SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------
AMENDMENT NO. 1 ON FORM 10-Q/A
TO 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 December 28, 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 January 24, 1997
---------------------------- -------------------------------
Common Stock, $.01 par value 40,562,810
PAGE
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ThermoLase Corporation Amendment No. 1
on Form 10-Q/A to Quarterly Report on Form 10-Q
for the quarter ended December 28, 1996
Items 1 and 2 of Part I of the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 28, 1996 are hereby amended and
restated in their entirety as contained in the following Attachment A,
which is included herein and made a part of this Quarterly Report on Form
10-Q, as amended.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this Amendment No. 1 on Form
10-Q/A to be signed by the undersigned, duly authorized.
THERMOLASE CORPORATION
By: Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting
Officer
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ATTACHMENT A
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOLASE CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
December 28, September 28,
(In thousands) 1996 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $22,230 $ 7,923
Available-for-sale investments, at quoted
market value (amortized cost of $17,207
and $44,205) 17,173 44,132
Accounts receivable, less allowances of
$379 and $319 4,305 4,572
Inventories:
Raw materials and supplies 1,797 1,521
Work in process and finished goods 2,689 2,748
Prepaid expenses 455 408
Prepaid income taxes 3,395 1,882
------- -------
52,044 63,186
------- -------
Property and Equipment, at Cost (Note 2) 30,527 21,343
Less: Accumulated depreciation and amortization 2,621 2,020
------- -------
27,906 19,323
------- -------
Other Assets 4,725 4,679
------- -------
Cost in Excess of Net Assets of Acquired Company 8,273 8,332
------- -------
$92,948 $95,520
======= =======
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THERMOLASE CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
December 28, September 28,
(In thousands except share amounts) 1996 1996
------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 3,201 $ 5,179
Accrued payroll and employee benefits 1,405 1,008
Deferred revenue 1,776 913
Other accrued expenses 3,357 1,791
Due to parent company and affiliated companies 6,847 7,098
------- -------
16,586 15,989
------- -------
Deferred Lease Liability 764 494
------- -------
Common Stock Subject to Redemption (Note 3) 2,613 -
------- -------
Shareholders' Investment:
Common stock, $.01 par value,
100,000,000 shares authorized;
40,807,932 and 40,803,932 shares issued 408 408
Capital in excess of par value 82,240 85,813
Accumulated deficit (4,905) (3,516)
Treasury stock at cost, 224,058
and 116,570 shares (4,736) (3,621)
Net unrealized loss on
available-for-sale investments (22) (47)
------- -------
72,985 79,037
------- -------
$92,948 $95,520
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
A-2PAGE
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THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
--------------------------
December 28, December 30,
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues:
Product revenues $ 6,046 $ 7,342
Service revenues 2,564 58
------- -------
8,610 7,400
------- -------
Costs and Operating Expenses:
Cost of product revenues 4,015 4,721
Cost of service revenues 2,812 439
Selling, general and administrative expenses 4,214 2,599
Research and development expenses 909 525
------- -------
11,950 8,284
------- -------
Operating Loss (3,340) (884)
Interest Income 616 938
------- -------
Income (Loss) Before Income Taxes (2,724) 54
Income Tax (Provision) Benefit 1,335 (136)
------- -------
Net Loss $(1,389) $ (82)
======= =======
Loss per Share $ (.03) $ -
======= =======
Weighted Average Shares 40,685 40,091
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
A-3PAGE
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THERMOLASE CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
--------------------------
December 28, December 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net loss $ (1,389) $ (82)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 691 261
Provision for losses on accounts receivable 60 74
Deferred lease liability 270 -
Changes in current accounts:
Accounts receivable 207 (1,489)
Inventories (217) 14
Other current assets (1,573) 5
Accounts payable (1,978) (252)
Other current liabilities 754 315
-------- --------
Net cash used in operating activities (3,175) (1,154)
-------- --------
Investing Activities:
Purchases of available-for-sale investments - (24,500)
Proceeds from maturities of available-for-sale
investments 26,500 22,500
Purchases of property and equipment (7,386) (961)
Other 443 280
-------- --------
Net cash provided by (used in) investing
activities 19,557 (2,681)
-------- --------
Financing Activities:
Net proceeds from issuance of Company common
stock and sale of put options (Note 3) 384 23
Payment of withholding taxes related to stock
option exercises (280) -
Purchases of Company common stock (2,179) -
-------- --------
Net cash provided by (used in) financing
activities (2,075) 23
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 14,307 (3,812)
Cash and Cash Equivalents at Beginning of Period 7,923 13,146
-------- --------
Cash and Cash Equivalents at End of Period $ 22,230 $ 9,334
======== ========
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
December 28, 1996, the results of operations for the three-month periods
ended December 28, 1996 and December 30, 1995, and the cash flows for the
three-month periods ended December 28, 1996 and December 30, 1995.
Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of September 28, 1996,
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 Annual
Report on Form 10-K for the fiscal year ended September 28, 1996, filed
with the Securities and Exchange Commission.
2. Related Party Transaction
During the three months ended December 28, 1996, the Company
purchased laser systems from Trex Medical Corporation, a publicly traded,
majority-owned subsidiary of ThermoTrex Corporation, at an aggregate cost
of $3,880,000.
3. Purchases of Company Common Stock
In September 1996, the Company's Board of Directors authorized the
purchase by the Company of up to $10,000,000 of Company common stock
through August 28, 1997, in market transactions or pursuant to the
exercise by investors of standardized put options written on the
Company's common stock. Of the amount authorized, during the first
quarter of fiscal 1997, the Company purchased 137,500 shares of Company
common stock in market transactions for $2,179,000 and wrote put options
obligating the Company, at the election of the option-holders, to
purchase up to 145,800 shares of its common stock at various prices for
an aggregate purchase price of $2,613,000.
The $2,613,000 obligation classified as "Common stock subject to
redemption" in the accompanying balance sheet as of December 28, 1996,
relates to the put options, all of which are exercisable only on April
18, 1997 and expire on such date if not exercised. If exercised, the put
options require the Company to purchase for cash the shares tendered
under the options, or, at the Company's election, to pay to the
option-holder the difference between the strike price and the share price
of the Company's common stock at the close of business on April 18, 1997,
multiplied by the number of options held. The Company has recorded the
net proceeds from put options sold, $294,000, as an increase to
shareholders' investment in the accompanying balance sheet.
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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.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed under the caption "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 28, 1996, filed with the Securities and Exchange
Commission.
Overview
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 November 1995. The Company opened additional
salons in Dallas in June 1996 and in Houston and Beverly Hills in
September 1996. During the first quarter of fiscal 1997, the Company
opened three new salons: in Denver in October 1996, in Boca Raton in
November 1996, and in suburban Detroit in December 1996. The Company also
opened a spa in suburban Minneapolis in January 1997, and plans to open
salons in Greenwich, Connecticut, and Manhasset, New York in February
1997. In addition, the Company has signed leases for two additional
sites: in Palm Beach, Florida, and Newport Beach, California.
In June 1996, the Company commenced a program to license to doctors
and others the right to perform the Company's patented SoftLight
hair-removal procedure. In this program, the Company licenses its
technology and receives a one-time fee and a per-procedure royalty that
varies depending on the location treated. The Company also provides the
licensees with the lasers and lotion that are necessary to perform the
service.
The Company is marketing the SoftLight system internationally through
joint ventures and other licensing arrangements, including separate joint
ventures established in Japan in January 1996 and in France in November
1996, a licensing arrangement established in Saudi Arabia in November
1996, and a licensing arrangement established in Tunisia and Belgium on
December 31, 1996.
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THERMOLASE CORPORATION
Overview (continued)
The Company also manufactures and markets skin-care, bath, and body
products through its CBI Laboratories, Inc. (CBI) subsidiary, which also
manufactures the lotion used in the SoftLight hair-removal process.
