Exhibit 13














                             ThermoLase Corporation

                        Consolidated Financial Statements

                                Fiscal Year 1998

<PAGE>
<TABLE>
<CAPTION>
ThermoLase Corporation                                 1998 Financial Statements

                                   Consolidated Statement of Operations

<S>                                                                        <C>        <C>        <C> 
                                                    
                                                                                      Year Ended
                                                                           -------------------------------
 (In thousands except per share amounts)                                     Oct. 3,  Sept. 27,  Sept. 28,
                                                                                1998       1997       1996
-------------------------------------------------------------------------- ---------- ---------- ---------

Revenues (Note 12)
  Product revenues                                                         $  22,765  $  24,196  $  23,165
  Service revenues                                                            17,326     21,037      4,647
                                                                           ---------  ---------  ---------

                                                                              40,091     45,233     27,812
                                                                           ---------  ---------  ---------

Costs and Operating Expenses:
  Cost of product revenues                                                    15,590     16,499     15,063
  Cost of service revenues                                                    22,285     19,628      4,964
  Selling, general, and administrative expenses (Note 8)                      22,306     22,972      9,761
  Research and development expenses                                            3,028      5,704      3,470
  Restructuring costs (Note 13)                                               10,155          -          -
                                                                           ---------  ---------  ---------

                                                                              73,364     64,803     33,258
                                                                           ---------  ---------  ---------

Operating Loss                                                               (33,273)   (19,570)    (5,446)

Interest Income                                                                4,512      2,110      3,482
Interest Expense (Note 9)                                                     (5,343)      (637)         -
Equity in Losses of Joint Ventures (Note 4)                                   (1,203)      (700)         -
Gain on Sale of Investments (Note 2)                                               -          -        115
                                                                           ---------  ---------  ---------

Loss Before Income Taxes                                                     (35,307)   (18,797)    (1,849)
Income Tax (Provision) Benefit (Note 7)                                       (5,879)     6,392        463
                                                                           ---------  ---------  ---------

Net Loss                                                                   $ (41,186) $ (12,405) $  (1,386)
                                                                           =========  =========  =========

Basic and Diluted Loss per Share                                           $   (1.07)  $   (.31)  $   (.03)
                                                                           =========  =========  =========
                                                                           

Basic and Diluted Weighted Average Shares                                     38,528     40,075     40,353
                                                                           =========  =========  =========

</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.

                                       2
<PAGE>
<TABLE>
<CAPTION>
ThermoLase Corporation                                                          1998 Financial Statements

                                        Consolidated Balance Sheet

<S>                                                                                    <C>        <C>
(In thousands)                                                                           Oct. 3,  Sept. 27,
                                                                                            1998       1997
-------------------------------------------------------------------------------------- ---------- ----------

Assets
Current Assets:
  Cash and cash equivalents (includes $51,246 and $49,291 under repurchase             $  52,831  $  87,843
    agreement with affiliated company)
  Available-for-sale investments, at quoted market value (amortized cost                   3,072     12,493
    of  $3,072 and $12,509; Note 2)
  Accounts receivable, less allowances of $490 and $402                                    4,339      5,863
  Inventories                                                                              6,825      3,248
  Prepaid expenses                                                                           698      1,718
  Prepaid income taxes (Note 7)                                                                -      1,687
                                                                                       ---------  ---------

                                                                                          67,765    112,852
                                                                                       ---------  ---------

Property, Plant, and Equipment, at Cost, Net                                              43,430     39,737
                                                                                       ---------  ---------

Long-term Prepaid Income Taxes (Note 7)                                                        -      6,412
                                                                                       ---------  ---------

Other Assets (includes note receivable from joint venture of $1,667 in                     7,531      7,498
  fiscal 1998; Note 8)
                                                                                       ---------  ---------

Cost in Excess of Net Assets of Acquired Companies (Note 3)                               15,489      8,096
                                                                                       ---------  ---------

                                                                                       $ 134,215  $ 174,595
                                                                                       =========  =========

                                       3
<PAGE>

ThermoLase Corporation                                                          1998 Financial Statements

                                  Consolidated Balance Sheet (continued)

(In thousands except share amounts)                                                      Oct. 3,  Sept. 27,
                                                                                            1998       1997
-------------------------------------------------------------------------------------- ---------- ----------

Liabilities and Shareholders' Investment
Current Liabilities:
  Accounts payable                                                                     $   3,221  $   5,163
  Accrued payroll and employee benefits                                                    1,633      2,590
  Deferred revenue                                                                           659      1,355
  Accrued restructuring costs (Note 13)                                                    5,153          -
  Other accrued expenses                                                                   5,302      5,722
  Due to parent company and affiliated companies                                           3,200      2,553
                                                                                       ---------  ---------

                                                                                          19,168     17,383
                                                                                       ---------  ---------
Long-term Obligations:
  4 3/8% Subordinated Convertible Debentures (includes $4,500 of                         115,000    115,000
    related-party debt in fiscal 1998; Note 9)
  Other                                                                                       66          -
                                                                                       ---------  ---------

                                                                                         115,066    115,000
                                                                                       ---------  ---------

Deferred Lease Liability                                                                   1,172      1,379
                                                                                       ---------  ---------

Common Stock Subject to Redemption (Note 1)                                               40,500     40,500
                                                                                       ---------  ---------

Commitments and Contingencies (Notes 4, 8, and 10)

Shareholders' Investment (Notes 5 and 6):
  Common stock, $.01 par value, 100,000,000 shares authorized; 40,829,132                    408        408
    and 40,807,932 shares issued
  Capital in excess of par value                                                          36,279     46,379
  Accumulated deficit                                                                    (57,107)   (15,921)
  Treasury stock at cost, 1,531,025 and 2,129,549 shares                                 (21,271)   (30,523)
  Net unrealized loss on available-for-sale investments (Note 2)                               -        (10)
                                                                                       ---------  ---------

                                                                                         (41,691)       333
                                                                                       ---------  ---------

                                                                                       $ 134,215  $ 174,595
                                                                                       =========  =========

</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.

