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 January 2, 1999.
[ ] 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.)
2055-C Luna Road
Carrollton, Texas 75006
(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 January 29, 1999
---------------------------- -------------------------------
Common Stock, $.01 par value 39,443,596
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
THERMOLASE CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
January 2, October 3,
(In thousands) 1999 1998
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $46,761
and $51,246 under repurchase agreement
with affiliated company) $ 49,508 $ 52,831
Available-for-sale investments, at quoted
market value (amortized cost of $3,072) - 3,072
Accounts receivable, less allowances of $471
and $490 4,426 4,339
Inventories:
Raw materials and supplies 2,578 2,771
Work in process and finished goods 3,848 4,054
Prepaid expenses 970 698
-------- --------
61,330 67,765
-------- --------
Property, Plant, and Equipment, at Cost 54,987 54,706
Less: Accumulated depreciation and
amortization 12,742 11,276
-------- --------
42,245 43,430
-------- --------
Other Assets (includes note receivable from
joint venture of $1,667) 7,228 7,531
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 15,382 15,489
-------- --------
$126,185 $134,215
======== ========
2
<PAGE>
THERMOLASE CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
January 2, October 3,
(In thousands except share amounts) 1999 1998
- --------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 1,461 $ 3,221
Accrued payroll and employee benefits 2,052 1,633
Accrued restructuring costs (Note 3) 2,948 5,153
Accrued interest 1,817 559
Customer deposits 2,604 820
Other accrued expenses 5,145 4,582
Due to parent company and affiliated
companies 3,131 3,200
-------- --------
19,158 19,168
-------- --------
Long-term Obligations:
4 3/8% Subordinated Convertible Debentures
(includes $4,500 of related-party debt) 115,000 115,000
Other 60 66
-------- --------
115,060 115,066
-------- --------
Deferred Lease Liability 1,194 1,172
-------- --------
Common Stock Subject to Redemption 40,500 40,500
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 100,000,000
shares authorized; 40,829,132 shares issued 408 408
Capital in excess of par value 35,836 36,279
Accumulated deficit (65,211) (57,107)
Treasury stock at cost, 1,495,836 and
1,531,025 shares (20,760) (21,271)
-------- --------
(49,727) (41,691)
-------- --------
$126,185 $134,215
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
------------------------
January 2, January 3,
(In thousands except per share amounts) 1999 1998
- ---------------------------------------------------------------------------
Revenues:
Product revenues $ 6,790 $ 6,399
Service revenues 2,756 7,050
------- -------
9,546 13,449
------- -------
Costs and Operating Expenses:
Cost of product revenues 4,696 4,386
Cost of service revenues 6,694 5,633
Selling, general, and administrative expenses 4,853 5,126
Research and development expenses 489 939
------- -------
16,732 16,084
------- -------
Operating Loss (7,186) (2,635)
Interest Income 666 1,418
Interest Expense (1,340) (1,332)
Equity in Losses of Joint Ventures (200) (400)
------- -------
Loss Before Income Taxes (8,060) (2,949)
Income Tax (Provision) Benefit (44) 914
------- -------
Net Loss $(8,104) $(2,035)
======= =======
Basic and Diluted Loss per Share (Note 4) $ (.21) $ (.05)
======= =======
Basic and Diluted Weighted Average Shares (Note 4) 39,319 38,384
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMOLASE CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
----------------------
January 2, January 3,
(In thousands) 1999 1998
- --------------------------------------------------------------------------
Operating Activities:
Net loss $ (8,104) $ (2,035)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,860 1,609
Provision for losses on accounts receivable 61 -
Increase in prepaid income taxes - (991)
Increase in deferred lease liability 22 62
Equity in losses of joint ventures 200 400
Other noncash items 14 -
Changes in current accounts:
Accounts receivable (148) (1,851)
Inventories 399 194
Other current assets (272) 235
Accounts payable (1,760) (3,278)
Other current liabilities 1,750 278
-------- --------
Net cash used in operating activities (5,978) (5,377)
-------- --------
Investing Activities:
Purchases of available-for-sale investments - (4,000)
Proceeds from maturities of available-for-
sale investments 3,072 2,400
Purchases of property and equipment (687) (1,555)
Proceeds from sale of equipment 208 -
Advance under a note receivable from related
party - (1,667)
-------- --------
Net cash provided by (used in) investing
activities 2,593 (4,822)
-------- --------
Financing Activities:
Purchases of Company common stock - (8,806)
Net proceeds from issuance of Company
common stock 82 82
Payment of withholding taxes related to
stock option exercises (14) (87)
Other (6) -
-------- --------
Net cash provided by (used in) financing
activities $ 62 $ (8,811)
-------- --------
5
<PAGE>
THERMOLASE CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
----------------------
January 2, January 3,
(In thousands) 1999 1998
- --------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents $ (3,323) $(19,010)
Cash and Cash Equivalents at Beginning of Period 52,831 87,843
-------- --------
Cash and Cash Equivalents at End of Period $ 49,508 $ 68,833
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
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 January 2, 1999, and the results of
operations and the cash flows for the three-month periods ended January 2, 1999,
and January 3, 1998. The Company's results of operations for the three-month
periods ended January 2, 1999, and January 3, 1998, include 13 weeks and 14
weeks, respectively. Interim results are not necessarily indicative of results
for a full year.
