- -- -- --
-------- ------- -------- -------
Net loss $ (10,422) $ (5,554) $ (6,895) $ (3,439)
======== ======== ======= =======
Basic and Diluted Net Loss
Per Share $ (.58) $ (.76) $ (.37) $ (.45)
======== ======== ======== =======
Weighted Average Shares -
Basic and Diluted 18,032 7,329 18,627 7,683
======== ======== ======== =======
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED STATEMENTS
5
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BRITESMILE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six months ended
September 30,
------------------
1999 1998
-------- --------
(Unaudited)
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss $(10,422) $(5,554)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 402 71
Termination benefits, impairment charges and
write-down of assets 300 2,157
Cost recognized for issuance of stock and
stock options 1,063 --
Changes in current assets and liabilities:
Accounts receivable, inventory and prepaid expenses (310) 171
Accounts payable and accrued liabilities 1,655 (433)
Other (67) 107
-------- ---------
Net cash used in operating activities (7,379) (3,481)
-------- ---------
Cash Flows from Investing Activities:
Additions to property and equipment (5,561) (57)
Net proceeds from sale of assets 1,250 145
Other -- (9)
-------- ---------
Net cash provided by (used in) investing activities (4,311) 79
-------- ---------
Cash Flows From Financing Activities:
Principle payments on borrowings (806) (226)
Proceeds from sale of common stock and
exercise of stock options 15,356 5,030
-------- ---------
Net cash provided by financing activities 14,550 4,804
-------- ---------
Net increase in cash and cash equivalents 2,860 1,402
Cash and cash equivalents at beginning of the period 6,200 503
-------- ---------
Cash and cash equivalents at end of the period $ 9,060 $ 1,905
======== =========
</TABLE>
6
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THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED STATEMENTS
BRITESMILE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES
Basis of Presentation
- -----------------------
The unaudited, condensed consolidated financial statements of BriteSmile, Inc.
(the "Company") as of September 30, 1999 and for the three and six month periods
ended September 30, 1999 and 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with the instructions to Form 10-QSB and rules promulgated by the
Securities and Exchange Commission. The 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. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
all adjustments considered necessary to present fairly the financial position,
results of operations and cash flows of the Company, have been included. The
results of operations for the periods presented are not necessarily indicative
of the results for the respective complete years. For further information, refer
to the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended March 31, 1999.
Earnings Per Share
- --------------------
Earnings per share is computed based on the weighted average number of shares of
common stock and common stock equivalent shares outstanding during each period.
Because the Company reported a net loss for each of the periods ended September
30,1999 and 1998, all common stock equivalents are anti-dilutive and,
accordingly, have been excluded from the earnings per share computations. As a
result, the numerator or net loss and the denominator or weighted average number
of common shares are the same for both basic and diluted earnings per share
computations.
Subsequent Event
- ------------------
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 $5,280,003 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.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES. 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."
RESULTS OF OPERATIONS
In February 1999, and in connection with the Company's shift in focus to
providing dental whitening services, the Company introduced a new
Light-Activated Teeth Whitening System (the "LATW", patents pending), including
its new whitening device, the BriteSmile 2000, new whitening gel, and new
whitening process. The LATW was introduced in Walnut Creek, California at the
Company's first retail salon setting known as a BriteSmile Professional Teeth
Whitening Center (a "Center").
In March 1999
the Company opened its first BriteSmile Professional Teeth Whitening Associated
Center ("Associated Center") in Louisville, Kentucky. Unlike the stand-alone
Centers, the Associated Centers are located in established cosmetic
Dentistry facilities. All Centers and Associated Centers are professionally
operated by licensed dentists and offer the Company's newest technology.
During the six months ended September 30, 1999, the Company continued to open
Centers and Associated Centers. As of September 30, 1999, the Company had 6
Centers and 12 Associated Centers in operation.
The following are explanations of significant period to period changes for the
three and six months ended September 30, 1999 and 1998.
