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 June 29, 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 July 26, 1996
---------------------------- ----------------------------
Common Stock, $.01 par value 40,686,963
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOLASE CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
June 29, September 30,
(In thousands) 1996 1995
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Current Assets:
Cash and cash equivalents $ 8,675 $13,146
Available-for-sale investments,
at quoted market value (amortized
cost of $52,126 and $52,281) 51,973 52,294
Accounts receivable, less allowances of
$268 and $256 3,981 4,255
Inventories:
Raw materials and supplies 1,847 2,864
Work in process and finished goods 2,085 2,339
Prepaid expenses 248 186
Prepaid income taxes 912 852
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69,721 75,936
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Property and Equipment, at Cost (Note 2) 12,298 4,975
Less: Accumulated depreciation and
amortization 1,497 807
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10,801 4,168
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Other Assets (Note 3) 4,689 319
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Cost in Excess of Net Assets of
Acquired Company 8,862 9,040
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$94,073 $89,463
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THERMOLASE CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 29, September 30,
(In thousands except share amounts) 1996 1995
--------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 2,472 $ 3,405
Accrued payroll and employee benefits 787 538
Accrued income taxes 601 412
Deferred revenue 885 -
Other accrued expenses 1,740 1,818
Due to parent company and affiliated companies 7,565 1,072
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14,050 7,245
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Shareholders' Investment:
Common stock, $.01 par value,
100,000,000 shares authorized;
40,803,932 and 40,109,772 shares issued 408 401
Capital in excess of par value 85,669 84,354
Accumulated deficit (2,311) (2,130)
Treasury stock at cost, 117,449
and 21,944 shares (3,645) (415)
Net unrealized gain (loss) on
available-for-sale investments (98) 8
------- -------
80,023 82,218
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$94,073 $89,463
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The accompanying notes are an integral part of these consolidated financial
statements.
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THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
--------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
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Revenues $ 6,314 $ 5,642
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Costs and Operating Expenses:
Cost of revenues 4,501 3,527
Selling, general and administrative expenses 2,128 2,167
Research and development expenses 823 816
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7,452 6,510
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Operating Loss (1,138) (868)
Interest Income 881 137
Gain on Sale of Investments 115 -
------- -------
Loss Before Income Taxes (142) (731)
Income Tax Benefit 120 232
------- -------
Net Loss $ (22) $ (499)
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Loss per Share $ - $ (.01)
======= =======
Weighted Average Shares 40,460 37,591
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
Nine Months Ended
-------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $20,734 $17,555
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Costs and Operating Expenses:
Cost of revenues 14,064 10,411
Selling, general and administrative expenses 7,226 6,252
Research and development expenses 2,409 2,029
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23,699 18,692
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Operating Loss (2,965) (1,137)
Interest Income 2,726 475
Gain (Loss) on Sale of Investments 115 (41)
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Loss Before Income Taxes (124) (703)
Income Tax (Provision) Benefit (57) 162
------- -------
Net Loss $ (181) $ (541)
======= =======
Loss per Share $ - $ (.01)
======= =======
Weighted Average Shares 40,242 37,534
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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THERMOLASE CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-------------------
June 29, July 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Operating Activities:
Net loss $ (181) $ (541)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 897 613
Provision for losses on accounts receivable 12 103
(Gain) loss on sale of investments (115) 41
Changes in current accounts, excluding
the effects of acquisition:
Accounts receivable 262 (641)
Inventories 1,271 (3,404)
Other current assets (64) (83)
Accounts payable (933) (39)
Other current liabilities 7,741 (23)
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Net cash provided by (used in)
operating activities 8,890 (3,974)
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Investing Activities:
Acquisition, net of cash acquired - (197)
Investment in other assets (Note 3) (4,400)
Purchases of available-for-sale investments (49,500) -
Proceeds from sale and maturities of
available-for-sale investments 49,140 10,659
Purchases of property and equipment (7,323) (1,989)
Proceeds from sale of property and equipment - 155
Other 630 60
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Net cash provided by (used in)
investing activities (11,453) 8,688
------- -------
Financing Activities:
Net proceeds from issuance of Company
common stock 2,590 2,591
Purchases of Company common stock (4,498) -
------- -------
Net cash provided by (used in)
financing activities (1,908) 2,591
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Increase (Decrease) in Cash and Cash Equivalents (4,471) 7,305
Cash and Cash Equivalents at Beginning of Period 13,146 71
------- -------
Cash and Cash Equivalents at End of Period $ 8,675 $ 7,376
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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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 the financial position at June 29, 1996,
the results of operations for the three- and nine-month periods ended June
29, 1996, and July 1, 1995, and the cash flows for the nine-month periods
ended June 29, 1996, and July 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 nine months ended June 29, 1996, the Company purchased 75
laser systems from the Lorad division of Trex Medical Corporation, a
majority-owned subsidiary of ThermoTrex Corporation, for an aggregate price
of $5,250,000.
