<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended: July 1, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period from to
Commission File Number: 1-11064
BRITESMILE, INC.
(Exact name of business issuer as specified in its charter)
UTAH 87-0410364
------------------------------------ -------------------------------
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
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)
(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 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.
X yes no
--- -----
The Company had 23,975,885 shares of common stock outstanding at August 3, 2000.
1
<PAGE>
BRITESMILE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of July 1, 2000 and
April 1, 2000 ........................................................3
Condensed Consolidated Statements of Operations for the 13 weeks ended
July 1, 2000 and June 30, 1999, respectively..........................5
Condensed Consolidated Statements of Cash Flows for the 13 weeks ended
July 1, 2000 and June 30, 1999, respectively..........................6
Notes to Condensed Consolidated Financial Statements..................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................17
Item 2. Changes in Securities..........................................18
Item 6. Exhibits and Reports on Form 8-K...............................19
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRITESMILE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 1,2000 April 1, 2000
----------------- -----------------
CURRENT ASSETS: (unaudited) (Note 1)
<S> <C> <C>
Cash and cash equivalents........................................ $ 12,286,376 $ 10,969,400
Cash, restricted as to use....................................... 843,000 843,000
Trade accounts receivable, net of allowance for doubtful accounts of
$94,120 and $83,328, respectively............................. 1,807,449 1,180,506
Subscription receivable.......................................... 2,999,998 -
Inventories ..................................................... 2,262,421 1,191,144
Prepaid expenses and other....................................... 1,004,696 833,778
----------------- -----------------
Total current assets................................. 21,203,940 15,017,828
----------------- -----------------
PROPERTY, EQUIPMENT AND IMPROVEMENTS, at cost:
Furniture, fixtures and equipment................................ 9,782,150 7,153,319
Leasehold improvements........................................... 8,358,330 7,604,464
----------------- -----------------
18,140,480 14,757,783
Less accumulated depreciation and amortization................... (2,710,265) (1,699,949)
----------------- -----------------
15,430,215 13,057,834
Construction in progress......................................... 1,770,689 2,844,644
----------------- -----------------
Net property, equipment and improvements, at cost... 17,200,904 15,902,478
----------------- -----------------
OTHER LONG-TERM ASSETS:
Other long-term assets......................................... 1,428,000 1,468,800
----------------- -----------------
$ 39,832,844 $ 32,389,106
================= =================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
BRITESMILE, INC. AND SUBSIDIARIES
3
<PAGE>
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
July 1, 2000 April 1, 2000
---------------- -----------------
(unaudited) (Note 1)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable................................................. $ 2,582,989 $ 1,864,358
Accrued expenses ................................................ 1,357,077 2,284,563
---------------- -----------------
Total current liabilities.............................. 3,940,066 4,148,921
---------------- -----------------
Long-term debt....................................................... 15,583,332 -
Discount to long-term debt........................................... (1,809,466) -
Other long-term liabilities.......................................... 155,073 121,024
---------------- -----------------
Total long-term liabilities...................... 13,928,939 121,024
---------------- -----------------
Total liabilities...................................... 17,869,005 4,269,945
---------------- -----------------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares authorized; and
23,930,683 and 23,905,683 shares issued and outstanding,
respectively.................................................. 23,931 23,905
Additional paid-in capital....................................... 75,470,041 73,389,439
Accumulated deficit.............................................. (53,530,133) (45,294,183)
---------------- -----------------
Total shareholders' equity ............................ 21,963,839 28,119,161
---------------- -----------------
$ 39,832,844 $ 32,389,106
================ =================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
BRITESMILE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
4
<PAGE>
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
July 1, 2000 June 30, 1999
------------------ ------------------
REVENUES:
<S> <C> <C>
Center whitening fees, net................................... $ 2,210,513 $ 731,500
Associated Center whitening fees, net........................ 1,885,368 142,525
Product sales................................................ 229,537 -
------------------ ------------------
Total revenues, net....................................... 4,325,418 874,025
------------------ ------------------
OPERATING COSTS AND EXPENSES:
Center selling and occupancy costs........................... 4,508,716 1,825,215
Selling, general and administrative expenses................. 6,700,553 2,217,102
Research and development expenses............................ 385,956 275,587
Depreciation and amortization................................ 1,010,317 154,605
------------------ ------------------
Total operating costs and expenses........................ 12,605,542 4,472,509
------------------ ------------------
Loss from operations................................... (8,280,124) (3,598,484)
------------------ ------------------
OTHER INCOME (EXPENSE), net:
Interest expense............................................. (3,712) (19,167)
Interest income.............................................. 71,248 90,680
------------------ ------------------
Total other income, net................................... 67,536 71,513
------------------ ------------------
Loss before income tax provision....................... (8,212,588) (3,526,971)
INCOME TAX PROVISION............................................. 23,362
-
------------------ ------------------
Net loss .............................................. $ (8,235,950) $ (3,526,971)
================== ==================
BASIC AND DILUTED NET LOSS PER SHARE............................. $ (0.34) $ (0.20)
================== ==================
WEIGHTED AVERAGE SHARES - BASIC AND DILUTED...................... 23,920,694 17,537,234
================== ==================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
5
<PAGE>
BRITESMILE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
July 1, 2000 June 30, 1999
