SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended March 30, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-13104
THERMOLASE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 06-1360302
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10455 Pacific Center Court
San Diego, California 92121-4339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 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 [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of Common Stock, as of the latest
practicable date.
Class Outstanding at April 26, 1996
---------------------------- -----------------------------
Common Stock, $.01 par value 40,212,881
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOLASE CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
March 30, September 30,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $17,899 $13,146
Available-for-sale investments,
at quoted market value (amortized
cost of $46,918 and $52,281) 46,959 52,294
Accounts receivable, less allowances of
$219 and $256 4,830 4,255
Inventories:
Raw materials and supplies 2,166 2,864
Work in process and finished goods 2,468 2,339
Prepaid expenses 140 186
Prepaid income taxes 832 852
------- -------
75,294 75,936
------- -------
Property and Equipment, at Cost 7,924 4,975
Less: Accumulated depreciation and
amortization 1,229 807
------- -------
6,695 4,168
------- -------
Other Assets 308 319
------- -------
Cost in Excess of Net Assets of
Acquired Company 8,921 9,040
------- -------
$91,218 $89,463
======= =======
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THERMOLASE CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 30, September 30,
(In thousands except share amounts) 1996 1995
--------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 2,367 $ 3,405
Accrued payroll and employee benefits 582 538
Accrued income taxes 589 412
Other accrued expenses 2,321 1,818
Due to parent company and affiliated companies 3,367 1,072
------- -------
9,226 7,245
------- -------
Shareholders' Investment:
Common stock, $.01 par value,
100,000,000 shares authorized;
40,197,452 and 40,109,772 shares issued 402 401
Capital in excess of par value 84,070 84,354
Accumulated deficit (2,289) (2,130)
Treasury stock at cost, 9,371
and 21,944 shares (232) (415)
Net unrealized gain on
available-for-sale investments 41 8
------- -------
81,992 82,218
------- -------
$91,218 $89,463
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
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THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
-----------------------
March 30, April 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $ 7,020 $ 6,109
------- -------
Costs and Operating Expenses:
Cost of revenues 4,403 3,594
Selling, general and administrative expenses 2,499 2,115
Research and development expenses 1,061 590
------- -------
7,963 6,299
------- -------
Operating Loss (943) (190)
Interest Income 907 156
------- -------
Loss Before Provision for Income Taxes (36) (34)
Provision for Income Taxes 41 12
------- -------
Net Loss $ (77) $ (46)
======= =======
Loss per Share $ - $ -
======= =======
Weighted Average Shares 40,174 37,507
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
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THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
Six Months Ended
----------------------
March 30, April 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $14,420 $11,913
------- -------
Costs and Operating Expenses:
Cost of revenues 9,563 6,884
Selling, general and administrative expenses 5,098 4,085
Research and development expenses 1,586 1,213
------- -------
16,247 12,182
------- -------
Operating Loss (1,827) (269)
Interest Income 1,845 338
Loss on Sale of Investments - (41)
------- -------
Income Before Provision for Income Taxes 18 28
Provision for Income Taxes 177 70
------- -------
Net Loss $ (159) $ (42)
======= =======
Loss per Share $ - $ -
======= =======
Weighted Average Shares 40,132 37,506
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5PAGE
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THERMOLASE CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
----------------------
March 30, April 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Operating Activities:
Net loss $ (159) $ (42)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 552 407
Provision for losses on accounts receivable - 61
Loss on sale of investments - 41
Changes in current accounts, excluding
the effects of acquisition:
Accounts receivable (575) (1,604)
Inventories 569 (3,459)
Other current assets 46 149
Accounts payable (1,038) 2
Other current liabilities 2,670 698
------- -------
Net cash provided by (used in)
operating activities 2,065 (3,747)
------- -------
Investing Activities:
Acquisition, net of cash acquired - (197)
Purchases of available-for-sale investments (29,500) -
Proceeds from sale and maturities of
available-for-sale investments 34,525 8,659
Purchases of property and equipment (2,949) (1,442)
Proceeds from sale of property and equipment - 125
Other 363 -
------- -------
Net cash provided by investing
activities 2,439 7,145
------- -------
Financing Activities:
Net proceeds from issuance of Company
common stock 249 9
------- -------
Increase in Cash and Cash Equivalents 4,753 3,407
Cash and Cash Equivalents at Beginning of Period 13,146 71
------- -------
Cash and Cash Equivalents at End of Period $17,899 $ 3,478
======= =======
Cash Paid For:
Income taxes $ 6 $ 57
The accompanying notes are an integral part of these consolidated financial
statements.
