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 April 4, 1998.
[ ] 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: (781) 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 May 1, 1998
---------------------------- --------------------------
Common Stock, $.01 par value 38,144,378
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
-----------------------------
THERMOLASE CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
April 4, September 27,
(In thousands) 1998 1997
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $62,485
and $49,291 under repurchase agreement
with affiliated company) $ 64,016 $ 87,843
Available-for-sale investments, at quoted
market value (amortized cost of $12,151
and $12,509) 12,163 12,493
Accounts receivable, less allowances of
$431 and $402 4,640 5,863
Inventories:
Raw materials and supplies 1,634 1,343
Work in process and finished goods 1,687 1,905
Prepaid expenses 1,917 1,718
Prepaid income taxes 1,687 1,687
-------- --------
87,744 112,852
-------- --------
Property and Equipment, at Cost 48,363 45,792
Less: Accumulated depreciation and
amortization 9,153 6,055
-------- --------
39,210 39,737
-------- --------
Long-term Prepaid Income Taxes 7,462 6,412
-------- --------
Note Receivable from Related Party (Note 3) 1,667 -
-------- --------
Other Assets 6,511 7,498
-------- --------
Cost in Excess of Net Assets of Acquired
Company 7,978 8,096
-------- --------
$150,572 $174,595
======== ========
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THERMOLASE CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 4, September 27,
(In thousands except share amounts) 1998 1997
------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 1,773 $ 5,163
Accrued payroll and employee benefits 1,808 2,590
Deferred revenue 931 1,355
Other accrued expenses 5,083 5,722
Due to parent company and affiliated
companies 3,240 2,553
-------- --------
12,835 17,383
-------- --------
4 3/8% Subordinated Convertible Debentures 115,000 115,000
-------- --------
Deferred Lease Liability 1,455 1,379
-------- --------
Common Stock Subject to Redemption 40,500 40,500
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 100,000,000
shares authorized; 40,829,132 and
40,807,932 shares issued 408 408
Capital in excess of par value 45,341 46,379
Accumulated deficit (26,492) (15,921)
Treasury stock at cost, 2,725,957 and
2,129,549 shares (38,482) (30,523)
Net unrealized gain (loss) on available-
for-sale investments 7 (10)
-------- --------
(19,218) 333
-------- --------
$150,572 $174,595
======== ========
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
----------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
-----------------------------------------------------------------------
Revenues:
Product revenues $ 5,203 $ 6,511
Service revenues 2,889 5,155
------- -------
8,092 11,666
------- -------
Costs and Operating Expenses:
Cost of product revenues 3,603 4,392
Cost of service revenues 5,828 5,252
Selling, general, and administrative expenses 5,724 6,052
Research and development expenses 883 1,393
------- -------
16,038 17,089
------- -------
Operating Loss (7,946) (5,423)
Interest Income 1,148 438
Interest Expense (1,334) -
Equity in Losses of Joint Ventures (420) -
------- -------
Loss Before Income Tax Benefit (8,552) (4,985)
Income Tax Benefit 17 1,286
------- -------
Net Loss $(8,535) $(3,699)
======= =======
Basic Loss per Share (Note 4) $ (.22) $ (.09)
======= =======
Basic Weighted Average Shares (Note 4) 38,080 40,578
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
Six Months Ended
----------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
------------------------------------------------------------------------
Revenues:
Product revenues $ 11,602 $ 12,557
Service revenues 9,939 7,719
-------- --------
21,541 20,276
-------- --------
Costs and Operating Expenses:
Cost of product revenues 7,989 8,407
Cost of service revenues 11,461 8,064
Selling, general, and administrative expenses 10,850 10,266
Research and development expenses 1,822 2,302
-------- --------
32,122 29,039
-------- --------
Operating Loss (10,581) (8,763)
Interest Income 2,566 1,054
Interest Expense (2,666) -
Equity in Losses of Joint Ventures (820) -
-------- --------
Loss Before Income Tax Benefit (11,501) (7,709)
Income Tax Benefit 930 2,621
-------- --------
Net Loss $(10,571) $ (5,088)
======== ========
Basic Loss per Share (Note 4) $ (.28) $ (.13)
======== ========
Basic Weighted Average Shares (Note 4) 38,232 40,632