                                       4
<PAGE>
<TABLE>
<CAPTION>

ThermoLase Corporation                                                          1998 Financial Statements

                                   Consolidated Statement of Cash Flows
<S>                                                                        <C>        <C>        <C>
                                                                                       Year Ended
                                                                             -------------------------------
(In thousands)                                                                Oct. 3,  Sept. 27,  Sept. 28,
                                                                                 1998       1997       1996
--------------------------------------------------------------------------- ---------- ---------- ----------

Operating Activities
  Net loss                                                                  $ (41,186) $ (12,405) $  (1,386)
  Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities:
      Depreciation and amortization                                             7,234      4,345      1,482
      Provision for losses on accounts receivable                                  88         83         63
      Decrease (increase) in prepaid income taxes                               5,567     (6,236)      (999)
      Increase in deferred lease liability                                         71        885        494
      Equity in losses of joint ventures (Note 4)                               1,203        700          -
      Noncash restructuring costs (Note 13)                                     4,193          -          -
      Gain on sale of investments (Note 2)                                          -          -       (115)
      Changes in current accounts, excluding the effects of acquisition:
        Accounts receivable                                                     1,275     (1,374)      (380)
        Inventories                                                            (3,450)     1,021        934
        Other current assets                                                    1,158       (714)       331
        Accounts payable                                                       (2,426)       (16)     1,774
        Other current liabilities                                               1,804      3,767      2,205
                                                                            ---------  ---------  ---------

         Net cash provided by (used in) operating activities                  (24,469)    (9,944)     4,403
                                                                            ---------  ---------  ---------

Investing Activities
  Acquisition, net of cash acquired (Note 3)                                   (4,180)         -          -
  Purchases of available-for-sale investments                                  (4,000)   (10,400)   (49,500)
  Proceeds from maturities of available-for-sale investments                   13,400     41,500     56,525
  Proceeds from sale of available-for-sale investments                              -          -        615
  Purchases of property, plant, and equipment                                  (4,513)   (26,807)   (13,230)
  Investment in other assets (Notes 1 and 4)                                     (983)    (1,144)    (4,400)
  Advance under a note receivable from related party (Note 8)                  (1,667)         -          -
  Other                                                                           230          -          -
                                                                            ---------  ---------  ---------

         Net cash provided by (used in) investing activities                   (1,713)     3,149     (9,990)
                                                                            ---------  ---------  ---------

Financing Activities
  Net proceeds from issuance of subordinated convertible                            -    112,551          -
    debentures (Note 9)
  Purchases of Company common stock                                            (8,806)   (26,072)         -
  Net proceeds from issuance of Company common stock and sale of                  776        625      2,591
    put options (Note 5)
  Payment of withholding taxes related to stock option exercises                 (792)      (891)    (2,227)
  Net proceeds from common stock exchange offer (Notes 1 and 5)                     -        502          -
  Other                                                                            (8)         -          -
                                                                            ---------  ---------  ---------

         Net cash provided by (used in) financing activities                $  (8,830) $  86,715  $     364
                                                                            ---------  ---------  ---------


                                       5
<PAGE>

ThermoLase Corporation                                                          1998 Financial Statements

                             Consolidated Statement of Cash Flows (continued)
                                                                                       Year Ended
                                                                             -------------------------------
(In thousands)                                                                Oct. 3,  Sept. 27,  Sept. 28,
                                                                                 1998       1997       1996
--------------------------------------------------------------------------- ---------- ---------- ----------

Increase (Decrease) in Cash and Cash Equivalents                            $ (35,012) $  79,920  $  (5,223)
Cash and Cash Equivalents at Beginning of Year                                 87,843      7,923     13,146
                                                                            ---------  ---------  ---------

Cash and Cash Equivalents at End of Year                                    $  52,831  $  87,843  $   7,923
                                                                            =========  =========  =========

Cash Paid For
  Income taxes                                                              $       -  $      70  $      12
  Interest                                                                  $   5,074  $       -  $       -

Noncash Activities
  Fair value of assets of acquired company                                  $  17,128  $       -  $       -
  Cash paid for acquired company                                               (4,180)         -          -
  Issuance of Company common stock for acquired company                        (7,975)         -          -
                                                                            ---------  ---------  ---------

    Liabilities assumed of acquired company                                 $   4,973  $       -  $       -
                                                                            =========  =========  =========

  Exchange of common stock for common stock subject to redemption           $       -  $  40,500  $       -
    (Notes 1 and 5)                                                         =========  =========  =========
</TABLE>










The accompanying notes are an integral part of these consolidated financial
statements.


                                       6
<PAGE>
<TABLE>
<CAPTION>

ThermoLase Corporation                                                          1998 Financial Statements

                            Consolidated Statement of Shareholders' Investment
<S>                                                                         <C>        <C>       <C>
                                                                                       Year Ended
                                                                             -------------------------------
(In thousands)                                                                Oct. 3,  Sept. 27,  Sept. 28,
                                                                                 1998       1997       1996
--------------------------------------------------------------------------- ---------- ---------- ----------

Common Stock, $.01 Par Value
  Balance at beginning of year                                              $     408  $     408  $     401
  Issuance of stock under employees' and directors' stock plans                     -          -          7
                                                                            ---------  ---------  ---------

  Balance at end of year                                                          408        408        408
                                                                            ---------  ---------  ---------

Capital in Excess of Par Value
  Balance at beginning of year                                                 46,379     85,813     84,354
  Activity under employees' and directors' stock plans                         (3,986)    (2,969)     1,459
  Issuance of Company common stock for acquisition (Note 3)                    (6,114)         -          -
  Effect of common stock exchange offer (Notes 1 and 5)                             -    (36,759)         -
  Net proceeds from sale of common stock and put options (Note 5)                   -        294          -
                                                                            ---------  ---------  ---------

  Balance at end of year                                                       36,279     46,379     85,813
                                                                            ---------  ---------  ---------

Accumulated Deficit
  Balance at beginning of year                                                (15,921)    (3,516)    (2,130)
  Net loss                                                                    (41,186)   (12,405)    (1,386)
                                                                            ---------  ---------  ---------

  Balance at end of year                                                      (57,107)   (15,921)    (3,516)
                                                                            ---------  ---------  ---------

Treasury Stock
  Balance at beginning of year                                                (30,523)    (3,621)      (415)
  Activity under employees' and directors' stock plans                          3,969      2,409     (3,206)
  Issuance of Company common stock for acquisition (Note 3)                    14,089          -          -
  Purchases of Company common stock                                            (8,806)   (26,072)         -
  Effect of common stock exchange offer (Notes 1 and 5)                             -     (3,239)         -
                                                                            ---------  ---------  ---------

  Balance at end of year                                                      (21,271)   (30,523)    (3,621)
                                                                            ---------  ---------  ---------

Net Unrealized Gain (Loss) on Available-for-sale Investments
  Balance at beginning of year                                                    (10)       (47)         8
  Change in net unrealized gain (loss) on available-for-sale                       10         37        (55)
    investments (Note 2)
                                                                            ---------  ---------  ---------

  Balance at end of year                                                            -        (10)       (47)
                                                                            ---------  ---------  ---------

Total Shareholders' Investment                                              $ (41,691) $     333  $  79,037
                                                                            =========  =========  =========

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       7
<PAGE>

ThermoLase Corporation                             1998 Financial Statements

                   Notes to Consolidated Financial Statements
1.    Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations
      ThermoLase Corporation (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 impact hair follicles. In May 1998, the Company received
clearance from the U.S. Food and Drug Administration to market laser-based
skin-resurfacing services. The Company markets the SoftLight hair-removal and
the SoftLight Laser Peel skin-resurfacing services in the United States through
its Spa Thira locations and through a network of independent doctors who pay the
Company a one-time licensing fee and a per-procedure or minimum royalty, as well
as internationally through joint ventures and other licensing arrangements.
During fiscal 1998, the Company acquired The Greenhouse Spa, Inc. (Note 3), a
luxury, destination spa located in Texas. In connection with this acquisition,
ThermoLase is converting all of its domestic Spa Thira locations into facilities
that provide both traditional day spa and hair-removal and skin-resurfacing
services. The converted spas will be operated under The Greenhouse Spa name. The
Company also manufactures and markets skin-care and bath-and-body products and
markets dietary supplements through its Creative Beauty Innovations, Inc. (CBI)
subsidiary. CBI also manufactures the lotion used in the SoftLight hair-removal
process.