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss............................................................ $ (8,235,950) $ (3,526,971)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................ 1,010,317 154,605
Cost recognized for issuance of stock and stock options....... 235,041 54,987
Non-cash warrant expense...................................... 30,669 -
Changes in assets and liabilities:
Trade accounts receivable............................... (626,943) (42,794)
Subscription receivable................................. (2,999,998)
Inventories............................................. (1,071,277) (47,294)
Prepaid expenses and other.............................. (170,918) 988,577
Trade accounts payable.................................. 718,631 (1,418,462)
Accrued expenses & other current liabilities............ (927,486) 120,304
Other long term liabilities............................. 34,049 20,331
----------------- ------------------
Net cash used in operating activities................ (12,003,865) (3,746,607)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from assets held for sale, net.............................. - 1,250,000
Purchase of property and equipment................................... (2,308,742) (2,090,000)
----------------- ------------------
Net cash used in investing activities................ (2,308,742) (840,000)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principle payments on borrowing...................................... - (801,042)
Proceeds from convertible debenture offering......................... 15,583,332 -
Proceeds from common stock offering.................................. - 15,078,751
Proceeds from exercise of stock options ............................. 46,251 -
----------------- ------------------
Net cash provided by financing activities............ 15,629,583 14,277,709
----------------- ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS............................. 1,316,976 9,691,102
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE PERIOD...................................................... 10,969,400 6,199,701
----------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD......................... $ 12,286,376 $ 15,890,803
================= ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................. $ 3,712 $ 19,167
================= ==================
Cash paid for income taxes......................................... $ 23,362 $ -
================= ==================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
6
<PAGE>
BRITESMILE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
BriteSmile, Inc., a Utah corporation (the "Company" or "BriteSmile") and its
affiliates develop, produce, license and sell advanced teeth whitening products,
services and technologies. The Company's operations include the development of
technologically advanced teeth whitening processes that are distributed in
professional salon settings known as BriteSmile Professional Teeth Whitening
Centers ("Centers"). The Company also offers its products and technologies
through licensing arrangements with existing dental offices known as BriteSmile
Professional Teeth Whitening Associated Centers ("Associated Centers").
BriteSmile offers consumers a new, simple and safe way to return their teeth to
their optimal natural whiteness in a one and one-half hour visit to a Center or
Associated Center.
Centers are located in major metropolitan areas nationwide and offer clients a
salon-like environment dedicated solely to the business of teeth whitening.
Centers are staffed by licensed dentists and trained dental assistants.
Alternatively, consumers can visit an Associated Center, where a local dentist
administers the BriteSmile procedure in the dentist's established office.
The Company developed its current tooth whitening technology (the "BriteSmile
2000 Light Activated Teeth Whitening System," "BS2000" or "LATW") and began
distribution in 1999. In November 1999 the Company introduced its new BriteSmile
3000 LATW keycard system (the "BS3000") to Associated Centers. The BS3000, a
mobile version of the BS2000, can be installed quickly and provides the
flexibility and mobility required in dental offices.
The BS2000 and BS3000 teeth whitening devices utilize a gas plasma light
technology. The unique fiberoptic delivery arm of the BS2000 and BS3000 permits
blue green light to reach all 16 front teeth simultaneously, whitening the teeth
by activating BriteSmile's wavelength specific gel during three consecutive
twenty-minute sessions.
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 July 1, 2000, the Company had 14 Centers
and 532 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.
The Company does not believe that its business follows seasonal trends. However,
because certain of the Company's Centers are located within a mall environment,
the potential for seasonality exists. As a result, the Company's sales
performance could potentially be affected.
Unless specified to the contrary herein, references to BriteSmile or to the
Company refer to the Company and its subsidiaries on a consolidated basis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals)considered necessary for a fair presentation have
been included. Operating results for the thirteen weeks ended July 1, 2000 are
not necessarily indicative of the results that may be expected for the remainder
of the fiscal year ending December 30, 2000.
7
<PAGE>
BRITESMILE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(continued)
The balance sheet at April 1, 2000 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiaries annual
report on form 10-KSB for the year ended April 1, 2000.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consist primarily of dental supplies and component parts for the
manufacturing of teeth whitening systems as of July 1, 2000 and April 1, 2000,
respectively, and are summarized as follows:
July 1, 2000 April 1, 2000
------------- -------------
Dental Supplies & Merchandise........ $ 343,110 $ 184,828
Finished Goods....................... 300,843 105,181
Work in Progress..................... 1,618,468 901,135
------------- --------------
Total Inventory................ $ 2,262,421 $ 1,191,144
============= ==============
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be settled or recovered. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date.
The Company recognized no tax benefit for the net operating losses incurred
during the thirteen weeks ended July 1, 2000 due to uncertainties about the
Company's ability to generate future earnings to offset such losses.
Basic and Diluted Net Loss Per Common Share
Basic net loss per common share is calculated based upon the weighted average
number of common shares outstanding during the periods presented.
In calculating net loss per share for the thirteen weeks ended July 1, 2000,
warrants and options to purchase 6,255,683 potential common shares were not
included in the computation as their effect would have been anti-dilutive,
thereby decreasing the net loss per common share.
Reclassifications
Certain reclassifications have been made in the prior period's consolidated
financial statements to conform with the current year presentation.