Results of Operations
First Quarter Fiscal 1997 Compared With First Quarter Fiscal 1996
Revenues increased 16% to $8,610,000 in the first quarter of fiscal
1997 from $7,400,000 in the first quarter of fiscal 1996. The Company,
which opened three additional spas during the quarter, for a total of
seven Spa Thira salons, earned revenues of $1,485,000 in the first
quarter of fiscal 1997, compared with $58,000 in the first quarter of
fiscal 1996 from the November opening of its first spa. 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 addition, the Company's revenues in the first quarter of fiscal
1997 include $771,000 in SoftLight licensing fees from its licensing
program with 70 physicians and $308,000 of international licensing fees.
No SoftLight licensing fees were earned in the first quarter of fiscal
1996. Revenues at CBI decreased to $6,046,000 in the first quarter of
1997 from $7,342,000 in the first quarter of fiscal 1996, primarily due
to an unusually large order shipped to a single customer in the first
quarter of fiscal 1996. The Company estimates that CBI will continue to
represent a smaller portion of total revenues as revenues from
hair-removal services increase.
The gross profit margin in the first quarter of fiscal 1997 was 21%,
compared with 30% in the first quarter of fiscal 1996. The gross profit
margin from the Company's hair-removal business was negative 10% in the
first quarter of fiscal 1997 due to the early operations of the Spa Thira
business, which has been operating below maximum capacity as the Company
develops a client base and continues refining its operating procedures,
and due to pre-opening costs incurred in connection with new spa
openings. This decrease was offset in part by the effect of SoftLight
licensing fees, which have a relatively high gross profit margin. As the
Company continues to open additional Spa Thira locations in fiscal 1997,
the effect of operating each spa below maximum capacity as the Company
develops its client base, as well as pre-opening costs, will have a
negative impact on the Company's gross profit margin. During the first
quarter of fiscal 1996, the Company's hair-removal business reported
revenues of $58,000 and a loss of $381,000 at the gross profit level,
reflecting the initial commercial operations for the SoftLight process
during the quarter. The gross profit margin from the sale of skin care
and other personal care products at CBI was 34% in the first quarter of
fiscal 1997 compared with 36% in the first quarter of fiscal 1996. The
decline in the gross profit margin was the result of a continued shift to
lower-margin products at CBI in fiscal 1997.
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THERMOLASE CORPORATION
First Quarter Fiscal 1997 Compared With First Quarter Fiscal 1996
(continued)
Selling, general, and administrative expenses as a percentage of
revenues increased to 49% in the first quarter of fiscal 1997 from 35% in
the first quarter of fiscal 1996. The increase was primarily due to costs
related to setting up a personal-care service organization for the Spa
Thira salons and SoftLight licensing programs, including the hiring of
senior management and administrative staff.
Research and development expenses increased to $909,000 in the first
quarter of fiscal 1997 from $525,000 in the first quarter of fiscal 1996.
The Company expects its research and development expenses to continue to
exceed fiscal 1996 levels, due to increased pre-clinical and clinical
research related to improving the effectiveness of the Company's
hair-removal process and developing its skin-rejuvenation process, and
the investigation of other health and beauty applications for its
proprietary laser technology.
Interest income decreased to $616,000 in the first quarter of fiscal
1997 from $938,000 in the first quarter of fiscal 1996, primarily as a
result of lower average invested balances, which resulted primarily from
property and equipment expenditures for the Company's Spa Thira salons
and SoftLight licensing programs.
The effective tax rate in each period differs 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 $35,458,000 at December 28, 1996, compared with
$47,197,000 at September 28, 1996. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $39,403,000 at
December 28, 1996, compared with $52,055,000 at September 28, 1996.
Operating activities used $3,175,000 of cash during the first quarter of
fiscal 1997, primarily due to the Company's loss before income taxes.