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMOLASE CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
---------------------
April 4, March 29,
(In thousands) 1998 1997
----------------------------------------------------------------------
Operating Activities:
Net loss $(10,571) $ (5,088)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 3,382 1,649
Provision for losses on accounts
receivable 54 74
Increase in prepaid income taxes (1,060) (2,840)
Increase in deferred lease liability 76 499
Equity in losses of joint ventures 820 -
Changes in current accounts:
Accounts receivable 1,168 22
Inventories (74) 150
Other current assets (198) (258)
Accounts payable (3,390) (2,255)
Other current liabilities (1,259) 3,881
-------- --------
Net cash used in operating activities (11,052) (4,166)
-------- --------
Investing Activities:
Purchases of available-for-sale investments (4,000) -
Proceeds from maturities of available-
for-sale investments 4,400 29,500
Purchases of property and equipment (2,468) (18,495)
Advance pursuant to note receivable from
related party (Note 3) (1,667) -
Investment in other assets - (1,119)
Other (41) 535
-------- --------
Net cash provided by (used in) investing
activities (3,776) 10,421
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock and sale of put options 222 444
Purchases of Company common stock (8,806) (2,179)
Payment of withholding taxes related to
stock option exercises (415) (728)
-------- --------
Net cash used in financing activities $ (8,999) $ (2,463)
-------- --------
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THERMOLASE CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
---------------------
April 4, March 29,
(In thousands) 1998 1997
----------------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents $(23,827) $ 3,792
Cash and Cash Equivalents at Beginning
of Period 87,843 7,923
-------- --------
Cash and Cash Equivalents at End of Period $ 64,016 $ 11,715
======== ========
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 April
4, 1998, the results of operations for the three- and six-month periods
ended April 4, 1998, and March 29, 1997, and the cash flows for the six-
month periods ended April 4, 1998, and March 29, 1997. The Company's
results of operations for the six-month periods ended April 4, 1998, and
March 29, 1997, include 27 weeks and 26 weeks, respectively. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of September 27, 1997,
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 27, 1997, filed
with the Securities and Exchange Commission.
2. Related-party Transaction
During the six months ended April 4, 1998, the Company purchased
laser systems, components, and related services from Trex Medical
Corporation, a majority-owned subsidiary of ThermoTrex Corporation, the
Company's parent, at an aggregate cost of $1,668,000.
3. Related-party Note Receivable
In October 1997, the Company advanced $1,667,000 to ThermoLase U.K.
Limited under a note receivable, due December 31, 2003, and bearing
interest at 8.0%, payable annually. ThermoLase U.K. Limited, a subsidiary
of a joint venture that is 50%-owned by the Company, is marketing the
Company's SoftLight(R) system in England.
4. Loss per Share
During the first quarter of fiscal 1998, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per
Share." As a result, all previously reported losses per share have been
restated; however, basic loss per share equals the Company's previously
reported loss per share for the fiscal 1997 periods. Basic loss per share
has been computed by dividing net loss by the weighted average number of
shares outstanding during the period. Diluted loss per share is not
presented because the effect of assuming the conversion of convertible
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THERMOLASE CORPORATION
4. Loss per Share (continued)
obligations and the elimination of the related interest expense, and the
exercise of stock options, as well as their related income tax effects,
would be antidilutive, due to the Company's net loss in the periods
presented. As of April 4, 1998, there were outstanding options to
purchase 2,840,280 shares of Company common stock at prices ranging from
$1.75 to $29.55 per share, and the Company had outstanding $115,000,000
principal amount of 4 3/8% subordinated convertible debentures,
convertible at $17.385 per share.
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 heading "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 27, 1997, filed with the Securities and Exchange
Commission.