8
<PAGE>
BRITESMILE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) ACCRUED LIABILITIES
Accrued liabilities consists of the following at July 1, 2000
July 1, 2000
------------------
Accrued salaries and benefits.......... $ 578,248
Accrued incentive...................... 104,273
Accrued professional services.......... 303,783
Other accrued expenses................. 370,773
------------------
Total ......................... $ 1,357,077
==================
(4) LONG TERM DEBT
On June 27, 2000, the Company signed a Securities Purchase Agreement with nine
investors (the "Initial Investors"), pursuant to which the Company sold in a
private placement (the "Note Offering") its 5% Subordinated Convertible Notes
due June 29, 2005 in the aggregate principal amount of $15,583,332 (the
"Notes").
The Notes are convertible into shares of the Company's Common Stock, par value
$.001 per share ("Common Stock"), at a per share conversion price of $6.18,
which was 140% of the average closing bid price of the Common Stock during the
ten-trading day period immediately prior to June 27, 2000, the date the
transaction documents were signed. The Company also issued to the Initial
Investors, pro rata, warrants (the "Warrants") to purchase a total of 1,260,787
shares of Common Stock. The Warrants have a term of five years and an exercise
price of $7.21 per share. The number of shares underlying the Notes and the
exercise price of the Warrants are subject to certain reset and penalty
provisions as set forth in the transaction documents. The fair market value of
these warrants utilizing the Black-Scholes valuation model is $1,840,135 and is
being amortized over five years. The remaining fair market value is reflected in
discount to long-term debt on the balance sheet. The compensation expense for
the warrants issued is taken as an expense in selling, general and
administrative expense.
Certain Initial Investors are presently affiliates of the Company and include
LCO Investments Limited ("LCO") (shareholder and affiliated with director
Anthony Pilaro), John Reed (shareholder, CEO and director), Gasper Lazzara, Jr.
(director), Pequot Private Equity Fund II, L.P., Pequot Partners Fund, L.P., and
Pequot International Fund, Inc. (the "Pequot Entities") (shareholders and
affiliated with director Gerald Poch), and Andrew McKelvey (shareholder and
affiliated with director Bradford Peters).
Pursuant to a Registration Rights Agreement between the Initial Investors and
the Company, the Company agreed to register with the Securities and Exchange
Commission ("SEC"), within 120 days from the closing date, the shares of Common
Stock underlying the Notes and Warrants for resale under the Securities Act of
1933, as amended.
The Company has sold $4,416,667 principal amount of additional Notes since the
end of the quarter for which this report is filed. See Note 8, Subsequent
Events.
(5) STOCKHOLDERS' EQUITY
In June 1999 the Company completed a private placement of 1,355,555 shares of
its Common Stock for $15,000,000. 1,004,043 shares were sold to private
investors, and the remaining 351,512 shares were sold to members of senior
management, the Company's Board of Directors and key consultants.
9
<PAGE>
BRITESMILE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) STOCKHOLDERS' EQUITY - (CONTINUED)
In October 1999 LCO, the principal shareholder of the Company, exercised options
to purchase 1,173,334 shares of Common Stock, resulting in proceeds of
$5,280,000 to the Company. The Company granted the options to LCO in April 1996
and May 1997 in connection with private placements of Common Stock.
In January 2000, the Company issued and sold to the Pequot Entities in a private
placement 3,333,333 shares (the "Pequot Shares") of its Common Stock for
aggregate proceeds of $20,000,000. The purchase price of the Pequot Shares was
$6.00 per share. The Pequot Shares represented 14.2% of the Company's total
shares of Common Stock then issued and outstanding after giving effect to the
issuance of the Pequot Shares.
In February 2000 the Company issued an aggregate 30,927 shares of restricted
Common Stock to three existing shareholders (Quota Rabbicco II, Ltd., Argonaut
Partnership, L.P. and David E. Gerstenhaber) in a private placement for cash
proceeds to the Company of $186,000. Also, in February 2000, the Company issued
77,318 shares of restricted Common Stock to Andrew J. McKelvey in a private
placement for cash proceeds to the Company of $464,000.
(6) STOCK OPTIONS
During 1990 the Company adopted an employee stock option plan, which was
approved by the shareholders on September 5, 1990 (the "1990 Plan"). In January
1997, the Company adopted the 1997 Stock Option and Incentive Plan. The Plan was
amended by the Board of Directors of the Company in May 1998, and ratified by
the shareholders of the Company, to increase the total number of shares
available for issuance under the plan from 2 million to 4 million. Subsequently,
on June 9, 2000, the Board of Directors further amended the Plan to increase the
total number of shares available for issuance under the Plan from 4 million to 5
million (the "Revised 1997 Plan"). Substantially all of the employee stock
options outstanding at July 1, 2000 have been issued pursuant to the Revised
1997 Plan. Only 182,000 of all stock options outstanding at July 1, 2000 were
granted under the 1990 Plan.
Under the Revised 1997 Plan, the Company is authorized to issue up to five
million shares of Common Stock pursuant to stock awards or upon the exercise of
options granted under the plan. The option price per share is determined by the
Board of Directors, but is no less than the fair market value of the underlying
shares on the date of the grant. Options granted under the Revised 1997 Plan
generally vest at various intervals up to five years and expire after ten years.