During the first quarter of fiscal 1997, the Company expended
$7,386,000 for purchases of property and equipment, including the
purchase of laser systems at an aggregate cost of $3,880,000 from Trex
Medical Corporation, a publicly traded, majority-owned subsidiary of
ThermoTrex Corporation (ThermoTrex). The Company has committed to
purchase additional laser systems at an aggregate cost of $2,522,000.
In September 1996, the Company's Board of Directors authorized the
repurchase by the Company of up to $10,000,000 of Company common stock
through August 28, 1997, in market transactions or pursuant to the
exercise by investors of standardized put options written on the
Company's common stock. During the first quarter of fiscal 1997, the
Company repurchased 137,500 shares of its common stock in market
transactions for $2,179,000. As of December 28, 1996, the Company had
contingent obligations under outstanding put options, which are
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THERMOLASE CORPORATION
Liquidity and Capital Resources (continued)
exercisable only on April 18, 1997, to repurchase up to 145,800 shares of
its common stock for $2,613,000 (Note 3).
In November 1996, the Company entered into a joint venture agreement
to market its SoftLight system in France, as well as its laser-based
skin-rejuvenation process, if and when available. In January 1997, the
Company contributed $1,027,000 to the joint venture, and has committed to
provide up to an additional $4,000,000 to fund its working capital
requirements, in exchange for the Company's 50% stake in the joint
venture.
In January 1997, the Company filed with the Securities and Exchange
Commission a registration statement related to its intention to offer its
shareholders the opportunity to exchange one share of existing Company
common stock and $3.00 for a new unit consisting of one share of Company
common stock and one redemption right. Shareholders would have the option
to deliver shares of Company common stock in lieu of cash to cover the
$3.00 per share amount. The redemption right would entitle the holder to
sell the related share of common stock to the Company for $20.25 during
the first 20 business days after the fourth anniversary of the closing of
the exchange offer. The redemption right would not detach, or trade
separately, from the related share of common stock. The redemption right
would expire and become worthless if the closing price of Company common
stock has been at least $26.00 for 20 of any 30 consecutive trading days
following the expiration of the exchange offer. If more than 2,000,000
shares of Company common stock are tendered in the exchange offer,
acceptances would be reduced pro rata. The Company's obligations under
the redemption rights would be guaranteed on a subordinated basis by
Thermo Electron Corporation (Thermo Electron), the Company's ultimate
parent corporation. The exchange offer would be subject to several
conditions, including the effectiveness of the registration statement,
listing of the new units by the American Stock Exchange, and acceptance
of the offer by the holders of at least 500,000 shares. A registration
statement relating to these securities has been filed with the Securities
and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. The above description
of the proposed exchange offer shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation, or sale would
be unlawful prior to registration or qualification under the securities
laws of any such state. Copies of the prospectus relating to the offering
may be obtained from the Prospectus Department, NatWest Securities
Limited, 175 Water Street, New York, New York, 10038.
In addition to the suburban Minneapolis, Greenwich, Connecticut, and
Manhasset, New York spas that were under construction as of December 28,
1996, the Company has signed leases in Palm Beach, Florida, and Newport
Beach, California, where it plans to open additional Spa Thiras. In
total, the Company plans to open between 10 and 20 spas in various parts
of the United States during fiscal 1997. Depending on the size of the
spa, each facility will require approximately $1,500,000 to $2,500,000
for such items as leasehold improvements and laser systems. In addition,
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THERMOLASE CORPORATION
Liquidity and Capital Resources (continued)
the Company expects to expend between $6,000,000 and $8,000,000 during
the remainder of fiscal 1997 for equipment related to its SoftLight
licensing programs. Accordingly, the Company's future capital
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 expects that it will finance its capital
requirements through a combination of internal funds, additional debt or
equity financing, and/or short-term borrowings from ThermoTrex or Thermo
Electron, although it has no agreement with these companies to ensure
that funds will be available on acceptable terms or at all.