The consolidated balance sheet presented as of October 3, 1998, 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, as amended, for the fiscal year ended
October 3, 1998, filed with the Securities and Exchange Commission.
2. Related-party Transaction
During the first quarter of fiscal 1999 and 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 $633,000 and $441,000, respectively.
3. Restructuring
During fiscal 1998, the Company initiated certain restructuring activities,
including the announced closure of three domestic spas and termination of a
joint venture that operated its spa in France. Two of the domestic spas were
closed during the first quarter of fiscal 1999 and the Company expects to close
the third spa in the third quarter of fiscal 1999. As of October 3, 1998, the
Company had accrued $5,153,000 associated with these activities. During the
quarter ended January 2, 1999, the Company expended $2,205,000 for payments
associated with terminating certain contractual agreements of the French joint
venture and closing the spa in France. As of January 2, 1999, the remaining
obligation for the restructuring activities totaled $2,948,000, which primarily
represents $2,375,000 of lease payments on the facilities being closed, net of
assumed sublease receipts, and costs of ongoing severance.
7
<PAGE>
4. Loss per Share
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
does not differ from basic loss per share because the effect of assuming the
conversion of convertible obligations and the elimination of the related
interest expense, the exercise of stock options, and the effect of redeemable
common stock would be antidilutive, due to the Company's net loss in the periods
presented. As of January 2, 1999, there were outstanding options to purchase
2,163,673 shares of Company common stock at prices ranging from $1.75 to $29.38
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.
5. Comprehensive Income
During the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement sets forth requirements for disclosure of the Company's
comprehensive income and accumulated other comprehensive items. In general,
comprehensive income combines net income and "other comprehensive items," which
represents certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, including unrealized net of tax
gains and losses on available-for-sale investments. During the first quarter of
fiscal 1999 and 1998, the Company's comprehensive loss totaled $8,104,000 and
$2,023,000, respectively.
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, as
amended, for the fiscal year ended October 3, 1998, 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
8
<PAGE>
Overview (continued)
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. In May 1998, the Company received clearance from the FDA to market
cosmetic skin-resurfacing services using the same laser as the Company's
hair-removal system. In this process, the laser's energy reacts with an
activating lotion, creating heat and mechanical energy that remove the tough
outer layer of dead skin. The treatment, known as the SoftLight Laser Peel, is
being offered at all of the Company's day spa locations, as well as through its
physician licensees.