(7) WARRANTS
In June 1999, the Company issued warrants for 300,000 shares (the "OCA Shares")
of Common Stock to Orthodontic Centers of America, Inc. ("OCA") in
consideration for OCA entering into an agreement to install BS 3000 systems in
OCA facilities. The Warrants were exercisable at $11.0625 per share and expired
on June 2, 2000. The fair value of the OCA Warrants utilizing the Black-Scholes
valuation model was $1,632,000 and is being amortized over the life of the
agreement between the Company and OCA, which is ten years. The remaining fair
market value is reflected in other assets on the balance sheet. The
compensation expense for the OCA Warrants is taken against Associated Center
Revenue.
10
<PAGE>
BRITESMILE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(8)......SUBSEQUENT EVENTS
Effective August 3, 2000, the Company completed a subsequent sale (the
"Subsequent Closing") of an additional $4,416,667 principal amount of the Notes,
together with Warrants to purchase 357,334 shares of Common Stock, as part of
the Note Offering described in Note 4 above. The Notes sold in the Subsequent
Closing are due August 3, 2005, and the Warrants are exercisable for 5 years
until August 3, 2005. In all other material respects, the Note and Warrants have
the same terms and conditions as those sold in the initial closing of the Note
Offering described in Note 4 above.
Purchasers in the Subsequent Closing included five of the seven Initial
Investors affiliated with the Company (LCO, Andrew McKelvey, Pequot Private
Equity Fund II, L.P., Pequot International Fund, Inc., and Pequot Partners Fund,
L.P.) for $3,616,668 principal amount of the Notes. Two new investors, VenCap
Opportunities Fund, L.P. and Wendell Starke as Trustee UDT 10-2-1991, also
purchased Notes and Warrants in the Subsequent closing for an aggregate
principal investment of $800,000.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
THIS QUARTERLY REPORT ON FORM 10-Q 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."
.........The following table sets forth certain information relating to the
growth in the number of BriteSmile Centers and Associated Centers for the 13
weeks ended July 1, 2000 compared to the fiscal year ended April 1, 2000:
<TABLE>
<CAPTION>
BriteSmile, Inc. Fiscal Year
Roll-out Status Ended
as of July 1, 2000 April 1, 2000
----------------------------------------------------------------------------------------------------- --------------
<S> <C> <C> <C> <C>
Number of Centers at the Number of Centers Number of Centers
Centers beginning of Period Opened During Period At End of Period Total
----------------------- ------------------------ ---------------------- ------------------- --------------
14 -0- 14 14
Grand
Associated Centers AC's OCA Total U.S. Int'l Total Total
---------------------------- -------------- ------------- -------------- -------------- ------------ ---------------
Total Developed............ 516 80 596 115 711 490
Contracts Received......... 503 75 578 115 693 375
Active - In Business....... 389 44 433 99 532 235
In Process (1)............. 114 31 145 16 161 140
</TABLE>
(1)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 Fiscal
2000, the Company adopted a 52/53-week (4 week - 4 week - 5 week) fiscal
calendar. This change necessitated adding one day to the Fiscal 2000 year. Data
in the table reflects the consolidated results of the Company for the 13 weeks
ended July 1, 2000 and June 30, 1999, respectively. All amounts, except share
data, in the following table and discussion are in thousands.
For the 13 Weeks Ended
(Unaudited)
-------------------------------------
% OF
CHG
FROM
JULY JUNE 1999 TO
1, 2000 30, 1999 2000
----------- ---------- -----------
Statement of Operations Data:
Center whitening fees, net..$ 2,210 $ 731 202.3%
Associated Center whitening
fees, net................... 1,885 143 1,218.2
Product sales............... 230 - 100.0
-------- --------
Total revenues, net. 4,325 874 394.8
-------- --------
Operating Costs and Expenses:
Center selling and
occupancy costs............ 4,509 1,825 147.1
Selling, general and
administrative............. 6,700 2,217 202.2
Research and development
expenses................... 386 276 39.9
Depreciation and
amortization..... 1,010 155 551.6
-------- --------
Total operating costs and
Expenses............... 12,605 4,473 181.8
-------- --------
Other Income (Expense), net:
Interest expense............ (4) (19) (78.9)
--------- --------
Interest income............. 71 91 (22.0)
--------- --------
Income tax expense.......... (23) - 100.0
--------- --------
Net income (loss).......... $(8,236) $(3,527) 133.5%
======== ========
12
<PAGE>
The following are explanations of significant period-to-period changes for the
13 weeks ended July 1, 2000 and June 30, 1999:
Revenues
Total Revenues, net. Total revenues, net increased by $3,451, or 394.8% to
$4,325 for the 13 weeks ended July 1, 2000 from $874 for the 13 weeks ended June
30, 1999.
Center Whitening Fees, net. Center whitening fees, net increased by $1,479, or
202.3%, to $2,210 for the 13 weeks ended July 1, 2000 from $731 for the 13 weeks
ended June 30, 1999. This increase was primarily due to the operation of 14
Centers during the 13 weeks ended July 1, 2000 compared to 4 Centers that were
in operation during the 13 weeks ended June 30, 1999. No new Centers were opened
during the 13 weeks ended July 1, 2000. Teeth whitening fees are expected to
increase during the next twelve months as a result of the planned opening of 6
additional Centers and full year operating results for existing Centers.