Overview
The Company has developed a laser-based system called SoftLight(R)
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 hair-removal 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
location (Spa Thira) in November 1995. The Company opened a total of four
spas during fiscal 1996, opened nine additional spas during fiscal 1997,
and opened its fourteenth spa in October 1997. Rather than continuing to
open additional Spa Thira locations, the Company presently intends to
concentrate its resources on attempting both to increase the capacity
utilization of its existing spas and to expand its physicians' licensing
program and international licensing arrangements, discussed below.
In June 1996, the Company commenced a program to license to
physicians 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
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THERMOLASE CORPORATION
Overview (continued)
that varies depending on the anatomical site treated and pricing plan
selected by the client. The Company also provides the licensees with the
lasers and lotion that are necessary to perform the service.
The Company experienced a decrease in revenues from its hair-removal
services during the second quarter of fiscal 1998, as discussed in the
results of operations below. In response to this trend, in April 1998 the
Company significantly reduced the prices in its Spa Thira locations for
its single- and multiple-treatment plans and similarly changed the
pricing terms of its physicians' licensing program to reduce the
per-procedure royalty paid by the physician-licensees, in an attempt to
establish an optimum price point that will result in increased demand and
higher revenues. In April 1998, as part of its effort to improve
profitability, the Company also initiated an effort to amend the existing
agreements with its physician-licensees to include certain monthly
minimum royalties, and will require such minimums with its new
physician-licensees. Although not all licensees have responded,
approximately 30% of those responding have declined to accept these new
terms, which may result in the termination or restructuring of these
licenses by the Company. There can be no assurance that the strategies
described above will be successful.
The Company is marketing the SoftLight system internationally through
joint ventures and other licensing arrangements. In January 1996, the
Company established a joint venture in Japan. During fiscal 1997, the
Company established joint ventures in France in November 1996 and England
in September 1997, and six additional licensing arrangements: in Saudi
Arabia in November 1996; in Tunisia and Belgium in December 1996; in the
United Arab Emirates and Oman in March 1997; in Switzerland in April
1997; in Brazil in June 1997; and in the United Kingdom (excluding
England) and the Republic of Ireland in September 1997. In December 1997,
the Company established a joint venture to market the SoftLight system in
Australia, Cyprus, Germany, Greece, New Zealand, South Africa, and Spain.
The Company's international arrangements resulted in the opening of spas
in Paris in May 1997 and in Lugano, Switzerland, in October 1997.
The Company plans to continue research and development as it seeks to
improve the efficacy and duration of its hair-removal treatment, and
believes that such improvements are critical elements in its ability to
improve the profitability of its business.
In March 1997, the Company filed with the FDA a 510(k) application
seeking clearance to market cosmetic skin resurfacing services using its
SoftLight Rejuvenation(TM) Laser, including wrinkle and skin-texture
treatment. This technology, which uses the same laser as the Company's
hair-removal system, is designed to improve the skin's appearance and
texture. Following discussions with the FDA in December 1997, the Company
submitted additional data in February 1998 and focused on claims related
to skin texture rather than wrinkle treatment, in order to expedite
clearance of the application.
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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. subsidiary, which also
manufactures the lotion used in the SoftLight hair-removal process.
Results of Operations
Second Quarter Fiscal 1998 Compared With Second Quarter Fiscal 1997
-------------------------------------------------------------------
Revenues decreased to $8,092,000 in the second quarter of fiscal 1998
from $11,666,000 in the second quarter of fiscal 1997. The Company earned
revenues from hair-removal services and related activities of $2,889,000
in fiscal 1998, compared with $5,155,000 in fiscal 1997. The decrease in
revenues resulted in part from reduced demand at the Company's Spa Thira
locations, offset in part by an increase in the number of U.S. spas to
14, compared with 10 spas open during fiscal 1997. Revenues from the
Company's physicians' licensing program decreased slightly in fiscal 1998
compared with fiscal 1997, primarily due to a decrease in one-time fees
as a result of a decrease in new physician-licensees, offset in part by
an increase in the number of physician-licensees producing per-procedure
royalties in fiscal 1998. As discussed in the accompanying overview, in
April 1998 the Company significantly reduced the prices for its single-
and multiple-treatment plans and changed the pricing terms of its
physicians' licensing program. Revenues in fiscal 1998 also decreased as
a result of the inclusion in fiscal 1997 of $1,338,000 of minimum
guaranteed payments recorded upon granting technology rights under the
Company's international licensing arrangements. The amount of minimum
guaranteed payments recorded by the Company will vary depending on the
Company's ability to enter into additional international licensing
arrangements, the availability of additional territories, and the terms
of any such arrangements. Revenues at CBI decreased to $5,203,000 in
fiscal 1998 from $6,511,000 in fiscal 1997. A portion of CBI's revenues
are derived from sales to large retailers, which have a relatively long
buying cycle that results in periodic variations in revenues. In
addition, CBI's revenues in fiscal 1998 were negatively impacted as a
result of a shift by certain of its retail customers away from health-
and beauty-aid sales.