Principles of Consolidation and Relationship with ThermoTrex Corporation
      The Company was incorporated in January 1993 as a wholly owned subsidiary
of ThermoTrex Corporation. As of October 3, 1998, ThermoTrex owned 27,960,996
shares of the Company's common stock, representing 71% of such stock
outstanding. ThermoTrex is a 62%-owned subsidiary of Thermo Electron
Corporation. As of October 3, 1998, Thermo Electron owned 2,620,608 shares of
the Company's common stock, representing 7% of such stock outstanding.
      The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
      The Company accounts for investments in joint ventures in which it owns
between 20% and 50% using the equity method. Under the equity method, the
Company records its initial investment in each joint venture at cost, and
adjusts the carrying value of the investment to recognize its proportionate
share of the joint venture's earnings or losses. In instances where the Company
has no obligation to provide additional funding to a joint venture, the Company
discontinues applying the equity method when its investment has been reduced to
zero.

Fiscal Year
      The Company has adopted a fiscal year ending the Saturday nearest
September 30. References to fiscal 1998, 1997, and 1996 are for the years ended
October 3, 1998, September 27, 1997, and September 28, 1996, respectively.
Fiscal 1998 included 53 weeks; 1997 and 1996 each included 52 weeks.

Revenue Recognition
      The Company generally recognizes product revenues upon shipment of its
products. The Company offers a variety of treatment plans for its spa-based
services, which include one-time services and multiple treatment plans that
provide for varying numbers of treatments or treatment periods. The Company
recognizes revenue from the one-time treatment plan upon performance of the
related service. Revenues from multiple treatment plans are recognized over the
anticipated treatment period, which was six months in each period based upon the
average service pattern for customers treated. Deferred revenue in the
accompanying balance sheet represents unearned revenue from treatments that will
be recognized in the subsequent fiscal year.
      The Company earns an initial technology licensing fee and ongoing
royalties from licensing its SoftLight technology to a network of independent
physicians. Initial nonrefundable technology licensing fees are recorded as
revenue at the time the technology is transferred to the practitioner. Royalties
arising from hair-removal and skin-resurfacing procedures performed by these
physicians are recognized when such procedures are performed.


                                       8
<PAGE>


1.    Nature of Operations and Summary of Significant Accounting Policies 
       (continued)

      The Company has initiated the process of modifying the terms of its
physician-licensing program under which per-procedure royalties have been
reduced or eliminated and a minimum royalty and/or flat periodic fee is
required. Minimum royalties and flat fees are recognized monthly.
      The Company earns an initial technology licensing fee and ongoing
technology licensing royalties from its international arrangements. Initial
nonrefundable technology licensing fees are recorded as revenue at the time the
technology is transferred. Ongoing technology licensing royalties are recorded
when earned in accordance with contractual terms. The accompanying statement of
operations includes international licensing fees of $2,760,000, $4,195,000, and
$2,000,000 in fiscal 1998, 1997, and 1996, respectively.

Pre-opening Spa Costs
      The Company expensed all pre-opening costs associated with the
establishment and startup of its Spa Thira salons as such costs were incurred.

Concentration of Credit Risk
      The Company sells its skin-care and other personal-care products primarily
to regional and national stores and salons. As a result, a majority of the
Company's receivables are with these customers. Management does not believe that
this concentration of credit risk has, or will have, a significant negative
impact on the Company. The Company does not typically require collateral on its
credit sales.

Stock-based Compensation Plans
      The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans (Note 6). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity.

Income Taxes
      In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities calculated
using enacted tax rates in effect for the year in which the differences are
expected to be reflected in the tax return, subject to determination of the need
for a valuation allowance for any deferred tax assets.

Loss per Share
      During the first quarter of fiscal 1998, the Company adopted SFAS 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 and 1996 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 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
October 3, 1998, there were outstanding options to purchase 2,545,910 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.



                                       9
<PAGE>

1.    Nature of Operations and Summary of Significant Accounting Policies 
       (continued)

Cash and Cash Equivalents
      At fiscal year-end 1998 and 1997, $51,246,000 and $49,291,000,
respectively, of the Company's cash equivalents were invested in a repurchase
agreement with Thermo Electron. Under this agreement, the Company in effect
lends excess cash to Thermo Electron, which Thermo Electron collateralizes with
investments principally consisting of corporate notes, U.S. government-agency
securities, commercial paper, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. The Company's
funds subject to the repurchase agreement are readily convertible into cash by
the Company. The repurchase agreement earns a rate based on the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter. Cash equivalents at September 27, 1997, included government-agency
securities purchased with an original maturity of three months or less. These
investments are carried at cost, which approximates market value.

Inventories
      Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value and include materials, labor, and manufacturing overhead.
The components of inventories are as follows:
<TABLE>
<CAPTION>

<S>                                                                                   <C>        <C> 
(In thousands)                                                                           1998        1997
---------------------------------------------------------------------------------- ----------- -----------

Raw Materials and Supplies                                                             $2,771      $1,343
Work in Process                                                                           759         430
Finished Goods                                                                          3,295       1,475
                                                                                       ------      ------

                                                                                       $6,825      $3,248
                                                                                       ======      ======
Property, Plant, and Equipment
      The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: building, 40 years; machinery and
equipment, 3 to 10 years; and leasehold improvements, the shorter of the term of
the lease or the life of the asset. Property, plant, and equipment consist of
the following:

(In thousands)                                                                           1998        1997
---------------------------------------------------------------------------------- ----------- -----------

Land                                                                                  $   730     $     -
Building                                                                                7,494           -
Machinery and Equipment                                                                30,773      28,641
Leasehold Improvements                                                                 15,709      17,151
                                                                                      -------     -------

                                                                                       54,706      45,792
Less:  Accumulated depreciation and amortization                                       11,276       6,055
                                                                                      -------     -------

                                                                                      $43,430     $39,737
                                                                                      =======     =======
</TABLE>


Other Assets
      In June 1996, the Company purchased $4,400,000 of convertible preferred
stock of AntiCancer Inc., representing an approximate 10% equity interest in
AntiCancer on a diluted basis. AntiCancer is a San Diego-based company that is
developing a new chemotherapeutic drug for cancer patients, and is also
developing certain

                                       10
<PAGE>

1.    Nature of Operations and Summary of Significant Accounting Policies 
        (continued)

technologies that may be relevant to the SoftLight 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 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 certain
technology from AntiCancer (Note 10).