Rather than continuing to open additional day spa locations, the Company is
concentrating its resources on attempting both to increase the capacity
utilization of its existing spas and to continue its physician-licensing program
and international licensing arrangements, discussed below. In connection with
its acquisition of The Greenhouse Spa, Inc. in June 1998, a full-service,
luxury, destination spa, the Company evaluated which of its locations would be
converted to Greenhouse day spas and whether any of its Spa Thira locations
should be closed or sold. As noted above, as a result of this evaluation, the
Company has closed two of its domestic spas and expects to close an additional
domestic spa during the third quarter of fiscal 1999. The remaining 11 domestic
spas have been converted into Greenhouse day spas which, in addition to
hair-removal and skin-resurfacing services, offer more traditional day-spa
services, such as massages and facials. The Company's future results of
operations will be materially affected by the success of these conversions into
Greenhouse day spas. The period through the second quarter of fiscal 1999 will
be critical in determining the economic viability of these strategies. Key to
the success of these strategies will be whether the results of the Greenhouse
day spas reflect substantial progress toward profitable operations in this
timeframe. Based upon the outcome of these strategies, the Company may decide to
close additional spas.
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. The Company also provides the licensees with the lasers and lotion
that are necessary to perform the service. In June 1998, the Company began to
offer the SoftLight Laser Peel procedure through its spas and physician
licensees.
During the second quarter of fiscal 1998, the Company began to experience a
decrease in revenues from its hair-removal services. In response to this trend
and in an attempt to establish price points and other conditions designed to
increase demand and revenues, in April 1998 the Company significantly reduced
treatment prices at its spa locations and is in the process of modifying the
terms and conditions of its physician-licensing program. Under the terms of the
modified licenses, per-procedure royalties have been reduced or eliminated and a
minimum royalty and/or flat periodic fee requirement has been introduced. In
addition, the Company has begun offering licensees the opportunity to
9
<PAGE>
Overview (continued)
purchase or lease SoftLight lasers in lieu of paying ongoing license fees. As a
result of these changes and other factors, there has been a net reduction of 21%
in the number of physician licensees, from the number under agreement at the end
of fiscal 1998. There can be no assurance that the strategies described above
will be successful in improving the Company's results of operations.
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 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. During the fourth quarter of fiscal 1998, the Company decided to close the
spa in Paris and liquidate the joint venture, and in October 1998, the Company
terminated its licensing arrangements in Tunisia and Belgium. Beginning in
fiscal 1999, the Company's hair-removal business began reporting product
revenues from the sale of lasers in international markets.
The Company also manufactures and markets skin-care, bath, and body
products, and markets dietary supplements through its Creative Beauty
Innovations, Inc. (CBI) subsidiary, which also manufactures the lotion used in
the SoftLight hair-removal and skin-resurfacing process.
Results of Operations
First Quarter Fiscal 1999 Compared With First Quarter Fiscal 1998
Revenues decreased to $9.5 million in the first quarter of fiscal 1999 from
$13.4 million in the first quarter of fiscal 1998. The Company earned revenues
from hair-removal services and related activities of $2.8 million in fiscal
1999, compared with $7.1 million in fiscal 1998. International revenues
decreased due to a decline of $2.6 million of minimum guaranteed payments
recorded upon granting technology rights under the Company's international
licensing arrangements. Spa revenues decreased due to reduced demand and price
reductions at the Company's spas in fiscal 1999 compared with fiscal 1998, as
well as the closure of the Company's LaJolla and Miami spas during the first
quarter of fiscal 1999. Fiscal 1999 revenues exclude receipts of $1.9 million
relating to gift certificate sales, which will be recognized when services are
performed or when products are purchased. Revenues from the Company's
physician-licensing program decreased in fiscal 1999 compared with fiscal 1998,
due to a reduction in the number of participating physicians, a decrease in
one-time fees from new physician licensees, and a reduction in royalty rates and
other changes to the financial terms of the licenses. These decreases in
revenues were offset in part by the inclusion of $0.8 million in revenues from
The Greenhouse Spa, Inc., acquired in June 1998.
10
<PAGE>
First Quarter Fiscal 1999 Compared With First Quarter Fiscal 1998
(continued)
Product revenues include sales by CBI, and in the fiscal 1999 period,
product revenues also include beauty product sales at the Company's spas and
lasers sold in international markets. Revenues at CBI decreased to $6.1 million
in the first quarter of fiscal 1999 from $6.4 million in the first quarter of
fiscal 1998, primarily due to a decrease in private label sales, offset in part
by sales of its new branded product lines, introduced in the fourth quarter of
fiscal 1998. This decrease in CBI revenues was more than offset by revenues from
the sale of lasers, as well as sales of beauty products at the spas.