3. Minority Investment and Licensing Agreement
In June 1996, the Company purchased $4,400,000 of convertible
preferred stock of AntiCancer Incorporated (AntiCancer), representing an
approximate 10% equity interest in AntiCancer on a fully diluted basis.
AntiCancer is a San Diego-based company that is developing a new
chemotherapeutic drug for cancer patients, and that is also developing
certain technologies that may be relevant to the SoftLight(SM) hair-removal
process and other personal-care applications. The Company has the option to
purchase for $2,500,000 an additional 5% equity interest in AntiCancer on a
fully diluted basis, exercisable at any time before the earlier of June 19,
2011 or AntiCancer's initial public offering of stock. This investment is
being accounted for under the cost method of accounting. In addition, the
Company has licensed from AntiCancer certain technology related to hair
removal, hair coloring, stimulation of hair growth, and suppression of hair
growth for an initial fee of $100,000 and up to $1,500,000 in future
payments upon the attainment of certain milestones by AntiCancer. The
Company will be substantially responsible for development costs incurred
after attainment of the specified milestones. In the event that the funded
development efforts result in commercially viable products, the Company
will pay AntiCancer a royalty based on sales, subject to certain minimum
payments.
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THERMOLASE CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
These statements involve a number of risks and uncertainties, including
those detailed in Item 5 of this Quarterly Report on Form 10-Q.
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 opened a second salon in
Dallas, Texas, in June 1996 and has announced plans to open five new
salons. The Company is operating its first two spas below maximum capacity
as it refines its commercial operating procedures. 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 terms of
this licensing arrangement, the Company provides doctors with use of the
lasers and charges them a per-procedure fee, which varies 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 June 29, 1996, Compared With Three Months Ended
July 1, 1995
Revenues increased 12% to $6,314,000 in the three months ended June
29, 1996, from $5,642,000 in the three months ended July 1, 1995, primarily
due to the inclusion of $763,000 in revenues from hair-removal services at
the Company's first two Spa Thira salons and $667,000 in SoftLight
licensing fees from a Japanese joint venture established in January 1996,
offset in part by a decrease in revenues at CBI to $4,822,000 in the three
months ended June 29, 1996, from $5,642,000 in the three months ended July
1, 1995. The decrease in revenues at CBI results from lower demand as CBI
shifts its distribution toward larger retailers, which have a slower buying
cycle, and increased competition. The Company expects that CBI's revenues
will continue to decline in the fourth quarter of fiscal 1996 based on
lower bookings. The Company estimates that CBI will continue to represent a
smaller portion of total revenues as revenues from hair-removal services
increase.
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THERMOLASE CORPORATION
Three Months Ended June 29, 1996, Compared With Three Months Ended
July 1, 1995 (continued)
In October 1995 and June 1996, the Company opened its first two Spa
Thira salons in La Jolla, California, and Dallas, Texas, respectively.
During the three months ended June 29, 1996, the Company collected $991,000
from Spa Thira clients and recognized $763,000 in revenue, including
previously deferred revenue from client payments made in prior quarters.
Under the current pricing structure, the majority of spa clients pay a
fixed fee in advance to receive a series of treatments, as necessary.
Consequently, the Company defers revenue related to such payments, 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.
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 $667,000
during the remainder of fiscal 1996 and $1,000,000 in fiscal 1997, subject
to certain conditions.
The gross profit margin in the three months ended June 29, 1996, was
29%, compared with 37% in the three months ended July 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 reduction in revenues and a shift to
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 and fiscal 1997, preopening costs will have a negative impact
on the gross profit margin.
Selling, general and administrative expenses decreased slightly to
$2,128,000 in the three months ended June 29, 1996, from $2,167,000 in the
three months ended July 1, 1995. The decrease resulted from the Company's
effort to control costs at CBI, offset in part by 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 approximately the current level. Research and development
expenses increased slightly to $823,000 in the three months ended June 29,
1996 from $816,000 in the three months ended July 1, 1995.