Cost in Excess of Net Assets of Acquired Companies
      The excess of cost over the fair value of net assets of the acquired
companies is amortized using the straight-line method over 40 years. Accumulated
amortization was $1,187,000 and $894,000 at fiscal year-end 1998 and 1997,
respectively. The Company assesses the future useful life of this asset whenever
events or changes in circumstances indicate that the current useful life has
diminished. The Company considers the future undiscounted cash flows of the
acquired businesses in assessing the recoverability of this asset. If impairment
has occurred, any excess of carrying value over fair value is recorded as a
loss.

Deferred Lease Liability
      Deferred lease liability in the accompanying balance sheet represents
facilities rent that is being recognized ratably over the respective lease
terms.

Common Stock Subject to Redemption
      In April 1997, the Company completed an exchange offer whereby its
shareholders had the opportunity to exchange one share of existing Company
common stock and $3.00 (in cash or Company common stock) for a new unit
consisting of one share of Company common stock and one redemption right. The
redemption right entitles the holder to sell the related share of common stock
to the Company for $20.25 during the period from April 3, 2001, through April
30, 2001. The redemption right will expire and become worthless if the closing
price of Company common stock is at least $26.00 for 20 of any 30 consecutive
trading days. The redemption rights are guaranteed on a subordinated basis by
Thermo Electron. ThermoTrex has agreed to reimburse Thermo Electron in the event
Thermo Electron is required to make a payment under the guarantee. In connection
with this offer, in April 1997, the Company issued 2,000,000 units in exchange
for 2,261,706 shares of Company common stock and $502,000 in cash, net of
expenses. As a result of these transactions, the Company reclassified
$40,500,000 from "Shareholders' investment" to "Common stock subject to
redemption," based on the issuance of 2,000,000 redemption rights, each carrying
a maximum liability to the Company of $20.25.

Use of Estimates
      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2.    Available-for-sale Investments

      In accordance with SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities," the Company's debt securities are considered
available-for-sale investments in the accompanying balance sheet and are carried
at market value, with the difference between cost and market value, net of
related tax effects, recorded as a component of shareholders' investment titled
"Net unrealized loss on available-for-sale investments."


                                       11
<PAGE>

2.    Available-for-sale Investments (continued)

      Available-for-sale investments in the accompanying balance sheet
represents investments in government-agency securities. At October 3, 1998, the
cost of available-for-sale investments approximated market value. At September
27, 1997, the difference between the market value and the cost basis of
available-for-sale investments was $16,000, which represents gross unrealized
losses on those investments. Available-for-sale investments in the accompanying
fiscal 1998 balance sheet have a contractual maturity of less than one year.
      The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains and losses recorded in the
accompanying statement of operations. Gain on sale of investments in the
accompanying fiscal 1996 statement of operations represents the gross realized
gains relating to the sale of available- for-sale investments.

3.    Acquisition

      In June 1998, a wholly owned subsidiary of the Company merged with The
Greenhouse Spa, Inc., exchanging 1,000,000 shares of Company common stock,
valued at $7,975,000 at the time of the transaction, and the repayment of
$4,180,000 of debt for all of the outstanding stock of The Greenhouse Spa. The
Greenhouse Spa operates a luxury, destination spa in Arlington, Texas.
      The acquisition has been accounted for using the purchase method of
accounting, and results of its operations have been included in the accompanying
financial statements from the date of acquisition. The cost of this acquisition
exceeded the estimated fair value of the acquired net assets by $7,686,000,
which is being amortized over 40 years. Allocation of the purchase price was
based on an estimate of the fair value of the net assets acquired. Pro forma
data is not presented as this acquisition was not material to the Company's
results of operations.

4.    Joint Ventures

      The Company has entered into joint venture arrangements to market its
SoftLight system internationally. The Company currently holds between a 35% and
50% stake in each joint venture, but may increase its ownership to above 50%
pursuant to fair-value purchase options included in each agreement. Certain of
the joint venture agreements provide that the Company's joint venture partners
may, under certain conditions, elect to sell all or part of their ownership
interest back to the Company at the fair value of such interest at the time the
election is made. Amounts advanced under such arrangements totaled $2,650,000 in
fiscal 1998, including funding pursuant to a $1,667,000 note receivable to
ThermoLase U.K. (Note 8), and $1,144,000 in fiscal 1997. As of October 3, 1998,
the Company had no material obligation for further funding of such arrangements.
The accompanying fiscal 1998 and 1997 statement of operations includes
$1,203,000 and $700,000, respectively, of equity in losses of joint ventures,
reflecting the Company's share of losses from joint venture operations. During
fiscal 1998, the Company closed its spa in France, liquidated its French joint
venture, and wrote-off its remaining investment. The Company recorded costs of
$3,600,000 associated with terminating this arrangement, which are included in
restructuring costs in the accompanying statement of operations (Note 13).

5.    Common Stock

      In April 1997, the Company completed an exchange offer whereby the Company
received 2,261,706 shares of its common stock and $502,000 in cash, net of
expenses, from its shareholders in exchange for 2,000,000 units of common stock
subject to redemption (Note 1).
      At October 3, 1998, the Company had reserved 11,854,104 unissued shares of
its common stock for possible issuance under stock-based compensation plans and
possible issuance upon conversion of its subordinated convertible debentures.


                                       12
<PAGE>

6.    Employee Benefit Plans

Stock-based Compensation Plans

Stock Option Plans
      The Company has stock-based compensation plans for its key employees,
directors, and others. Two of these plans, adopted in 1993, permit the grant of
nonqualified and incentive stock options. Two other plans, adopted in fiscal
1997 and 1995, permit the grant of a variety of stock and stock-based awards as
determined by the human resources committee of the Company's Board of Directors
(the Board Committee), including restricted stock, stock options, stock bonus
shares, or performance-based shares. To date, only nonqualified stock options
have been awarded under these plans. The option recipients and the terms of
options granted under these plans are determined by the Board Committee.
Generally, options granted to date are exercisable immediately, but are subject
to certain transfer restrictions and the right of the Company to repurchase
shares issued upon exercise of the options at the exercise price, upon certain
events. The restrictions and repurchase rights lapse over various periods
ranging from one to ten years after the first anniversary of the grant date,
depending on the term of the option, which may range from five to twelve years.
Nonqualified stock options may be granted at any price determined by the Board
Committee, although incentive stock options must be granted at not less than the
fair market value of the Company's stock on the date of grant. To date, all
options have been granted at fair market value. The Company also has a
directors' stock option plan that provides for the grant of stock options to
outside directors pursuant to a formula approved by the Company's shareholders.
Options awarded under this plan are exercisable six months after the date of
grant and expire three to seven years after the date of grant. In addition to
the Company's stock-based compensation plans, certain officers and key employees
may also participate in the stock-based compensation plans of Thermo Electron
and ThermoTrex.
      A summary of the Company's stock option information is as follows:
<TABLE>
<CAPTION>