Net Sales
- -----------
Sales for the three months ended September 30, 1999 totaled $1,471, compared to
$141 for the three months ended September 30, 1998, representing an increase of
$1,330. Sales for the six months ended September 30, 1999 were $2,345, compared
to $501 for the six months ended September 30, 1998, an increase of $1,844. As a
result of the Company's discontinuation of laser-based teeth whitening devices
and related chemical products during fiscal 1999, there were no sales during the
three and six months ended September 30, 1999 of these former product lines. All
consolidated revenues for the three and six months ended September 30,1999 were
derived from teeth whitening fees and the sale of related merchandise. Teeth
whitening fees are expected to increase during the next twelve months as a
result of the planned opening of additional Centers and Associated Centers, and
increased consumer awareness of BriteSmile teeth whitening services. The Company
plans to place approximately 500 BriteSmile whitening devices in Centers and
Associated Centers within North America by the close of fiscal 2000. At
September 30 ,1999 the Company was operating approximately 70 BriteSmile
whitening devices within North America, nearly all of which were placed in
operation during the six months ended September 30, 1999.
8
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Cost of Sales
- ---------------
Cost of sales, exclusive of inventory write-downs, for the three months ended
September 30, 1999 was 87% of net sales as compared to 100% for the three months
ended September 30, 1998, reflecting low operating levels at newly opened
Centers during the six months ended September 30, 1999 as compared to zero
margin on sales of discontinued product lines during the same period in the
prior year. Cost of sales, exclusive of inventory write-downs, for the six
months ended September 30, 1999 increased to 91% of net sales from 84% for the
six months ended September 30, 1998, also reflecting low operating levels at
newly opened Centers in the current year as compared to margins earned on
discontinued product lines in the prior year.
Selling & Administrative Expenses
- -----------------------------------
Selling and administrative expenses for the three months ended September 30,
1999 increased to $6,243 from $790 for the three months ended September 30,
1998, or $5,453. The increase was due to the introduction and operation of the
Centers and Associated Centers in the current fiscal year, and costs incurred to
open future centers. Included in the selling and administrative expenses for the
three months ended September 30, 1999 were $2,989 of advertising, promotional
and call center costs directed to increase consumer awareness and sales of the
whitening service. In addition, $1,889 of professional service costs related to
selling and administrative activities were incurred during the three months
ended September 30, 1999, including expenses in the areas of public relations,
executing Center and Associated Center agreements, executing leases,
intellectual property, legal fees, and general corporate matters. Included in
professional service costs is a charge for $919 related to call options written
by a principal shareholder to a marketing consultant of the Company. The balance
of the selling and administrative expenses are principally administrative
salaries, travel, depreciation and occupancy costs.
Selling and administrative expenses for the six months ended September 30, 1999
increased $8,431, to $9,571 from $1,140 for the six months ended September 30,
1998. Included in the current year selling and administrative costs of $9,571
are $4,762 of advertising and call center costs, $2,421 of administrative and
selling professional services (including the charge for call options of $919
discussed above), and $1,350 of selling and administrative employee salaries and
benefits.
Management expects selling and administrative costs, principally advertising and
salaries, to be leveraged more efficiently as sales from Centers and Associated
Centers increase in the future. During the six months ended September 30, 1999,
the Company began operating nearly 70 LATW Systems in Centers and Associated
Centers. The Company plans to operate over 500 LATW Systems in North America by
the end of the current fiscal year. It is anticipated that many of these Systems
will be located in Associated Centers where professional selling activities of
the dentists supplement the Company's advertising expenditures to achieve
greater efficiencies in advertising.
Research and Development Expenses
- ---------------------------------
Research and development expenses for the three months ended September 30, 1999
were $655 as compared to $628 for the three months ended September 30, 1998.
This increase is primarily the result of the development of the mobile version
of the BriteSmile LATW System and keycard, which will be used in Associated
9
<PAGE>
Centers. The mobile version can be installed more quickly and provides needed
flexibility and mobility in dental offices. Research and development expenses
for the six months ended September 30, 1999 were $946, compared to $1,397 for
the six months ended September 30, 1998. Costs incurred in the prior year
reflect a portion of the research and development of the BriteSmile 2000 device,
while the current year reflects the development of the mobile version discussed
above.
Termination Benefits, Impairment Charges and Write-Down of Assets
- -----------------------------------------------------------------
During the three month period ending September 30, 1999, the Company recorded a
charge of related to the relocation of its corporate office from Pennsylvania to
California. These costs consist principally of lease termination accruals and
employee severance.