The gross profit margin decreased to negative 19% in the first quarter of
fiscal 1999 from 26% in the first quarter of fiscal 1998. The Company's
hair-removal business reported a negative gross profit of $3.5 million in fiscal
1999, compared with a gross profit of $1.4 million in fiscal 1998. This decrease
was primarily due to a decrease in spa revenues and, to a lesser extent, a
decrease in minimum guaranteed payments relating to international licensing
arrangements and initial sign-up fees relating to the physician-licensing
program, which have a relatively high gross profit margin. The Company believes
that increasing spa utilization by broadening the array of spa-related services
and products offered, through the recently completed conversion of the spas into
Greenhouse day spas, is critical to its ability to improve the profitability of
its spas. The degree to which the Company's changes in pricing structure are
successful will also affect the Company's gross profit margin. The gross profit
margin at CBI decreased to 26% in the first quarter of fiscal 1999 from 32% in
the first quarter of fiscal 1998, due to a decrease in revenues, as well as
changes in product mix.
Selling, general, and administrative expenses as a percentage of revenues
increased to 51% in the first quarter of fiscal 1999 from 38% in the first
quarter of fiscal 1998, primarily due to a decrease in revenues and, to a lesser
extent, increased marketing costs relating to the conversion of the spas to
Greenhouse day spas and the introduction of new branded product lines at CBI.
These increases were offset in part by cost reduction efforts implemented by the
Company during the second half of fiscal 1998.
Research and development expenses decreased to $0.5 million in the first
quarter of fiscal 1999 from $0.9 million in the first quarter of fiscal 1998,
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.
Interest income decreased to $0.7 million in the first quarter of fiscal
1999 from $1.4 million in the first quarter of fiscal 1998, due to lower average
invested cash balances in the first quarter of fiscal 1999.
Interest expense was $1.3 million in both periods.
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.
11
<PAGE>
First Quarter Fiscal 1999 Compared With First Quarter Fiscal 1998
(continued)
The effective tax rate for the first quarter of fiscal 1999 reflects the
establishment of a valuation allowance for 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
No. 109, "Accounting for Income Taxes." Management believes that it is more
likely than not that tax benefits that arose during the quarter will not be used
prior to their expiration.
Liquidity and Capital Resources
Consolidated working capital was $42.2 million at January 2, 1999, compared
with $48.6 million at October 3, 1998. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $49.5 million at January
2, 1999, compared with $55.9 million at October 3, 1998. Operating activities
used $6.0 million of cash during the first quarter of fiscal 1999. Cash was used
primarily to fund the Company's loss, excluding noncash items, as well as a
decrease in accounts payable, primarily due to the timing of payments, which
used $1.8 million of cash. These uses of cash were offset in part by an increase
in other current liabilities of $1.8 million primarily due to holiday gift
certificate sales.
Excluding available-for-sale investment activity, the Company's investing
activities in the first quarter of fiscal 1999 consisted primarily of $0.7
million of expenditures 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.
The Company's capital expenditures during the remainder of fiscal 1999 will
primarily be affected by the number of physicians and other domestic and
international licensees engaged in its licensing programs. The Company plans to
expend approximately $900,000 to renovate the original Greenhouse Spa in
Arlington, Texas. The Company expects that it will finance its capital
requirements through its internal funds. The Company's ongoing operating losses
are continuing to consume significant amounts of the Company's working capital.
Year 2000
The Company continues to assess the potential impact of the year 2000 on the
Company's internal business systems and operations. The Company's year 2000
initiatives include (i) testing and upgrading significant information-technology
systems and facilities; (ii) contacting key suppliers, vendors, and customers to
determine their year 2000 compliance status; and (iii) developing contingency
plans.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its critical
information-technology system and facilities will be ready for the year 2000.
The first phase of the program, testing and evaluating the Company's critical
information-technology systems and facilities, has been substantially completed.