The gross profit margin in the second quarter of fiscal 1998 was
negative 17%, compared with 17% in the second quarter of fiscal 1997. The
Company's hair-removal business reported gross profit of negative
$2,939,000 in fiscal 1998, compared with gross profit of negative $97,000
in fiscal 1997. Each period was impacted by the operations of the Spa
Thira business, which has been operating below maximum capacity as the
Company seeks to develop its client base, expand its product lines, and
refine its process and operating procedures, offset in part by the effect
of physicians' licensing fees and, in fiscal 1997, minimum guaranteed
payments relating to international licensing arrangements, which have a
relatively high gross profit margin. In addition, fiscal 1997 was
negatively impacted by pre-opening costs incurred in connection with new
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THERMOLASE CORPORATION
Second Quarter Fiscal 1998 Compared With Second Quarter Fiscal 1997
-------------------------------------------------------------------
(continued)
spa openings. The gross profit margin decreased in fiscal 1998 primarily
due to the decrease in revenues from international licensing arrangements
and the Company's Spa Thira locations, as well as increased fixed costs
associated with operating more spas and supporting more physician-
licensees in fiscal 1998. During the remainder of fiscal 1998, the effect
of operating each spa below maximum capacity, as the Company seeks to
develop its client base and expand its product lines, will continue to
have a negative impact on the Company's gross profit margin. The Company
believes that improvements in the efficacy and duration of the SoftLight
process as well as increased spa utilization through broadening the array
of spa-related services and products offered are critical elements in its
ability to improve the profitability of its spas. The degree to which the
Company's recent pricing structure changes are successful will also
affect the Company's gross profit margin. The gross profit margin at CBI
declined to 31% in fiscal 1998 from 33% in fiscal 1997, as a result of a
continued shift to lower-margin products and a decrease in revenues.
Selling, general, and administrative expenses as a percentage of
revenues increased to 71% in the second quarter of fiscal 1998 from 52%
in the second quarter of fiscal 1997, primarily due to a decrease in
revenues.
Research and development expenses decreased to $883,000 in the second
quarter of fiscal 1998 from $1,393,000 in the second quarter of fiscal
1997, primarily due to a reduction in the number of outside testing
facilities and consultants used by the Company, as well as a reduction in
payroll costs. The Company continues to seek to improve the efficacy and
duration of the SoftLight process as well as to develop its SoftLight
Rejuvenation Laser skin treatment and investigate other health and beauty
applications for its proprietary laser technology.
Interest income increased to $1,148,000 in the second quarter of
fiscal 1998 from $438,000 in the second quarter of fiscal 1997, primarily
due to interest income earned on the invested proceeds from the Company's
August 1997 issuance of $115,000,000 principal amount of 4 3/8%
subordinated convertible debentures. Interest expense in fiscal 1998
represents interest associated with these debentures.
Equity in losses of joint ventures in the accompanying statement of
operations represents the Company's proportionate share of losses from
its international joint ventures.
The effective tax rate for the second quarter of fiscal 1998 reflects
the establishment of a valuation allowance against the tax benefit
associated with losses arising during the quarter. The Company
establishes valuation allowances in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes." Management believes that sufficient uncertainty exists
regarding the timing of the realizability of the tax benefit for losses
arising during the quarter that a valuation allowance is required.