Associated Center Whitening Fees, net. Associated Center whitening fees, net
increased by $1,742, or 1,218.2% to $1,885 for the 13 weeks ended July 1, 2000
from $143 for the 13 weeks ended June 30, 1999. This increase was primarily due
to the operation of 532 Associated Centers during the 13 weeks ended July 1,
2000 compared to 14 Associated Centers that were in operation during the 13
weeks ended June 30, 1999. Of the 532 Associated Centers in operation at July 1,
2000, 99 were international locations.
During the 13 weeks ended July 1, 2000, the Company opened 297 new Associated
Centers, of which 75 were international locations. At July 1, 2000, there were
161 Associated Centers in the process of being placed into operation, of which
16 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.
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
like 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 nine 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 for the 13 weeks ended July 1, 2000 totaled $230.
Product sales for the 13 weeks ended July 1, 2000 represent the Company's
toothpaste and Sonicare toothbrush products sold at Centers. There were no
product sales during the 13 weeks ended June 30, 1999. 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 an E-Commerce website (to be introduced in fiscal year
2001).
During the 13 weeks ended July 1, 2000, the Company introduced a new program
called "Smile Assurance". The Smile Assurance program is available to any
customer who has completed the BriteSmile procedure and purchased two tubes of
maintenance toothpaste at retail value. The customer then receives two Smile
Assurance certificates good for 2 BriteSmile procedures at one half of the
suggested retail price during the subsequent three years. Prior to implementing
this program, the Company was selling approximately 1.3 tubes of its maintenance
toothpaste to every customer who had the whitening procedure. Since introduction
of the program, toothpaste sales have averaged approximately 2 tubes for every
customer. Smile Assurance is currently offered at all BriteSmile Center
locations and will be introduced to participating Associated Centers in Fall
2000. There can no assurance that this trend will continue.
Operating Costs and Expenses
Center Selling and Occupancy Costs. Center selling and occupancy costs increased
by $2,684, or 147.1%, to $4,509 for the 13 weeks ended July 1, 2000 from $1,825
for the 13 weeks ended June 30, 1999. This increase is primarily due to the
operation of 14 Centers during the 13 weeks ended July 1, 2000 compared to 4
Centers that were in operation during the 13 weeks ended June 30, 1999. Of this
increase, $584 was advertising and promotional costs directed to increase
consumer awareness, $863 related to Center salaries and benefits, and $559
related to rent at the 14 existing Centers. Center selling and occupancy costs,
as a percentage of Center whitening fees, decreased to 204.0% for the 13 weeks
ended July 1, 2000 from 249.7% for the 13 weeks ended June 30, 1999. The low
operating margins represent newly opened Centers and partial year results from
existing Centers. Center selling and occupancy costs are expected to increase
during the next twelve months as a result of the planned opening of 6 additional
Centers as well as full year operating results over the next twelve months at
existing Centers. However, Center selling and occupancy costs as a percentage of
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Center whitening fees are expected to continue to decrease as marketing
expenditures in each market is leveraged more effectively across a greater
number of locations. Product cost of sales as a percentage of product sales was
40.1% for the 13 weeks ended July 1, 2000. Product cost of sales consisted
primarily of the Company's toothpaste and Sonicare toothbrush products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4,483, or 202.2%, to $6,700 for the 13 weeks
ended July 1, 2000 from $2,217 for the 13 weeks ended June 30, 1999. During the
13 weeks ended July 1, 2000, the Company added 11 additional executive, selling
and administrative personnel to effectively execute the Company's business
strategy, including the introduction of 14 new Centers, the addition of 711
Associated Centers, and costs incurred to open future Centers and Associated
Centers.
Included in the selling, general and administrative expenses for the 13 weeks
ended July 1, 2000 were $2,510 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
$1,442 of professional service costs during the 13 weeks ended July 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. The Company also incurred $405
related to the development and expansion of international Associated Centers in
Japan, Argentina, Switzerland, Italy, Holland, France, Singapore, Germany,
Netherlands and Belgium.
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 $110, or 39.9%, to $386 for the 13 weeks ended July 1, 2000 from $276 for the
13 weeks ended June 30, 1999. This increase was primarily attributable to the
development of the Company's next generation LATW system. Research and
development costs incurred during the 13 weeks ended June 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 $855,
or 551.6%, to $1,010 for the 13 weeks ended July 1, 2000 from $155 for the 13
weeks ended June 30, 1999. This increase was primarily attributable to the
operation of 14 existing Centers and the operation of 532 BS3000 systems in
Associated Centers.
Stock Option and Warrant Issuance Expense. During the 13 weeks ended July 1,
2000, the Company recognized non-cash charges totaling $188 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.
On June 27, 2000, the Company issued Warrants for 1,260,787 shares of the
Company's common stock to nine investors in connection with a private placement
of a Notes. The Warrants are exercisable at $7.21 per share and expire on June
29, 2005. The fair value of the Warrants utilizing the Black-Scholes valuation
model is $1,840 and is being amortized over five years. The remaining
unamortized balance is reflected as a discount to long-term debt on the balance
sheet.