Interest income increased to $881,000 in the three months ended June
29, 1996, from $137,000 in the three months ended July 1, 1995, primarily
as a result of interest income earned on invested proceeds from the
Company's August 1995 public offering of common stock.
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THERMOLASE CORPORATION
Three Months Ended June 29, 1996, Compared With Three Months Ended
July 1, 1995 (continued)
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 state income taxes.
Nine Months Ended June 29, 1996, Compared With Nine Months Ended
July 1, 1995
Revenues increased 18% to $20,734,000 in the nine months ended June
29, 1996, from $17,555,000 in the nine months ended July 1, 1995, primarily
due to the inclusion of $1,334,000 in SoftLight licensing fees from the
Company's Japanese joint venture and $1,234,000 of revenues from the
Company's first two Spa Thira salons.
The gross profit margin in the nine months ended June 29, 1996, was
32%, compared with 41% in the nine months ended July 1, 1995. The decline
is due to the reasons discussed in the results of operations for the three
months ended June 29, 1996.
Selling, general and administrative expenses increased to $7,226,000
in the nine months ended June 29, 1996, from $6,252,000 in the nine months
ended July 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 $2,409,000 in the nine
months ended June 29, 1996, from $2,029,000 in the nine months ended July
1, 1995, due to increased clinical studies related to laser-based skin
rejuvenation, hair removal, and other skin-care services.
Interest income increased to $2,726,000 in the nine months ended June
29, 1996, from $475,000 in the nine months ended July 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 state income taxes.
Liquidity and Capital Resources
Working capital was $55,671,000 at June 29, 1996, compared with
$68,691,000 at September 30, 1995. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $60,648,000 at June
29, 1996, compared with $65,440,000 at September 30, 1995. Net cash
provided by operating activities was $8,890,000 for the nine months ended
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THERMOLASE CORPORATION
Liquidity and Capital Resources (continued)
June 29, 1996. Other current liabilities increased by $7,741,000 primarily
due to federal income tax withholdings related to the exercise of stock
options by employees and the purchase of laser systems.
During the nine months ended June 29, 1996, the Company expended
$7,323,000 for purchases of property and equipment, which included the
purchase of 75 laser systems for an aggregate price of $5,250,000 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 $5,416,000.
During the nine months ended June 29, 1996, the Company expended
$4,400,000 for an approximate 10% equity interest in AntiCancer
Incorporated (AntiCancer). Pursuant to a licensing agreement entered into
with AntiCancer, the Company paid a $100,000 licensing fee during the nine
months ended June 29, 1996, and will pay up to $1,500,000 upon the
achievement of certain milestones by AntiCancer. In addition, the Company
is substantially responsible for development costs incurred after the
attainment of the specified milestones (Note 3).
The Company has signed leases in Beverly Hills, Denver, Detroit,
Houston, and Boca Raton 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. In addition, the Company expects to expend
between $5,000,000 and $7,000,000 during the remainder of fiscal 1996 and
fiscal 1997 for equipment related to its program to license doctors the
right to perform hair-removal services. 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 and the number of doctors engaged in the licensing
program. 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 5 - Other Information
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual results
and could cause its actual results in fiscal 1996 and beyond to differ
materially from those expressed in any forward-looking statements made by,
or on behalf of, the Company.
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THERMOLASE CORPORATION
Item 5 - Other Information (continued)
Need for Continued Product Development. Although the Company received
FDA clearance in April 1995 to commercially market the SoftLight process,
the Company is continuing its development of the process. The clinical
trials performed during the second half of 1994 to collect the data
necessary to support the Company's application to the FDA demonstrated that
the SoftLight process is effective at removing hair; however, these trials
included a limited number of subjects. The Company is continuing to study
the SoftLight process to better understand the effects of the system and to
optimize treatment parameters. These studies will also be used to further
clarify the duration for which hair will be removed, the number of
treatments required to effectively remove hair from a given area, and the
effectiveness of the process across a broad range of skin types and
anatomical sites. In addition, although the Company has not observed any
significant side effects to date, it is continuing to monitor subjects and
customers for the development of possible side effects. Failure to further
improve the SoftLight process may limit the Company's ability to
successfully commercialize the SoftLight process.
Uncertain Market Acceptance. The SoftLight process is significantly
different from current commercially available hair-removal technologies.