The Company plans to upgrade or replace its
12
<PAGE>
Year 2000 (continued)
noncompliant systems. During phase one, the Company tested and evaluated its
significant computer systems, software applications, and related equipment for
year 2000 compliance. The Company also evaluated the potential year 2000 impact
on its critical facilities. The Company is currently in phase two of its
program, during which any noncompliant systems or facilities that were
identified during phase one are prioritized and remediated. The Company is
currently upgrading or replacing its noncompliant information-technology
systems. In many cases, such upgrades or replacements are being made in the
ordinary course of business, without accelerating previously scheduled upgrades
or replacements. For example, the Company had planned to upgrade its spa
point-of-sale system with a new point-of-sale system for efficiency and other
reasons unrelated to year 2000 compliance. Accordingly, in lieu of remediating
the point-of-sale system, the system will be replaced in the ordinary course of
business. The Company expects that all of its material information-technology
systems and critical facilities will be year 2000 compliant by March 1999. There
can be no assurance that the Company will be able to identify all of the year
2000 problems with its critical information-technology systems.
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and is distributing questionnaires relating to year 2000 compliance to
its significant suppliers and vendors. The Company intends to follow-up and
monitor the year 2000 compliance progress of significant suppliers and vendors
that indicate that they are not year 2000 compliant or that do not respond to
the Company's questionnaires. The Company has not completed the majority of its
assessment of third party risk, but expects to be substantially completed by
September 1999.
Contingency Plan
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 issues.
This plan may include identifying and securing alternative suppliers, increasing
inventories, and modifying production facilities and schedules. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities, significant suppliers, vendors, and customers, it will modify and
adjust its contingency plan as may be required.
Estimated Costs to Address the Company's Year 2000 Issues
To date, costs incurred in connection with the year 2000 issue have not been
material. The Company does not expect total year 2000 remediation costs to be
material, but there can be no assurance that the Company will not encounter
unexpected costs or delays in achieving year 2000 compliance. Year 2000 costs
relating to products and facilities were
13
<PAGE>
Year 2000 (continued)
funded from working capital. All internal costs and related external costs,
other than capital additions, related to year 2000 remediation have been and
will continue to be expensed as incurred. The Company does not track internal
costs incurred for its year 2000 compliance project. Such costs are principally
the related payroll costs for its information systems group.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
issues will not have a material adverse impact on the Company's business,
operations, or financial condition. If any of the Company's material suppliers
or vendors experience business disruptions due to year 2000 issues, the Company
might also be materially adversely affected. There is expected to be a
significant amount of litigation relating to the year 2000 issue and there can
be no assurance that the Company will not incur material costs in defending or
bringing lawsuits. In addition, if any year 2000 issues are identified, there
can be no assurance that the Company will be able to retain qualified personnel
to remedy such issues. Any unexpected costs or delays arising from the year 2000
issue could have a significant adverse impact on the Company's business,
operations, and financial condition in amounts that cannot be reasonably
estimated at this time.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in interest rates and
equity prices has not changed materially from its exposure at fiscal year-end
1998.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
14
<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 8th day of February 1999.
THERMOLASE CORPORATION
/s/ Paul F. Kelleher
-------------------------
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
-------------------------
Theo Melas-Kyriazi
Chief Financial Officer
15
<PAGE>
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 REPORT ON FORM 10-Q FOR THE QUARTER ENDED JANUARY 2, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 49,508
<SECURITIES> 0
<RECEIVABLES> 4,897
<ALLOWANCES> 471
<INVENTORY> 6,426
<CURRENT-ASSETS> 61,330
<PP&E> 54,987
<DEPRECIATION> 12,742
<TOTAL-ASSETS> 126,185
<CURRENT-LIABILITIES> 19,158
<BONDS> 110,560
0
0
<COMMON> 408
<OTHER-SE> (50,135)
<TOTAL-LIABILITY-AND-EQUITY> 126,185
<SALES> 6,790
<TOTAL-REVENUES> 9,546
<CGS> 4,696
<TOTAL-COSTS> 11,390
<OTHER-EXPENSES> 489
<LOSS-PROVISION> 61
<INTEREST-EXPENSE> 1,340
<INCOME-PRETAX> (8,060)
<INCOME-TAX> 44
<INCOME-CONTINUING> (8,104)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,104)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