6PAGE
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THERMOLASE CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by ThermoLase Corporation (the Company) without audit and, in the
opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair statement of (a) the results of operations for the
three- and six-month periods ended March 30, 1996 and April 1, 1995, (b)
the financial position at March 30, 1996, and (c) the cash flows for the
six-month periods ended March 30, 1996 and April 1, 1995. Interim results
are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of September 30, 1995, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q and
do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial statements
and notes included herein should be read in conjunction with the financial
statements and notes included in the Company's Transition Report on Form
10-K for the nine months ended September 30, 1995, filed with the
Securities and Exchange Commission.
2. Related Party Transaction
During the six months ended March 30, 1996, the Company purchased 32
laser systems from the Lorad division of Trex Medical Corporation, a
majority-owned subsidiary of ThermoTrex Corporation, for an aggregate price
of $2,240,000.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Description of Business
The Company has developed a laser-based system called SoftLight (SM)
for the removal of unwanted hair. The SoftLight system uses a low-energy,
dermatology laser in combination with a lotion that absorbs the laser's
energy to disable hair follicles. In April 1995, the Company received
clearance from the U.S. Food and Drug Administration (FDA) to commercially
market services using the SoftLight system. The Company began earning
revenue from the SoftLight system in the first quarter of fiscal 1996 as a
result of opening its first commercial salon (Spa Thira) in La Jolla,
California, in October 1995 and treating paying clients beginning in
mid-November 1995. In addition, the Company has announced plans to open
three new salons. The Company is operating its first spa below maximum
capacity as it refines the commercial operating procedures at the center.
The Company has also commenced a program to license to doctors the right to
perform the Company's patented SoftLight hair-removal procedure. Under the
7PAGE
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THERMOLASE CORPORATION
Description of Business (continued)
terms of this licensing arrangement, the Company will provide doctors with
use of the lasers and will charge them a per-procedure fee, which will vary
depending on location treated. The Company also manufactures and markets
skin-care, bath, and body products through its CBI Laboratories, Inc. (CBI)
subsidiary, which manufactures the lotion used in the SoftLight
hair-removal process.
Results of Operations
In September 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
Three Months Ended March 30, 1996 Compared With Three Months Ended
April 1, 1995
Revenues increased 15% to $7,020,000 in the three months ended March
30, 1996, from $6,109,000 in the three months ended April 1, 1995. The
increase in revenues resulted primarily from $667,000 in SoftLight
licensing fees from a Japanese joint venture established in January 1996
and revenues from hair-removal services at the Company's first Spa Thira
salon. In October 1995, the Company opened its first Spa Thira salon in La
Jolla, California. During the three months ended March 30, 1996, the
Company collected $839,000 from Spa Thira clients and recognized $413,000
in revenue. Under the current pricing structure, spa clients pay a fixed
fee in advance to receive a series of treatments, as necessary.
Consequently, the Company defers revenue, which is recognized over the
anticipated treatment period. As the Company collects further data
concerning the number of treatments required and duration of the treatment
period, the period of revenue recognition may be affected. Revenues from
CBI declined slightly to $5,940,000 for the three months ended March 30,
1996, from $6,109,000 for the three months ended April 1, 1995.
In January 1996, the Company entered into a joint venture agreement,
which is subject to certain conditions, to market its SoftLight system in
Japan. The Company currently holds a 50% stake in the joint venture with an
option to increase its ownership to 51%. The agreement calls for the
Company to receive additional minimum guaranteed payments of $1.3 million
during the remainder of fiscal 1996 and $1.0 million in fiscal 1997,
subject to certain conditions.