With any new cosmetic technology, there is a risk that the marketplace may
not accept, or be receptive to, the potential benefits of such technology.
Market acceptance of the SoftLight process will depend, in large part, upon
the ability of the Company to demonstrate to consumers the safety and
effectiveness of the SoftLight process and its advantages over other types
of hair-removal treatment. Although the initial reception by customers at
the Company's existing spas generally has been positive, there can be no
assurance that the SoftLight process will be accepted by the public. The
Company's skin-rejuvenation system is also significantly different from
current skin-rejuvenation treatments and, if successfully developed, will
be subject to similar market acceptance risks.
Need to Manage Growth; Ability to Attract Qualified Personnel. The
Company is experiencing a period of rapid growth as it commences commercial
operations of its SoftLight process. The Company presently intends to
commercialize the SoftLight process primarily through Company-owned-and-
operated spas and a network of physicians using the process as part of
their practices. The Company will be required to recruit and train a large
number of personnel for its spas, including medical staff such as
physicians, registered nurses, physician assistants, and other personnel.
There may be only a limited number of such persons with the requisite
skills, and it may become increasingly difficult for the Company to hire
such personnel over time. The Company will also be required to recruit
qualified physicians for its network of physician practices that offer the
SoftLight process. Such qualified physicians may not be available or
interested in offering the SoftLight process in their private practices.
The Company's commercialization strategy may also significantly strain
operational, management, financial, sales and marketing, and other
resources. To manage growth effectively, the Company must continue to
enhance its systems and controls and successfully expand, train, and manage
its employee base and physician network. There can be no assurance that the
Company will be able to manage this expansion effectively.
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THERMOLASE CORPORATION
Item 5 - Other Information (continued)
Dependence Upon Proprietary Technology. The Company has been issued
two United States patents related to its hair-removal system, has six
patents pending to extend the coverage of these issued patents, and has
filed corresponding patent applications in 40 foreign countries. In
addition, the Company has been issued one United States patent related to
its skin-rejuvenation system, has one patent pending to extend the coverage
of this patent, and has filed corresponding patent applications in 14
foreign countries that are not members of the Patent Cooperation Treaty
(PCT) and reserved its right to file a corresponding patent application in
each foreign country that is a member of the PCT. While the Company
believes its technology is unique and distinct from any technology
currently claimed by other companies, there can be no assurance that other
companies are not investigating or developing other technologies that are
similar to the ThermoLase technology, that any additional patents will be
issued to the Company, or that the Company's patents or any additional
patents, if issued, will afford the Company sufficiently broad patent
coverage to provide any significant deterrent to competitive products or
services. The Company currently intends to aggressively pursue any person
or company that offers services that the Company believes infringes on one
or more of its patents. In the event the Company becomes involved in a
patent infringement claim, the expense of litigating such claim may be
costly. In addition, there may be patents or intellectual property rights
owned by others, which, if infringed by the Company, would permit the owner
to prevent the Company from using the SoftLight process without a license
and to be entitled to damages for past infringement. The Company has from
time to time received allegations that the SoftLight process infringes the
intellectual property rights of others, and the Company may continue to
receive such allegations in the future. Although the Company believes that
its products and technologies do not infringe the intellectual property
rights of others, there can be no assurance that litigation relating to
such a claim will not be brought against the Company. If the Company is
obligated to devote substantial financial or management resources to patent
litigation, its ability to fund its operations and to pursue its business
goals may be impaired. The issuance of additional patents to the Company
and the validity and enforceability of such patents may be essential to the
success of the Company.
Uncertainty of Development of Skin-Rejuvenation System. The Company's
skin-rejuvenation system is at an early stage of development. The Company
received a patent covering this system in June 1995 and, in late 1995,
began clinical trials at a Westwood, New Jersey, clinical site and at the
University of New Mexico to determine the safety and efficacy of the
system. The Company is required to complete its clinical trials and to
obtain FDA clearance before it can commercially market its
skin-rejuvenation system. There can be no assurance that the clinical
studies will support the Company's belief as to the effectiveness of the
skin-rejuvenation system.