Income Taxes
- --------------
Due to its operating loss, the Company had no income tax expense during the
three months ending September 30, 1999 or 1998. Furthermore, no income tax
benefit was recognized due to the uncertainty associated with the Company's
ability to realize its deferred tax assets, comprised primarily of net operating
loss carryforwards.
Net Loss
- -------------------
The Company incurred net losses of $6,895 and $3,439 for the three month periods
ending September 30, 1999 and 1998, respectively. The increase of $3,456 in net
loss is primarily the result of increased selling and administrative expenses
related to the introduction and operation of Centers and Associated Centers.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing activities resulted in an increase in cash of $14,550
during the six months ended September 30, 1999, due principally to the $15,000
of equity capital raised in June 1999. This increase was partially offset by the
$7,379 of cash used in operating activities and $4,311 of cash used in investing
activities, resulting in a net increase in cash of $2,860 during
the six months ended September 30, 1999. The increase in capital spending
represents investments in leasehold improvements and equipment for New Centers
and Associated Centers. The cash operating losses are principally attributable
to increased selling and administrative activities associated with operating and
expanding the business.
In this section, the term "Current Ratio" means current assets divided by
current liabilities. "Working Capital" means current assets less current
liabilities.
The Company's Current Ratio and Working Capital at September 30, 1999 and March
31, 1999 were as follows:
September 30, 1999 March 31, 1999
----------------- --------------
Current Ratio 1.99 1.80
Working Capital $4,953 $3,498
10
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In April 1999, the Company sold the building and land formerly used as its
corporate headquarters in Salt Lake City, Utah and classified as held for sale
in the March 31, 1999 consolidated balance sheet. The $1,250 of net proceeds
from the sale were used primarily to repay outstanding mortgages on the property
that totaled $797.
In June 1999, the Company completed a private placement of 1,356 shares of its
common stock for total investment proceeds of $15,000. The Company plans to use
the proceeds to fund current operations and to open and operate additional
Centers and Associated Centers. On October 29, 1999, the Company's principal
shareholder exercised options to purchase 1,173 shares of Company common stock,
resulting in proceeds to the Company of $5,280. The Company granted the options
in April 1996 and May 1997 in connection with private placements of the
Company's common stock.
The Company is in the early stages of opening Centers and Associated Centers. As
of September 30, 1999 the Company has opened 6 Centers and 12 Associated
Centers. The Company expects to open additional Centers and Associated Centers
by the end of fiscal 2000. The Company's opening of additional centers is
contingent upon several factors, including available cash resources and
acceptance by the consumer of the Company's service. Currently, the Centers and
Associated Centers which are open are operating at a loss. The Company expects
that operating losses at the Centers will continue through much of fiscal 2000.
The Company expects capital expenditures to be approximately $17,500 for its
fiscal year ending March 31, 2000. This increase of $7,500 reflects the
increased roll-out of the BriteSmile 2000 unit to the Associated Centers in
addition to increased buildout cost of Center locations. The Company believes
that cash on hand at September 30, 1999, cash received in October 1999 from the
exercise of options by LCO Investments Limited, cash flows derived from
whitening fees, and cash sought through additional financings should be
sufficient to fund the operations of the existing centers and the Company's
expansion plans. As indicated above, the Company has a stated plan of opening
Centers and Associated Centers; however, the Company will only be able to meet
its anticipated growth plans to the extent it has sufficient available cash, and
it is likely that additional funding sources will be needed. There can be no
assurance that such funding sources will be available to the Company.
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 result of operations. However, there can be no assurance that the
Company's business will not be affected by inflation in the future.
YEAR 2000
- ---------
Many computer systems experience problems handling dates beyond the year 1999.
This is referred to widely as the "Year 2000" issue. Some computer programs or
computer hardware may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruption of operations, including, among other things, a temporary inability
to conduct normal business activities, including processing transactions,
sending invoices, and remitting payments.
11
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Based on assessments, the Company has replaced or is in the process of modifying
or replacing portions of its software and hardware so that those systems will
properly utilize dates beyond December 31, 1999. The Company presently believes
that with modifications or replacements of existing software and certain
hardware, the Year 2000 Issue can be mitigated. However, if such modifications
and replacements are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the Company.