Total Operating Costs and Expenses. Total operating costs and expenses increased
by $8,132, or 181.8%, to $12,605 for the 13 weeks ended July 1, 2000 from $4,473
for the 13 weeks ended June 30, 1999, for the reasons discussed above.
Interest Expense. Interest expense decreased $15, or 78.9%, to $4 for the 13
weeks ended July 1, 2000 from $19 for the 13 weeks ended June 30, 1999. Interest
expense for the 13 weeks ended July 1, 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 Notes. Interest expense for the 13 weeks ended June 30, 1999
consisted primarily of mortgage interest paid on the Company's former
headquarters facility.
Interest Income. Interest income decreased $20, or 22.0%, to $71 for the 13
weeks ended July 1, 2000 from $91 for the 13 weeks ended June 30, 1999. This
decrease was primarily related to decreased average available cash on-hand to
invest.
Net Loss. The net loss increased by $4,709, or 133.5%, to $8,236 for the 13
weeks ended July 1, 2000 from $3,527 for the 13 weeks ended June 30, 1999 due to
a combination of the factors described above.
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Liquidity and Capital Resources
General
The Company's principal sources of liquidity have been issuances of common stock
and common stock equivalents. At July 1, 2000, the Company had $12,286 of cash
and cash equivalents. The Company expects to open additional Centers and sign
contracts for additional Associated Centers during the next twelve months. This
expansion is contingent upon several factors, including available cash
resources, ability to secure leases for its Centers and acceptance by consumers
and Associated Center dentists of the Company's LATW services. The Company
expects that operating losses will continue through the transition fiscal year
ending December 30, 2000 and that it's 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, to build out 6 additional BriteSmile Centers and to fund
the production of additional BS3000 devices for Associated Centers as a result
of the Company's planned expansion of its business platform.
Effective June 27, 2000, the Company signed a Securities Purchase Agreement with
nine investors (the "Initial Investors") pursuant to which the Company sold
$15,583 of 5% Subordinated Convertible Notes (the "Notes") due June 29, 2005
(the "Initial Closing"). As described in Part II, Item 2 below, effective August
3, 2000, the Company completed a subsequent sale (the "Subsequent Closing") of
an additional $4,416,667 principal amount of the Notes, together with Warrants
to purchase 357,334 shares of Common Stock, as part of the same private
placement. The Notes sold in the Subsequent Closing are due August 3, 2005, and
the Warrants are exercise for 5 years until August 3, 2005. In all other
material respects, the Note and Warrants have the same terms and conditions as
the those sold in the Initial Closing. Accordingly, in the opinion of
management, the Company will have adequate debt and equity capital resources to
pursue its goals in the next twelve months. While management believes that the
Company can continue its current operating strategy without additional funding,
cash flows are difficult to forecast accurately. Therefore, there can be no
assurance that additional capital will not be required, or that it will be
available on terms that are acceptable to the Company. Additionally, there can
be no assurance that the Company's business will generate cash flows at or above
current levels. Accordingly, the Company may choose to defer capital expenditure
plans.
The Notes are convertible into shares of the Company's Common Stock at a per
share conversion price of $6.18, which is 140% of the average of the closing bid
price of the Common Stock during the ten-trading day period immediately prior to
June 27, 2000, the date the transaction documents with the Initial Investors
were signed. The Company also issued to the Initial Investors, pro rata,
warrants (the "Warrants") to purchase a total of 1,260,787 shares of Common
Stock, which have a term of five years and an exercise price of $7.21. The
number of shares underlying the Notes and the exercise price of the Warrants are
subject to certain reset and penalty provisions as set forth in the transaction
documents.
The investors in the Initial and Subsequent Closings which are presently
affiliated with the Company and include LCO Investments Limited (shareholder and
affiliated with director Anthony Pilaro), John Reed (shareholder, CEO and
director), Gasper Lazzara, Jr. (director), Pequot Private Equity Fund II, L.P.,
Pequot Partners Fund, L.P., and Pequot International Fund, Inc. (shareholders
and affiliated with director Gerald Poch), and Andrew McKelvey (shareholder and
affiliated with director Bradford Peters).
Pursuant to a Registration Rights Agreement between the investors and the
Company, the Company agreed to register with the SEC, within 120 days from the
closing date, the shares of Common Stock underlying the Notes and Warrants for
offer and sale under the Securities Act of 1933, as amended.
On May 26, 2000, the Company entered into a Revolving Credit Line Agreement (the
"Credit Facility") with Bank of Hawaii. Under the Credit Facility, the Company
may borrow from time to time through May 25, 2001 up to $2 million outstanding
at any one time. 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.
To date, the Company has no borrowings under the Credit Facility.
July 1, 2000 Compared to April 1, 2000
As of July 1, 2000, the Company had liquid assets (cash and cash equivalents and
trade accounts receivable) of $14,094, an increase of 16.0%, or $1,944, from
April 1, 2000 when liquid assets were $12,150. Cash increased $1,317, or 12.0%,
to $12,286 at July 1, 2000 from $10,969 at April 1, 2000. This increase in cash
was primarily the result of the $12,083 of proceeds from the Notes received in
June 2000. Trade accounts receivable increased $626, or 53.1%, to $1,807 at July
1, 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 13 weeks
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ended July 1, 2000 and the increased key card re-orders received during the
period.