                                                        1998                1997                 1996
                                                -------------------  ------------------  ------------------
<S>                                             <C>        <C>       <C>       <C>        <C>      <C>
                                                           Weighted            Weighted            Weighted
                                                            Average             Average             Average
                                                           Exercise            Exercise            Exercise
                                                              Price               Price               Price
                                                  Number              Number               Number
                                                      of                  of                   of
(Shares in thousands)                             Shares              Shares               Shares
----------------------------------------------- --------- ---------- -------- ---------- --------- ---------

Options Outstanding, Beginning of Year             2,888     $ 8.72    2,820     $ 7.50     3,341     $5.16
  Granted                                            972       7.51      341      14.97       339     25.46
  Exercised                                         (358)      2.12     (173)      1.91      (746)     3.48
  Forfeited                                       (1,010)     12.74     (100)      7.33      (114)    20.53
                                                  ------               -----                -----

Options Outstanding, End of Year                   2,492     $ 7.56    2,888     $ 8.72     2,820     $7.50
                                                   =====     ======    =====     ======     =====     =====

Options Exercisable                                2,492     $ 7.56    2,888     $ 8.72     2,820     $7.50
                                                   =====     ======    =====     ======     =====     =====

Options Available for Grant                          548                 410                  451
                                                   =====               =====                =====
</TABLE>


                                       13
<PAGE>
6.    Employee Benefit Plans (continued)

      A summary of the status of the Company's stock options at October 3, 1998,
is as follows:
<TABLE>
<CAPTION>

                                                                   Options Outstanding and Exercisable
                                                              ----------------------------------------------
<S>                                                           <C>            <C>               <C>   
Range of Exercise Prices                                             Number         Weighted       Weighted
                                                                         of          Average        Average
                                                                     Shares        Remaining       Exercise
                                                              (In thousands) Contractual Life         Price
------------------------------------------------------------- -------------- ---------------- --------------

$  1.75 - $  8.66                                                     1,912        5.1 years         $ 3.97
   8.67 -   15.56                                                       254        6.4 years          12.98
  15.57 -   22.47                                                        37        5.4 years          16.34
  22.48 -   29.38                                                       289        7.2 years          25.46
                                                                      -----
$  1.75 - $29.38                                                      2,492        5.5 years         $ 7.56
                                                                      =====
</TABLE>

Employee Stock Purchase Program
      Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by the Company and
Thermo Electron, under which employees can purchase shares of the Company's and
Thermo Electron's common stock. Prior to November 1, 1996, the program was
sponsored by ThermoTrex and Thermo Electron. Under this program, the applicable
shares of common stock can be purchased at the end of a 12-month period at 95%
of the fair market value at the beginning of the period, and the shares
purchased are subject to a six-month resale restriction. Beginning November
1998, the applicable shares of common stock can be purchased at 85% of the lower
of the fair market value at the beginning or end of the period, and the shares
purchased are subject to a one-year resale restriction. Shares are purchased
through payroll deductions of up to 10% of each participating employee's gross
wages.

Pro Forma Stock-based Compensation Expense
      In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards granted
after fiscal 1995 under the Company's stock-based compensation plans been
determined based on the fair value at the grant dates consistent with the method
set forth under SFAS No. 123, the effect on the Company's net loss and loss per
share would have been as follows:
<TABLE>
<CAPTION>

<S>                                                                        <C>         <C>        <C> 
 (In thousands except per share amounts)                                        1998        1997       1996
-------------------------------------------------------------------------- ----------- ---------- ----------

Net Loss:
  As reported                                                               $(41,186)   $(12,405)  $ (1,386)
  Pro forma                                                                  (41,910)    (12,848)    (1,534)

Basic and Diluted Loss per Share:
  As reported                                                                  (1.07)      (.31)      (.03)
  Pro forma                                                                    (1.09)      (.32)      (.04)

</TABLE>

                                       14
<PAGE>


6.    Employee Benefit Plans (continued)

      Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to October 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.
      The weighted average fair value per share of options granted was $3.84,
$8.34, and $14.83 in fiscal 1998, 1997, and 1996, respectively. The fair value
of each option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>

<S>                                                                     <C>         <C>         <C> 
                                                                              1998        1997         1996
----------------------------------------------------------------------- ----------- ----------- ------------

Volatility                                                                     51%         50%          50%
Risk-free Interest Rate                                                       5.6%        6.3%         6.3%
Expected Life of Options                                                 5.1 years   6.1 years    6.8 years
</TABLE>

      The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

401(k) Savings Plan
      Effective January 1, 1995, the majority of the Company's full-time
employees are eligible to participate in Thermo Electron's 401(k) savings plan.
Contributions to the Thermo Electron 401(k) savings plan are made by both the
employee and the Company. Company contributions are based upon the level of
employee contributions. The Company contributed and charged to expense for this
plan $220,000, $207,000, and $144,000 in fiscal 1998, 1997, and 1996,
respectively.

7.    Income Taxes

      The components of the income tax (provision) benefit are as follows:
<TABLE>
<CAPTION>

<S>                                                                     <C>         <C>         <C> 
(In thousands)                                                                1998        1997        1996
----------------------------------------------------------------------- ----------- ----------- ------------

Currently (Payable) Refundable:
  Federal                                                                  $     -     $     -     $    80
  State                                                                          -         (27)         25
                                                                           -------     -------     -------

                                                                                 -         (27)        105
                                                                           -------     -------     -------

(Deferred) Prepaid:
  Federal                                                                   (5,879)      6,226         328
  State                                                                          -         193          30
                                                                           -------     -------     -------

                                                                            (5,879)      6,419         358
                                                                           -------     -------     -------

                                                                           $(5,879)    $ 6,392     $   463
                                                                           =======     =======     =======

                                       15
<PAGE>

7.    Income Taxes (continued)

      The income tax (provision) benefit in the accompanying statement of
operations differs from the amounts calculated by applying the statutory federal
income tax rate of 34% to loss before income taxes due to the following:

(In thousands)                                                                1998        1997        1996
----------------------------------------------------------------------- ----------- ----------- -----------

Income Tax Benefit at Statutory Rate                                     $  12,004    $  6,391    $    629
Differences Resulting From:
  State income taxes, net of federal tax                                         -         110          36
  Nondeductible expenses                                                      (120)       (109)       (202)
  Increase in valuation allowance                                          (17,763)          -           -
                                                                         =========    ========    ========
                                                                         $  (5,879)   $  6,392    $    463
                                                                         =========    ========    ========
</TABLE>

      Prepaid income taxes in the accompanying balance sheet consist of the
following:
<TABLE>
<CAPTION>

<S>                                                                     <C>         <C> 
(In thousands)                                                                1998        1997
----------------------------------------------------------------------- ----------- -----------