The gross profit margin in the three months ended March 30, 1996, was
37%, compared with 41% in the three months ended April 1, 1995. The decline
is primarily due to lower margins on the sale of skin-care and other
personal-care products at CBI due to a shift to higher-volume,
lower-margin products. In addition, the decline in the gross profit margin
resulted from the early operations of the Spa Thira business, as the
Company develops a client base and continues refining its operating
procedures, offset in part by the effect of revenues from the Japanese
joint venture. As the Company opens additional Spa Thira locations in
fiscal 1996, preopening costs will have a negative impact on the gross
profit margin.
8PAGE
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THERMOLASE CORPORATION
Three Months Ended March 30, 1996 Compared With Three Months Ended
April 1, 1995 (continued)
Selling, general and administrative expenses increased to $2,499,000
in the three months ended March 30, 1996, from $2,115,000 in the three
months ended April 1, 1995, primarily due to costs related to setting up a
personal-care service organization for Spa Thira, including the hiring of
senior management and administrative staff, as well as legal costs
associated with filing patents and expanding the Company's hair-removal
business domestically and internationally. The Company expects these costs
to continue at the current level.
Research and development expenses increased to $1,061,000 in the three
months ended March 30, 1996, compared with $590,000 in the three months
ended April 1, 1995, due to increased clinical studies related to
laser-based skin rejuvenation, hair removal, and other skin-care services.
Interest income increased to $907,000 in the three months ended March
30, 1996, from $156,000 in the three months ended April 1, 1995, primarily
as a result of interest income earned on invested proceeds from the
Company's August 1995 public offering of common stock.
The effective tax rates in both periods differ from the statutory
federal income tax rate due to nondeductible amortization of cost in excess
of net assets of acquired company, incurred in connection with the
acquisition of CBI and the impact of CBI's state income taxes.
Six Months Ended March 30, 1996 Compared With Six Months Ended
April 1, 1995
Revenues increased 21% to $14,420,000 in the six months ended March
30, 1996, from $11,913,000 in the six months ended April 1, 1995, primarily
due to an increase in demand for the Company's skin-care and other
personal-care products, as well as the inclusion of $667,000 in SoftLight
licensing fees from the Japanese joint venture and $471,000 of revenues
from the Company's first Spa Thira salon.
The gross profit margin in the six months ended March 30, 1996, was
34%, compared with 42% in the six months ended April 1, 1995. The decline
is due to the reasons discussed in the results of operations for the three
months ended March 30, 1996.
Selling, general and administrative expenses increased to $5,098,000
in the six months ended March 30, 1996, from $4,085,000 in the six months
ended April 1, 1995, primarily due to costs related to setting up a
personal-care service organization for Spa Thira, including the hiring of
senior management and administrative staff, as well as legal costs
associated with filing patents and expanding the Company's hair-removal
business domestically and internationally, offset in part by lower spending
at CBI.
Research and development expenses increased to $1,586,000 in the six
months ended March 30, 1996, from $1,213,000 in the six months ended April
1, 1995, due to increased clinical studies related to laser-based skin
rejuvenation, hair removal, and other skin-care services.
9PAGE
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THERMOLASE CORPORATION
Six Months Ended March 30, 1996 Compared With Six Months Ended
April 1, 1995 (continued)
Interest income increased to $1,845,000 in the six months ended March
30, 1996, from $338,000 in the six months ended April 1, 1995, primarily as
a result of interest income earned on invested proceeds from the Company's
August 1995 public offering of common stock.
The effective tax rates in both periods differ from the statutory
federal income tax rate due to nondeductible amortization of cost in excess
of net assets of acquired company, incurred in connection with the
acquisition of CBI, and the impact of CBI's state income taxes.
Liquidity and Capital Resources
Working capital was $66,068,000 at March 30, 1996, compared with
$68,691,000 at September 30, 1995. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $64,858,000 at
March 30, 1996, compared with $65,440,000 at September 30, 1995. Net cash
provided by operating activities was $2,065,000 for the six months ended
March 30, 1996.