Current assets increased by $6,186, or 41.2%, to $21,204 at July 1, 2000 from
$15,018 at April 1, 2000. This increase was primarily the result of an increase
in cash of $1,317 and accounts receivable of $626, described above, as well as
an increase in inventory of $1,071 resulting from increased production of the
BS3000 device being shipped to Associated Center locations. This increase was
offset in part by a decrease in prepaid expenses of $114.
Long-term assets increased $1,258, or 7.2%, to $18,629 at July 1, 2000 from
$17,371 at April 1, 2000. This increase was primarily the result of leasehold
improvements at additional Centers under construction, the shipment of 235
additional BS3000 devices, and deferred warrant expense during the 13 weeks
ended July 1, 2000.
Current liabilities decreased by $209, or 5.0%, to $3,940 at July 1, 2000 from
$4,149 at April 1, 2000. This decrease was primarily the result of a decrease in
accrued expenses of $928, offset in part by increases in trade accounts payable
of $719 and accrued gift certificate liability of $25.
The Company's working capital increased by $6,395, or 58.8% to $17,264 at July
1, 2000 from $10,869 at April 1, 2000, for the reasons described above.
The Company used net cash of $12,004 in operating activities during the 13 weeks
ended July 1, 2000, primarily as a result of the net loss incurred during the
period.
The Company used net cash of $2,309 in investing activities during the 13 weeks
ended July 1, 2000, primarily for capital expenditures relating to the Company's
expansion efforts in Centers and Associated Centers.
The Company provided net cash of $15,630 from financing activities during the 13
weeks ended July 1, 2000, primarily due to the private placements of $15,583 of
Notes. Additionally, the Company received $46 in proceeds from the exercise of
stock options.
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 does not believe that its business follows seasonal trends. However,
because certain of the Company's Centers are located within a mall environment,
the potential for seasonality exists. As a result, the Company's sales
performance could potentially be affected.
Year 2000 Compliance
Prior to January 1, 2000, there was widespread concern that computer systems
could experience problems handling dates beyond the year 1999. This was referred
to as the "Year 2000" issue. It was believed that some computer programs or
computer hardware could recognize a date using "00" as the year 1900 rather than
the year 2000, and that this could result in a system failure or miscalculations
causing disruption of operations.
In anticipation of the Year 2000 issue, the Company took steps to ensure that
its operations and systems would properly recognize dates beyond December 31,
1999. The Company also gathered information about the Year 2000 compliance of
its significant suppliers. These efforts were made in an attempt to prevent any
disruption of the Company's business on or after January 1, 2000, due to the
Year 2000 issue.
Since January 1, 2000, the Company has experienced no difficulties or business
disruptions resulting from the Year 2000 issue. Similarly, to date the Company
is not aware of any external agent or supplier who has suffered a Year 2000
issue that will materially impact the Company's results of operations,
liquidity, or capital resources.
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While management intends to continue to monitor the Year 2000 issue and any
impact on the Company, management currently has no plans to devote significant
time or resources to the Year 2000 issue.
Forward Looking Statements
The statements contained in this Report that are not purely historical are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act.
These statements relate to the Company's expectations, hopes, beliefs,
anticipations, commitments, intentions and strategies regarding the future. They
may be identified by the use of words or phrases such as "believes," "expects,"
"anticipates," "should," "plans," "estimates," and "potential," among others.
Forward-looking statements include, but are not limited to, statements contained
in Management's Discussion and Analysis of Financial Condition and Results of
Operations regarding the Company's financial performance, revenue and expense
levels in the future and the sufficiency of its existing assets to fund future
operations and capital spending needs. Actual results could differ materially
from the anticipated results or other expectations expressed in such
forward-looking statements. The Company believes that many of the risks set
forth here and in the Company's filings with the Securities and Exchange
Commission are part of doing business in the industry in which the Company
operates and competes and will likely be present in all periods reported. The
forward-looking statements contained in this Report are made as of the date of
this Report and the Company assumes no obligation to update them or to update
the reasons why actual results could differ from those projected in such
forward-looking statements. Among others, risks and uncertainties that may
affect the business, financial condition, performance, development, and results
of operations of the Company include:
o 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.
o Failure of the Company to generate, sustain or manage growth, including
failure to develop new products and expand Center and Associated Center
locations;
o The loss of product market share to competitors and/or development of
new or superior technologies by competitors;
o Ongoing operating losses associated with the development, marketing and
implementation of new, light-activated teeth whitening technologies;
o Failure of the Company to secure additional financing to complete its
aggressive plan for the rollout of a broad base of teeth whitening
centers nationwide;
o Unproven market for the Company's new whitening products, whitening
process, "Whitening Center" and "Associated Center" concepts, in light
of competition from traditional take-home whitening products and
bleaching tray methods;
o Lack of product diversity.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In April 2000, Natural White, Inc. and its affiliated corporations filed suit
against the Company in the Supreme Court of the State of New York, Erie County.
Also named as a defendant in the action was R. Eric Montgomery, a director of
the Company and the principal owner of IDEX Dental Sciences ("IDEX"). BriteSmile
has removed the case to the United States District Court for the Western
District of New York and filed a motion to dismiss the complaint.