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THERMOLASE CORPORATION
Second Quarter Fiscal 1998 Compared With Second Quarter Fiscal 1997
-------------------------------------------------------------------
(continued)
The Company is currently assessing the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Company believes that its internal
information systems are either year 2000 compliant or will be so prior to
the year 2000 without incurring material costs. There can be no
assurance, however, that the Company will not experience unexpected costs
and delays in achieving year 2000 compliance for its internal information
systems, which could result in a material adverse effect on the Company's
future results of operations. The Company is also assessing whether its
key suppliers are adequately addressing this issue and the effect this
might have on the Company. The Company has not completed its analysis and
is unable to conclude at this time that the year 2000 problem as it
relates to products purchased from key suppliers is not reasonably likely
to have a material adverse effect on the Company's future results of
operations.
First Six Months Fiscal 1998 Compared With First Six Months Fiscal 1997
-----------------------------------------------------------------------
Revenues increased to $21,541,000 in the first six months of fiscal
1998 from $20,276,000 in the first six months of fiscal 1997. The Company
earned revenues from hair-removal services and related activities of
$9,939,000 in fiscal 1998, compared with $7,719,000 in fiscal 1997. The
increase in revenues resulted in part from an increase in the number of
U.S. spas to 14, compared with 10 spas open during fiscal 1997. Revenues
from the Company's physicians' licensing program also increased in fiscal
1998, primarily due to an increase in the number of physician-licensees
producing per-procedure royalties in fiscal 1998, offset in part by a
decrease in one-time fees as a result of a decrease in new
physician-licensees. In addition, revenues from hair-removal services and
related activities in fiscal 1998 included $2,807,000 of minimum
guaranteed payments recorded upon granting technology rights under the
Company's international licensing arrangements, compared with $1,646,000
in fiscal 1997. Revenues at CBI decreased to $11,602,000 in fiscal 1998
from $12,557,000 in fiscal 1997, due to the reasons described in the
results of operations for the second quarter.
The gross profit margin in the first six months of fiscal 1998 was
10%, compared with 19% in the first six months of fiscal 1997. The
Company's hair-removal business reported gross profit of negative
$1,522,000 in fiscal 1998, compared with gross profit of negative
$345,000 in fiscal 1997. Each period was impacted by the operations of
the Spa Thira business, which has been operating below maximum capacity
as the Company seeks to develop its client base, expand its product
lines, and refine its process and operating procedures, offset in part by
the effect of physicians' licensing fees and minimum guaranteed payments
relating to international licensing arrangements, which have a relatively
high gross profit margin. In addition, fiscal 1997 was negatively
impacted by pre-opening costs incurred in connection with new spa
openings. The gross profit margin decreased in fiscal 1998 primarily due
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THERMOLASE CORPORATION
First Six Months Fiscal 1998 Compared With First Six Months Fiscal 1997
-----------------------------------------------------------------------
(continued)
to the decrease in revenues from the Company's Spa Thira locations, as
well as increased fixed costs associated with operating more spas in
fiscal 1998, offset in part by the increase in higher-margin revenues
from international licensing arrangements. The gross profit margin at CBI
declined to 31% in fiscal 1998 from 33% in fiscal 1997, due to the
reasons described in the results of operations for the second quarter.
Selling, general, and administrative expenses as a percentage of
revenues was relatively unchanged at 50.4% in the first six months of
fiscal 1998, compared with 50.6% in the first six months of fiscal 1997.
Research and development expenses decreased to $1,822,000 in fiscal
1998 from $2,302,000 in fiscal 1997, primarily due to the reasons
described in the results of operations for the second quarter.
Interest income increased to $2,566,000 in the first six months of
fiscal 1998 from $1,054,000 in the first six months of fiscal 1997,
primarily due to interest income earned on the invested proceeds from the
Company's August 1997 issuance of $115,000,000 principal amount of 4 3/8%
subordinated convertible debentures. Interest expense in fiscal 1998
represents interest associated with these debentures.
Equity in losses of joint ventures in the accompanying statement of
operations represents the Company's proportionate share of losses from
its international joint ventures.