The Company's plan to resolve the Year 2000 Issue involves the following four
phases: assessment, remediation, testing and implementation. As a result of the
Company's focus on the BriteSmile 2000 system and elimination of previous
business lines, much of the hardware and software currently installed or in the
process of being installed at Company locations is new and is already Year 2000
compliant. The two major internal systems the Company uses include the financial
system and the call tracking, scheduling, and client payment system. Both of
these systems have been assessed as Year 2000 compliant. The Company has tested
both of these system for Year 2000 compliance and determined that both are Year
2000 compliant. Preparation of the Company's older personal computers and
servers to become Year 2000 compliant is nearly complete. The Company has
assessed and tested its office equipment, including telephone systems, and
expects all systems will operate properly in the Year 2000. A review of the
BriteSmile 2000 device indicates that this significant Company product is Year
2000 compliant.
In addition, the Company has gathered information about the Year 2000 compliance
status of its significant suppliers and continues to monitor their compliance.
The Company has questioned its significant suppliers, including its banks,
merchant service providers, insurance carriers, key vendors and subcontractors,
regarding their Year 2000 readiness. To date the Company is not aware of any
external agent with a Year 2000 issue that would materially impact the Company's
results of operations, liquidity, or its capital resources. However, the Company
has no means of ensuring that such third party suppliers and agents will be Year
2000 ready. The inability of external agents to complete their Year 2000
resolution process in a timely fashion could materially and adversely affect the
Company.
The Company has used external and internal resources to test and implement
software and operating equipment for Year 2000 modifications. Due to the limited
number of older systems still in use by the Company, the cost of Year 2000
compliance has not been material, nor is it expected to be material to complete
the remaining tasks.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not completed all necessary phases of its Year 2000 program. In the event that
the Company does not complete any additional phases, and one or more of the
Company's or key vendors' critical systems is defective in the year 2000, the
Company may experience difficulties or be unable to process customer telephone
inquiries, collect and process payments for whitening procedures performed, make
payments to employees and vendors, and generally process recurring transactions.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also materially adversely affect the Company.
The Company has contingency plans for certain critical applications and is
working on contingency plans for less critical applications. These contingency
plans principally involve manual workarounds.
12
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FORWARD-LOOKING STATEMENTS
The statements contained in this Report that are not purely historical are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act.
These statements relate to the Company's expectations, hopes, beliefs,
anticipations, commitments, intentions and strategies regarding the future. They
may be identified by the use of words or phrases such as "believes," "expects,"
"anticipates," "should," "plans," "estimates," and "potential," among others.
Forward-looking statements include, but are not limited to, statements contained
in Management's Discussion and Analysis of Financial Condition and Results of
Operations regarding the Company's financial performance, revenue and expense
levels in the future and the sufficiency of its existing assets to fund future
operations and capital spending needs. Actual results could differ materially
from the anticipated results or other expectations expressed in such
forward-looking statements. The Company believes that many of the risks set
forth here and in the Company's SEC filings 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:
. government regulation of the Company's products and teeth whitening
procedures, including: (i) current restrictions or controls on the
practice of dentistry by general business corporations, and (ii) future,
unknown enactments or interpretations of current regulations which could,
in the future, affect the Company's operational structure and
relationships with licensed dentists.
. failure of the Company to generate, sustain or manage growth, including
failure to develop new products and expand Center and Associated Center
locations;
. the loss of product market share to competitors and/or development of new
or superior technologies by competitors;
. ongoing operating losses associated with the Company's abandonment of its
industrial laser product line and laser-based teeth whitening
technologies, in favor of development of new, light-activated teeth
whitening technologies;
. failure of the Company to secure additional financing to complete its
aggressive plan for the roll-out of a broad base of teeth whitening
centers nationwide;
. unproven market for the Company's new whitening products, whitening
process, and "whitening center" and "associated center" concepts, in
light of competition from traditional take-home whitening products and
bleaching tray methods.
. lack of diversity of products.
13
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no new legal proceedings involving the Company or any of its
directors, officers or affiliates, nor any material developments with respect to
pending legal proceedings, which are required to be discussed in this Report.
ITEM 2. CHANGES IN SECURITIES.