Compliance with FDA Regulations. The SoftLight process is subject to
FDA regulations governing the use and marketing of medical devices. The
Company's hair-removal system received FDA clearance in April 1995;
however, its skin-rejuvenation system must receive FDA clearance before it
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THERMOLASE CORPORATION
Item 5 - Other Information (continued)
can be commercially used in the United States. In addition, the Company
will be subject to requirements in certain foreign countries where it may
market the SoftLight process. The process of obtaining regulatory approvals
is lengthy, expensive, and inherently uncertain. Failure to comply with
applicable regulatory requirements can result in, among other things, civil
and criminal fines, suspensions of approvals, recalls of products,
seizures, injunctions and criminal prosecutions.
Although the Company believes that the substantial similarity of the
skin-rejuvenation system to the hair-removal system will qualify the
skin-rejuvenation system for the FDA's 510(k) pre-market notification
process, no assurance can be given that the FDA will not require that the
skin-rejuvenation system be submitted pursuant to the more involved
pre-market approval (PMA) process. Even under the 510(k) process, the FDA
may require that the Company perform substantial clinical trials before
clearance is granted. There can be no assurance that the appropriate
clearances from the FDA will be granted or that the process to obtain such
clearances will not be excessively expensive or lengthy.
Compliance with State Regulations. Due to the recent development of
the SoftLight process, no state has addressed the issue of how to license
the use of a laser for hair removal. Although no final determination has
been made and no ruling from regulatory authorities has been obtained, the
Company recognizes for purposes of commercializing its centers that the
operation of the SoftLight process may constitute the practice of medicine.
If operation of the SoftLight process is determined to involve the practice
of medicine, the degree of physician involvement required in delivering the
process is unclear.
The Company believes there are several possible structures it can
employ to provide for physician involvement including direct employment and
independent contractor. In some states, including California, however, the
Company will be required to license the right to use the SoftLight process
to an independent medical corporation. Although the precise legal structure
of the centers may vary as the result of differing state law requirements,
the Company believes that the operating structure adopted with respect to
any given center will not materially affect the revenue or profit received
by the Company from the operation of that center. However, no ruling
regarding the Company's various proposed structures has been obtained from
any government agency. There can be no assurance that review of the
Company's business by courts or health care, tax, labor, and other
regulatory authorities that have jurisdiction over matters including,
without limitation, the corporate practice of medicine, licensure of
facilities and equipment, and franchising will not result in determinations
that could adversely affect the operations of the Company or that the
health care regulatory environment will not change in a manner that would
restrict the Company's proposed operations or limit the expansion of the
Company's business or otherwise adversely affect the Company.
Limited Operating History. To date, the Company has made only limited
commercial sales of services using the SoftLight process through its two
spas currently in operation and through its physician network. The members
of the Company's current senior management, substantially all of whom have
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THERMOLASE CORPORATION
Item 5 - Other Information (continued)
joined the Company within the last year, continue to develop the marketing
and commercialization strategy for the Company. However, because the
Company has opened only two spas and has only recently had sales through
its physician network, it has only a limited operating history on which to
base such strategy. No assurance can be given that the Company will be able
to devise a successful marketing and commercialization strategy or attract
the personnel necessary to effectively implement such strategy.
Intense Competition. Competition in the market for personal-care
products and services is very intense. The SoftLight process will compete
with electrolysis and other methods of hair removal, including persons who
may attempt to infringe the Company's patents. In addition, a number of
laser manufacturers have recently announced that they have filed
applications with the FDA seeking to obtain clearance to market a laser for
hair removal. Competition from these sources could limit the Company's
ability to charge premium prices for its hair-removal services. In
addition, the Company's services could be rendered obsolete or uneconomical
by the introduction of new hair-removal products or processes.
15PAGE
<PAGE>
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 2nd day of August 1996.
THERMOLASE CORPORATION
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOLASE
CORP.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 29, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 8,675
<SECURITIES> 51,973
<RECEIVABLES> 4,249
<ALLOWANCES> 268
<INVENTORY> 3,932
<CURRENT-ASSETS> 69,721
<PP&E> 12,298
<DEPRECIATION> 1,497
<TOTAL-ASSETS> 94,073
<CURRENT-LIABILITIES> 14,050
<BONDS> 0
0
0
<COMMON> 408
<OTHER-SE> 79,615
<TOTAL-LIABILITY-AND-EQUITY> 94,073
<SALES> 20,734
<TOTAL-REVENUES> 20,734
<CGS> 14,064
<TOTAL-COSTS> 14,064
<OTHER-EXPENSES> 2,409
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (124)
<INCOME-TAX> 57
<INCOME-CONTINUING> (181)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (181)
<EPS-PRIMARY> 0
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