During the six months ended March 30, 1996, the Company expended
$2,949,000 for purchases of property and equipment, which included the
purchase of 32 laser systems for an aggregate price of $2,240,000 from the
Lorad division of Trex Medical Corporation, a majority-owned subsidiary of
ThermoTrex Corporation. The Company has committed to purchase additional
lasers at an aggregate price of $6,460,000.
The Company has recently signed leases in Dallas, Beverly Hills, and
Denver, where it plans to open additional Spa Thira salons. The Company
plans to open additional spas in various parts of the United States during
the remainder of calendar 1996 and thereafter. Depending on the size of the
salon, each facility will require approximately $1,500,000 to $2,500,000
for such items as leasehold improvements and laser systems. Although the
Company has no material commitments for capital expenditures, except as
noted above, such expenditures will largely be affected by the number of
Spa Thira locations that can be developed during the year. The Company
believes its existing resources will be sufficient to meet the capital
requirements of its existing businesses for the foreseeable future.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On March 15, 1996, at the Annual Meeting of Shareholders, the
shareholders elected ten directors to a one-year term expiring in 1997. The
Directors elected at the meeting were: Dr. Carliss Y. Baldwin, Dr. Elias P.
Gyftopoulos, Mr. John C. Hansen, Mr. Robert C. Howard, Mr. Paul F.
Kelleher, Mr. Anthony J. Pellegrino, Mr. Firooz Rufeh, Dr. Kenneth Y. Tang,
Mr. Gary S. Weinstein, and Dr. Nicholas T. Zervas. Dr. Baldwin, Dr.
Gyftopoulos, and Mr. Hansen each received 34,625,322 shares voted in favor
of his or her election and 5,519 shares voted against. Mr. Howard, Mr.
Kelleher, Mr. Pellegrino, Mr. Rufeh, Dr. Tang, Mr. Weinstein, and Dr.
Zervas each received 34,625,522 shares voted in favor of his election and
5,319 shares voted against. No abstentions or broker nonvotes were recorded
on the election of directors.
10PAGE
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THERMOLASE CORPORATION
Item 4 - Submission of Matters to a Vote of Security Holders (continued)
The shareholders also approved two other proposals. The first was a
proposal recommended by the Board of Directors to amend the Company's
Certificate of Incorporation to increase the Company's authorized common
stock from 50 million shares to 100 million shares. This proposal received
34,334,426 shares voted in favor, 281,129 shares voted against, and 15,286
shares abstained. The second proposal was a proposal recommended by the
Board of Directors to adopt an employees' stock purchase plan and to
reserve 50,000 shares of the Company's common stock and 50,000 shares of
the common stock of Thermo Electron Corporation for issuance thereunder.
This proposal received 34,009,167 shares voted in favor, 600,518 shares
voted against, and 21,156 shares abstained. No broker nonvotes were
recorded on either proposal.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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THERMOLASE CORPORATION
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 as of the 3rd day of May 1996.
THERMOLASE CORPORATION
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Vice President and
Chief Financial Officer
12PAGE
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THERMOLASE CORPORATION
Exhibit Index
Exhibit
Number Description of Exhibit Page
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27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOLASE
CORP.'S QUARTERLY REPORT FILED ON FORM 10-Q FOR THE QUARTER ENDED MARCH 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> MAR-30-1996
<CASH> 17,899
<SECURITIES> 46,959
<RECEIVABLES> 5,049
<ALLOWANCES> 219
<INVENTORY> 4,634
<CURRENT-ASSETS> 75,294
<PP&E> 7,924
<DEPRECIATION> 1,229
<TOTAL-ASSETS> 91,218
<CURRENT-LIABILITIES> 9,226
<BONDS> 0
<COMMON> 402
0
0
<OTHER-SE> 81,590
<TOTAL-LIABILITY-AND-EQUITY> 91,218
<SALES> 14,420
<TOTAL-REVENUES> 14,420
<CGS> 9,563
<TOTAL-COSTS> 9,563
<OTHER-EXPENSES> 1,586
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18
<INCOME-TAX> 177
<INCOME-CONTINUING> (159)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (159)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