On or about July 15, 1999, the Company issued 5,000 shares of restricted common
stock valued at $50,000 to an individual in partial consideration for certain
toll-free number rights used in connection with the Company's Call Center.
Effective August 12, 1999, the Company issued a total of 18,000 shares of
restricted common stock having a market value of $186,750 to a group of 9
individuals, in consideration for certain marketing rights used in the Company's
advertising programs. Both the July and August stock issuances were made in
private transactions, exempt from the registration requirements of the
Securities Act of 1933 pursuant to Section 4(2) of the Act and Rule 506
promulgated by the Securities and Exchange Commission thereunder. Each person
acquired Company stock for investment purposes only, with no intent to
distribute the shares. Certificates representing the shares are subject to
standard restrictive legends with respect to transfer or resale. All recipients
received or had meaningful access to all Company reports filed with the
Commission pursuant to the Securities Exchange Act of 1934.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Shareholders held on August 25, 1999, the
shareholders of the Company voted on the following three proposals:
Proposal 1 - To elect the following eight directors, each to serve
until the next annual meeting of shareholders and until his
successor is elected and shall have qualified: Anthony M. Pilaro,
John L. Reed, Richard V. Trefz, Peter Schechter, Jennifer A.
Scott, Linda S. Oubre, R. Eric Montgomery, and Bruce V.
Wainright, D.D.S.
Proposal 2 - To ratify and approve an amendment to the Company's
Revised 1997 Stock Option and Incentive Plan. The amendment increases
the aggregate number of shares of common stock of the Company
available for issuance under the Plan from 2,000,000 shares to
4,000,000 shares.
Proposal 3 - To approve the Board of Directors' selection of Ernst &
Young LLP as the Company's independent auditors.
Voting results were as follows:
For Against Abstain
Proposal 1:
Mr. Pilaro 16,974,600 85,308 0
Mr. Reed 16,974,599 85,309 0
Mr. Trefz 16,974,600 85,308 0
Mr. Schechter 16,974,600 85,308 0
Ms Scott 16,974,600 85,308 0
Ms. Oubre 16,974,600 85,308 0
Mr. Montgomery 16,974,600 85,308 0
14
<PAGE>
Mr. Wainright 16,974,600 85,308 0
For Against Abstain Not Voted
Proposal 2 13,030,278 624,286 5,375 3,399,969
For Against Abstain
Proposal 3 17,054,943 3,765 1,200
ITEM 5. OTHER INFORMATION.
On July 23, 1999, Peter Schechter was appointed to the Company's Board of
Directors. Peter Schechter is a partner in the public relations firm of Chlopak,
Leonard, Schechter and Associates. Mr. Schechter's appointment increases the
size of the Company's Board to eight.
The Company has substantially completed the consolidation and relocation of its
corporate headquarters from Lester, Pennsylvania to its Walnut Creek, California
office. The Company's Walnut Creek office now includes all administration, call
center operations, manufacturing, retail product development and distribution,
and finance, accounting and information systems functions.
Effective November 1, 1999, the Company named Paul A. Boyer as its new Vice
President and Chief Financial Officer. Mr. Boyer succeeds Michael F. Bonner, who
has served as CFO since November 1998. Prior to joining the Company, Mr. Boyer
was Senior Vice President and Chief Financial Officer of Dynatec International,
Inc., a leading manufacturer and marketer of consumer products. While at
Dynatec, he was directly responsible for all finance, accounting and operations
of the Company, including manufacturing, purchasing, production and information
systems. Mr. Boyer also served as Director of Finance at Mrs. Field's Original
Cookies, Inc., where he played an integral role in the Company's merger and
acquisition activities, treasury functions, financial forecasting, budgeting
planning and analysis. Previously, Mr. Boyer was Chief Financial Officer of
Wasatch Education Systems. During his six-year tenure at Wasatch, he handled all
accounting and financial activities, including a successful initial public
offering and a private placement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
Exhibit No. Description
----------- -----------
27 Financial Data Schedule for September 30, 1999 Form 10-QSB.
(B) REPORTS ON FORM 8-K
The Company filed no Current Reports on Form 8-K during the quarter for
which this report is filed.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BRITESMILE, INC.
Date: November 10, 1999
/s/ Paul A. Boyer
------------------------
Paul A. Boyer
Chief Financial Officer
16
<PAGE>
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