Prepaid Income Taxes:
  Net operating loss carryforward                                        $  19,634    $  8,232
  Inventory basis differences                                                  409         534
  Accruals and other reserves                                                2,598         411
  Accrued compensation                                                         280         647
  Fixed assets                                                              (3,609)          -
  Other, net                                                                   511          95
                                                                           -------     -------

                                                                            19,823       9,919
  Less:  Valuation allowance                                                19,823       1,820
                                                                           -------     -------

                                                                           $     -     $ 8,099
                                                                           =======     =======
</TABLE>

      The fiscal 1998 valuation allowance relates primarily to previously
benefited loss carryforwards and the tax loss arising in fiscal 1998. The
increase in the valuation allowance in fiscal 1998 is a result of the Company's
increased operating losses, uncertainty concerning the Company's ability to
successfully convert its existing spas to Greenhouse spas (Note 1), and
resulting uncertainty concerning realization of the tax asset. The allowance
also includes the tax effect of employee exercises of stock options of
$2,059,000 for which no tax benefit was recognized, and will be used to increase
capital in excess of par value when the tax benefit is realized. As of October
3, 1998, the Company had federal tax net operating loss carryforwards of
approximately $59,000,000 that will begin to expire in fiscal 2009.

8.    Related-party Transactions

Corporate Services Agreement
      The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company currently pays Thermo Electron annually an amount equal to 0.8% of
the Company's revenues. In calendar years 1997 and 1996, the Company paid an
amount equal to 1.0% of

                                       16
<PAGE>

8.    Related-party Transactions (continued)

the Company's revenues. Prior to January 1996, the Company paid an annual fee
equal to 1.2% of the Company's revenues. For these services, the Company was
charged $348,000, $452,000, and $293,000 in fiscal 1998, 1997, and 1996,
respectively. The annual fee is reviewed and adjusted annually by mutual
agreement of the parties. Management believes that the service fee charged by
Thermo Electron is reasonable and that such fees are representative of the
expenses the Company would have incurred on a stand-alone basis. The corporate
services agreement is renewed annually but can be terminated upon 30 days' prior
notice by the Company or upon the Company's withdrawal from the Thermo Electron
Corporate Charter (the Thermo Electron Corporate Charter defines the
relationship among Thermo Electron and its majority-owned subsidiaries). For
additional items such as employee benefit plans, insurance coverage, and other
identifiable costs, Thermo Electron charges the Company based upon costs
attributable to the Company.

Other Related-party Services
      ThermoTrex provided personnel administration, accounting, data processing,
and general administrative management services to the Company, which were
charged to the Company based on actual usage. This agreement was terminated
during fiscal 1997 and services are no longer being provided. For these
services, the Company was charged $144,000 and $327,000 in fiscal 1997 and 1996,
respectively.

Operating Leases
      The Company subleases office and research facilities from ThermoTrex and
is charged for the actual square footage occupied at approximately the same
cost-per-square-foot paid by ThermoTrex under its prime lease. The accompanying
statement of operations includes expenses from this sublease of $306,000,
$296,000, and $125,000 in fiscal 1998, 1997, and 1996, respectively. During
fiscal 1998, the Company relocated its operations and will not be paying for
this space after October 3, 1998.

Laser Manufacturing Arrangement
      During fiscal 1998, 1997, and 1996, the Company purchased laser systems
and components at an aggregate cost of $2,902,000, $11,390,000, and $8,549,000,
respectively, from Trex Medical Corporation, a majority-owned subsidiary of
ThermoTrex.

Other Related-party Purchases
      During fiscal 1998, the Company purchased products totaling $241,000 from
Bird Products Corporation, a wholly owned subsidiary of Thermo Electron.

Note Receivable
      In October 1997, the Company advanced $1,667,000 to ThermoLase U.K. under
a note receivable, due December 31, 2003, and bearing interest at 8.0%, payable
annually. ThermoLase U.K., a subsidiary of a joint venture that is 50%-owned by
the Company, is marketing the Company's SoftLight system in England. The note
receivable is included in other assets in the accompanying fiscal 1998 balance
sheet.

Subordinated Convertible Debentures
      See Note 9 for subordinated convertible debentures of the Company that are
held by Thermo Electron.

Repurchase Agreement
      The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.



                                       17
<PAGE>

9.    Subordinated Convertible Debentures

      In August 1997, the Company issued and sold at par value $115,000,000
principal amount of 4 3/8% subordinated convertible debentures due 2004. The
debentures are convertible into shares of the Company's common stock at a
conversion price of $17.385 per share and are guaranteed on a subordinated basis
by Thermo Electron. ThermoTrex has agreed to reimburse Thermo Electron in the
event Thermo Electron is required to make a payment under the guarantee. During
fiscal 1998, Thermo Electron purchased $4,500,000 principal amount of such
debentures in the open market.
      See Note 11 for fair value information pertaining to these debentures.

10.   Commitments and Contingencies

Operating Leases
      In addition to the leases described in Note 8, the Company occupies
office, manufacturing, warehouse, and service facilities under various operating
lease arrangements. The accompanying statement of operations includes expenses
from operating leases of $4,867,000, $3,806,000, and $915,000 in fiscal 1998,
1997, and 1996, respectively. Future minimum payments due under noncancellable
operating leases as of October 3, 1998, are $3,588,000 in fiscal 1999;
$3,681,000 in fiscal 2000; $3,674,000 in fiscal 2001; $3,731,000 in fiscal 2002;
$3,802,000 in fiscal 2003; and $14,963,000 in fiscal 2004 and thereafter. Total
future minimum lease payments are $33,439,000, of which $2,121,000 relates to
lease payments for the three Spa Thira facilities that have been closed, net of
assumed sublease receipts, and which amount is included in accrued restructuring
costs in the accompanying fiscal 1998 balance sheet (Note 13).

Technology License Agreements
      In June 1996, the Company purchased an approximate 10% equity interest in
AntiCancer (Note 1). In addition, the Company has licensed from AntiCancer
certain technology related to hair removal, stimulation of hair growth,
suppression of hair growth, and hair coloring under an agreement that calls for
up to $1,500,000 in future payments by the Company upon the attainment of
certain milestones by AntiCancer. In addition to such future payments, the
Company will be substantially responsible for development costs incurred after
the attainment of such milestones. In the event that the funded development
efforts result in commercially viable products that the Company elects to
market, the Company will pay AntiCancer a royalty based on sales, subject to
certain minimum payments.
      In February 1993, the Company entered into an irrevocable exclusive
technology license agreement for the use of the laser-based hair-removal system
technology. Under the terms of the agreement, the Company will pay a royalty
equal to 0.25% of the revenues recorded from the sale or use of the laser-based
hair-removal system through February 10, 2010. No material amounts have been
incurred under this agreement.