The effective tax rate for the first six months of fiscal 1998
reflects the establishment of a valuation allowance against the tax
benefit associated with losses arising during the second quarter of
fiscal 1998. Management believes that sufficient uncertainty exists
regarding the timing of the realizability of the tax benefit for losses
arising during the second quarter of fiscal 1998 that a valuation
allowance is required.
Liquidity and Capital Resources
Consolidated working capital was $74,909,000 at April 4, 1998,
compared with $95,469,000 at September 27, 1997. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$76,179,000 at April 4, 1998, compared with $100,336,000 at September 27,
1997. Operating activities used $11,052,000 of cash during the first six
months of fiscal 1998. Cash was used primarily to fund the Company's
operating loss. In addition, a decrease in accounts payable and other
current liabilities used $4,649,000, primarily due to the timing of
payments.
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THERMOLASE CORPORATION
Liquidity and Capital Resources (continued)
During the first six months of fiscal 1998, the Company expended
$2,468,000 for purchases of property and equipment, including the
purchase of laser systems and components from Trex Medical Corporation, a
majority-owned subsidiary of ThermoTrex Corporation (Note 2). In
connection with certain of the Company's joint venture arrangements, the
Company provided funding of $1,667,000 during the first six months of
fiscal 1998 (Note 3). The Company has agreed to provide additional
funding of up to approximately $5,389,000 under these arrangements.
During the first six months of fiscal 1998, the Company repurchased
643,000 shares of its common stock for $8,806,000.
The Company's capital expenditures during the remainder of fiscal
1998 will primarily be affected by the number of physicians and other
domestic and international licensees engaged in its licensing programs.
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
Corporation, ThermoTrex's parent, although it has no agreement with these
companies to ensure that funds will be available on acceptable terms or
at all. The Company believes its existing resources are sufficient to
meet the capital requirements of its existing operations for the
foreseeable future.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
On March 5, 1998, at the Annual Meeting of Shareholders, the
shareholders elected five incumbent directors to a one-year term expiring
in 1999. The Directors elected at the meeting were Dr. Carliss Y.
Baldwin, Dr. Elias P. Gyftopoulos, Mr. Paul F. Kelleher, Mr. Gary S.
Weinstein, and Dr. Nicholas T. Zervas. Dr. Baldwin received 32,668,644
shares voted in favor of her election and 51,006 shares voted against.
Dr. Gyftopoulos received 32,672,464 shares voted in favor of his election
and 47,186 shares voted against. Messrs. Kelleher and Weinstein each
received 32,672,864 shares voted in favor of his election and 46,786
shares voted against. Dr. Zervas received 32,672,564 shares voted in
favor of his election and 47,086 shares voted against. No abstentions or
broker non-votes were recorded on the election of directors.
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 11th day of May 1998.
THERMOLASE CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
16PAGE
<PAGE>
THERMOLASE CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOLASE
CORPORATION'S QUARTERLY REPORT FILED ON FORM 10-Q FOR THE PERIOD ENDED APRIL 4,
1998 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> OCT-03-1998
<PERIOD-END> APR-04-1998
<CASH> 64,016
<SECURITIES> 12,163
<RECEIVABLES> 5,071
<ALLOWANCES> 431
<INVENTORY> 3,321
<CURRENT-ASSETS> 87,744
<PP&E> 48,363
<DEPRECIATION> 9,153
<TOTAL-ASSETS> 150,572
<CURRENT-LIABILITIES> 12,835
<BONDS> 115,000
0
0
<COMMON> 408
<OTHER-SE> (19,626)
<TOTAL-LIABILITY-AND-EQUITY> 150,572
<SALES> 11,602
<TOTAL-REVENUES> 21,541
<CGS> 7,989
<TOTAL-COSTS> 19,450
<OTHER-EXPENSES> 1,822
<LOSS-PROVISION> 54
<INTEREST-EXPENSE> 2,666
<INCOME-PRETAX> (11,501)
<INCOME-TAX> (930)
<INCOME-CONTINUING> (10,571)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,571)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> 0
</TABLE>