IDEX licensed certain dental products and technology to Natural White for use
outside the professional field. Through Montgomery, BriteSmile was granted a
separate license to use tooth whitening products and technology in the
professional field. The complaint filed by Natural White alleges that the
defendants misappropriated proprietary rights and trade secrets of Natural
White, that they interfered with the contract between IDEX and Natural White,
and that they have been unjustly enriched as a result of this conduct. The
Complaint asserts compensatory damages in excess of $6 million, and also seeks
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punitive damages and a permanent injunction enjoining the Company from using the
IDEX technology licensed to Natural White.
Based upon the opinion of counsel, the Company believes that the suit is without
merit and will be dismissed against BriteSmile. The Company maintains that its
Light Activated Tooth Whitening Gel is proprietary and unique to the Company,
and that it is formulated to be used in conjunction with the Company's
proprietary BriteSmile BS-2000 and BS-3000 Gas Plasma LATW systems.
The Company is actively negotiating settlement of the litigation. The Company
presently anticipates that terms of settlement will involve an acknowledgement
by Natural White that the Company's Centers and Associated Centers are outside
Natural White's licensed field of use and will not infringe Natural White's
license. Although the parties are actively pursuing settlement, to date no
definitive settlement agreement has been executed, and there can be no assurance
that settlement upon the terms described above, or upon any other terms, will
occur.
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 Company's operations or financial condition.
ITEM 2. CHANGES IN SECURITIES.
Initial Note Purchases June 29, 2000
On June 29, 2000 the Company closed a Securities Purchase Agreement with nine
investors (the "Initial Investors"), pursuant to which the Company sold in a
private placement (the "Initial Closing") its 5% Subordinated Convertible Notes
due June 29, 2005 (the "Notes") in the aggregate principal amount of
$15,583,332.
The Notes are convertible into shares of the Company's Common Stock, par value
$.001 per share (the "Common Stock"), at a per share conversion price of $6.18,
which is 120% of the average of the closing bid price of the Common Stock during
the ten-trading day 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 1,260,787 shares of
Common Stock, which have a term of five years and an exercise price of $7.21 per
share. The conversion price of the Notes and the exercise price of the Warrants
are subject to certain reset and/or penalty provisions as set forth in the
transaction documents.
Two of the Initial Investors, who purchased a total of $3,500,000 principal
amount of the Notes, are unaffiliated with the Company. These unaffiliated
investors are CapEx, L.P. and Pacific Mezzanine Fund.
Seven of the Initial Investors, who purchased an aggregate amount of $12,083,332
of the Notes, are presently affiliates of the Company. The affiliated Initial
Investors include LCO Investments Limited (shareholder and affiliated with
director Anthony Pilaro), John Reed (shareholder, CEO and director), 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).
Pursuant to a Registration Rights Agreement between the Initial Investors and
the Company, the Company agreed to register with the Securities and Exchange
Commission, within 120 days from the closing date, the shares of Common Stock
underlying the Notes and Warrants for resale under the Securities Act of 1933,
as amended.
Subsequent Note Purchases August 3, 2000
Effective August 3, 2000, the Company completed a subsequent sale (the
"Subsequent Closing") of an additional $4,416,667 principal amount of the Notes,
together with Warrants to purchase 357,334 shares of Common Stock, as part of
the same private placement. The Notes sold in the Subsequent Closing are due
August 3, 2005, and the Warrants are exercise for 5 years until August 3, 2005.
In all other material respects, the Note and Warrants have the same terms and
conditions as the those sold in the Initial Closing.
Purchasers in the Subsequent Closing included five of the seven Initial
Investors affiliated with the Company (LCO, Andrew McKelvey, Pequot Private
Equity Fund II, L.P., Pequot International Fund, Inc., and Pequot Partners Fund,
L.P.) for $3,616,668 principal amount of the Notes. Two new investors, VenCap
Opportunities Fund, L.P. and Wendell Starke as Tustee UDT dated 10-2-1991, also
purchased Notes and Warrants in the Subsequent closing for an aggregate
principal investment of $800,000.
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All sales of the Notes and Warrants in the Initial Closing and the Subsequent
Closing 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 the Notes and related warrants for investment purposes
only, with no intent to distribute the securities. The Notes and Warrants 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 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
Exhibit No. Description
----------- -----------
10.A Employment Letter dated March 17, 2000 between the Company and Michael Whan
filed herewith.
(B) REPORTS ON FORM 8-K
The Company filed two Current Reports on Form 8-K during the quarter for which
this report is filed. On April 6, 2000 the Company filed a Current Report on
Form 8-K to report under Item 5 thereof that Mr. Gerald Poch and Mr. Gasper
Lazzara, Jr. had been appointed directors of the Company. On June 28, 2000, the
Company filed a Current Report on Form 8-K to report under Item 8 thereof that
effective March 31, 2000, the Company has changed its fiscal year-end from March
31 of each year to the last Saturday closest to December 31 of each year.
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SIGNATURES
Pursuant to the requirements 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.
/s/ John L. Reed August 14, 2000
------------------------ ---------------------
John L. Reed Date
Chief Executive Officer
/s/ Paul A. Boyer August 14, 2000
------------------------ ---------------------
Paul A. Boyer Date
Chief Financial Officer