Contingencies
      The Company has from time to time received allegations that its SoftLight
laser-based hair-removal system infringes the intellectual property rights of
others, and the Company may continue to receive such allegations in the future.
In general, an owner of intellectual property can prevent others from using such
property and is entitled to damages for unauthorized past usage. The Company has
investigated the bases of the allegations it has received to date and, based on
opinions of its counsel, believes that if it were sued on these bases it would
have meritorious defenses.
      The Company is contingently liable with respect to lawsuits and other
matters that arose in the ordinary course of business. In the opinion of
management, these contingencies will not have a material adverse effect upon the
financial position of the Company or its results of operations.


                                       18
<PAGE>
11.   Fair Value of Financial Instruments

      The Company's financial instruments consist primarily of cash and cash
equivalents, available-for-sale investments, accounts receivable, accounts
payable, amounts due to parent company and affiliated companies, subordinated
convertible debentures, and common stock subject to redemption. The carrying
amounts of the Company's cash and cash equivalents, accounts receivable,
accounts payable, and amounts due to parent company and affiliated companies
approximate fair value due to their short-term nature.
      Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on quoted
market prices. See Note 2 for information pertaining to the fair value of
available-for-sale investments.
      The fair value of the Company's subordinated convertible debentures, based
on quoted market prices, was $95,519,000 and $123,165,000 at October 3, 1998,
and September 27, 1997, respectively. The fair value is less than the carrying
amount in fiscal 1998 primarily due to a decrease in the market price of the
Company's common stock relative to the conversion price of the debentures.
      The fair value of the Company's common stock subject to redemption, based
upon quoted market prices was $30,750,000 and $37,000,000 at October 3, 1998,
and September 27, 1997, respectively.

12.   Export Sales

      Export sales, including revenues earned from the Company's international
licensing arrangements, were less than 10% of the Company's total revenues in
fiscal 1998 and 1997, and were $2,820,000 in fiscal 1996. In general, export
sales are denominated in U.S. dollars.

13.   Restructuring Costs and Related Uncertainties

      Restructuring costs totaled $10,155,000 in fiscal 1998. These costs
consist of $4,638,000 related to the closure of three domestic Spa Thira
locations, including $2,429,000 for the write-off of leasehold improvements and
related spa assets and $2,209,000 primarily for abandoned-facility payments, net
of assumed sublease receipts. In addition, in connection with the closure of its
spa in France, operated under a joint venture agreement, the Company recorded
costs of $3,600,000, primarily to liquidate the joint venture and to write-off
its remaining investment. Restructuring costs also include $1,917,000 related to
certain actions including the relocation of the Company's corporate office to
its CBI subsidiary in Carrollton, Texas. This amount primarily represents
severance of $1,080,000 for 40 terminated employees and the write-off of fixed
assets no longer of use. During fiscal 1998, the Company expended $809,000 for
restructuring activities and the remaining obligation of $5,153,000 associated
with these actions is included in accrued restructuring costs in the
accompanying fiscal 1998 balance sheet.
      The Company's investment in leasehold improvements and related equipment
at its remaining spas totaled $16,677,000 at October 3, 1998. The realizability
of these assets is dependent on future cash flows from spa operations. The
Company's future cash flows from operating its spas are dependent on the degree
of success it experiences following the transition of the spas to Greenhouse
spas as discussed in Note 1. It is reasonably possible that actual cash flows
from spa operations will vary significantly from the Company's estimates of such
cash flows. As a result, the carrying amount of spa assets could change
significantly in the near term. Additionally, at October 3, 1998, the Company
has operating lease commitments of $28,641,000 related to these spas. Were any
additional spas to close in the future, the amount of lease obligation related
to such spas in excess of income from subleasing the facilities would be
recorded as a loss.

                                       19
<PAGE>

14.   Unaudited Quarterly Information

(In thousands except per share amounts)
<TABLE>
<CAPTION>

                                                                                                      
<S>                                                              <C>        <C>        <C>        <C>       
1998                                                                 First     Second      Third  Fourth(a)
---------------------------------------------------------------- ---------- ---------- ---------- ----------

Revenues                                                           $13,449    $ 8,092    $ 8,943   $  9,607
Gross Profit                                                         3,430     (1,339)       119          6
Net Loss                                                            (2,035)    (8,535)    (8,349)   (22,267)
Basic and Diluted Loss per Share                                      (.05)      (.22)      (.22)      (.57)

1997                                                                 First     Second      Third     Fourth
---------------------------------------------------------------- ---------- ---------- ---------- ----------

Revenues                                                           $ 8,610    $11,666    $12,900   $ 12,057
Gross Profit                                                         1,783      2,022      2,935      2,366
Net Loss                                                            (1,389)    (3,699)    (3,733)    (3,584)
Basic and Diluted Loss per Share                                      (.03)      (.09)      (.09)      (.09)
</TABLE>

(a) Reflects restructuring costs (Note 13) and establishment of a tax valuation
allowance (Note 7).

15.    Subsequent Event

      In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 465,000 shares at a weighted average exercise price of $13.62 elected to
participate in this exchange and, as a result, received options to purchase
232,000 shares of Company common stock at $4.66 per share. The other terms of
the new options are the same as the exchanged options except that the holders
may not sell shares pursuant to such new options for six months from the
exchange date.

                                       20
<PAGE>


                    Report of Independent Public Accountants
To the Shareholders and Board of Directors of ThermoLase Corporation:

      We have audited the accompanying consolidated balance sheet of ThermoLase
Corporation (a Delaware corporation and 71%-owned subsidiary of ThermoTrex
Corporation) and subsidiaries as of October 3, 1998, and September 27, 1997, and
the related consolidated statements of operations, shareholders' investment, and
cash flows for each of the three years in the period ended October 3, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ThermoLase
Corporation and subsidiaries as of October 3, 1998, and September 27, 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended October 3, 1998 in conformity with generally accepted
accounting principles.



                                           Arthur Andersen LLP



Boston, Massachusetts 
November 9, 1998 (except with respect
to the matter discussed in Note 15, 
as to which the date is November 24, 1998)

                                       21
<PAGE>

                     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 immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the heading "Forward-looking Statements."

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. 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 Spa Thira
locations, as well as through its physician licensees.
      Rather than continuing to open additional Spa Thira locations, the Company
is concentrating its resources on attempting both to increase the capacity
utilization of its existing spas and to expand its physician-licensing program
and international licensing arrangements, discussed below. In connection with
its acquisition of The Greenhouse Spa, Inc. in June 1998 (Note 3), a
full-service, luxury, destination spa, the Company evaluated which of its
locations would be converted to Greenhouse spas and whether any of its Spa Thira
locations should be closed or sold. As a result of this evaluation, the Company
decided to close three of its domestic Spa Thira locations and convert its
remaining eleven domestic spas into Greenhouse spas which, in addition to
hair-removal and skin-resurfacing services, will offer more traditional day-spa
services, such as massages and facials. The Company's future results of
operations will be affected by the Company's ability to successfully convert the
existing spas into Greenhouse spas (Note 13). The period through June 1999 will
be critical in determining the economic viability of this strategy. Key to the
success of this strategy will be whether the results of the Greenhouse spas
reflect substantial progress toward breakeven operations in this timeframe.
      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 existing physician
licensees.
      The Company has experienced a decrease in revenues from its hair-removal
services, as discussed in the results of operations below. In response to this
trend and in an attempt to establish price points and other conditions designed
to increase demand and revenues, the Company significantly reduced treatment
prices at its Spa Thira 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 purchase
or lease SoftLight lasers in lieu of paying ongoing license fees. As a result of
these changes and other factors, including the addition of new physician
licensees in fiscal 1998, there has been a net reduction of 8% in the number of
physician licensees, compared to the number under agreement at the end of fiscal
1997, and two contracts with other licensees that accounted for approximately 4%
of the Company's total hair-removal revenues in fiscal 1997 were terminated.
There can be no assurance that the strategies described above will be successful
in improving the Company's results of operations.

                                       22
<PAGE>


Overview (continued)

      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 has decided to close the spa in Paris and liquidate the joint
venture (Note 13).
      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 process.

Results of Operations

Fiscal 1998 Compared With Fiscal 1997
      Revenues decreased to $40.1 million in fiscal 1998 from $45.2 million in
fiscal 1997. The Company earned revenues from hair-removal services and related
activities of $17.3 million in fiscal 1998, compared with $21.0 million in
fiscal 1997. The decrease in revenues resulted in part from reduced demand and
price reductions at the Company's Spa Thira locations in fiscal 1998 compared
with fiscal 1997, offset in part by an increase in the number of U.S. spas to
14, compared with 13 spas open in fiscal 1997. As discussed in the overview
above, the Company will close three of its domestic spas (Note 13). Revenues
from the Company's physician-licensing program decreased in fiscal 1998 compared
with fiscal 1997, due to a reduction in royalty rates and other changes to the
financial terms of the licenses and the termination of two significant licensing
contracts, described above, as well as a decrease in one-time fees due to a
decline in the number of new physician licensees. Revenues from hair-removal
services and related activities included $2.8 million in fiscal 1998 and $4.2
million in fiscal 1997 for 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 $22.8 million in
fiscal 1998 from $24.2 million in fiscal 1997, primarily due to a shift by
certain of its retail customers away from health- and beauty-aid sales. These
decreases were offset in part by the inclusion of $0.8 million of revenues from
The Greenhouse Spa, acquired in June 1998 (Note 3).
      The gross profit margin in fiscal 1998 was 6%, compared with 20% in fiscal
1997. The Company's hair-removal business reported gross profit of negative $5.0
million in fiscal 1998, compared with gross profit of $1.4 million 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 operating procedures.
This negative impact was offset in part by the effect of physician-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 to decreased revenues at the Company's Spa Thira locations and the
physician-licensing program, as well as increased fixed costs associated with
operating more spas in fiscal 1998. The Company believes that increasing spa
utilization by broadening the array of spa-related services and products
offered, through conversion of the remaining Spa Thiras into Greenhouse spas, is
critical to its ability to improve the profitability of its spas. The degree to
which the Company's recent changes in pricing structure are successful will also
affect the Company's gross profit margin. The gross profit margin at CBI was 32%
in both periods.

                                       23
<PAGE>

Fiscal 1998 Compared With Fiscal 1997 (continued)
      Selling, general, and administrative expenses as a percentage of revenues
increased to 56% in fiscal 1998 from 51% in fiscal 1997, primarily due to a
decrease in revenues.
      Research and development expenses decreased to $3.0 million in fiscal 1998
from $5.7 million in 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.
      During fiscal 1998, the Company recorded restructuring costs of $10.2
million, primarily related to closing three of its domestic spas, closing its
spa in France and liquidating the related French joint venture, and relocating
its corporate office to its CBI subsidiary in Carrollton, Texas. The degree to
which the Company is successful in improving its profitability will affect the
future of its remaining spas and the realizability of its related assets (Note
13).
      Interest income increased to $4.5 million in fiscal 1998 from $2.1 million
in fiscal 1997, primarily due to interest income earned on the invested proceeds
from the Company's August 1997 issuance of $115.0 million principal amount of 4
3/8% subordinated convertible debentures, offset in part by cash used to fund
the Company's loss. Interest expense increased to $5.3 million in fiscal 1998
from $0.6 million in fiscal 1997, primarily due to the inclusion of a full
period of interest expense on the subordinated convertible 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, beginning in the third quarter of fiscal 1997
(Note 4).
      The provision for income taxes in fiscal 1998 reflects the establishment
of a valuation allowance for the tax asset associated with previously benefited
loss carryforwards and the tax loss arising in fiscal 1998. The Company
establishes valuation allowances in accordance with the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
increase in the valuation allowance in fiscal 1998 is a result of the Company's
increased operating losses, uncertainty concerning the Company's ability to
successfully convert its existing spas to Greenhouse spas (Note 1), and
resulting uncertainty concerning realization of the tax asset (Note 7).
      In May 1998, a complaint, filed as a class action, was filed in California
Superior Court against the Company alleging that certain advertisements and
representations made by the Company and/or its licensees relating to the
Company's SoftLight laser hair-removal process were misleading. The Company has
settled this lawsuit for a nominal amount, subject to court approval.

Fiscal 1997 Compared With Fiscal 1996
      Revenues increased to $45.2 million in fiscal 1997 from $27.8 million in
fiscal 1996. The Company earned revenues from hair-removal services and related
activities of $21.0 million in fiscal 1997, compared with $4.6 million in fiscal
1996. The increase in revenues resulted primarily from an increase in the number
of U.S. spas to 13, nine of which opened in fiscal 1997, compared with four spas
open during fiscal 1996. Revenues also increased as a result of fees from the
Company's physician-licensing program, which was started in the third quarter of
fiscal 1996 and did not produce significant revenues during fiscal 1996. In
addition, revenues from hair-removal services and related activities in fiscal
1997 included $4.2 million of minimum guaranteed payments recorded upon granting
technology rights under the Company's international licensing arrangements,
compared with $2.0 million in fiscal 1996. Revenues at CBI increased slightly to
$24.2 million in fiscal 1997 from $23.2 million in fiscal 1996. 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.
      The gross profit margin in fiscal 1997 was 20%, compared with 28% in
fiscal 1996. The Company's hair-removal business reported gross profit of $1.4
million in fiscal 1997, compared with gross profit of negative $0.3 million in
fiscal 1996. Each period was impacted by the early operations of the Spa Thira
business, which has been operating below maximum capacity as discussed in the
results of operations for fiscal 1998, and pre-opening costs incurred in
connection with new spa openings, offset in part by the effect of
physician-licensing fees and minimum guaranteed payments relating to
international licensing arrangements, which have a relatively high gross profit
margin. The gross profit margin at CBI declined to 32% in fiscal 1997 from 35%
in fiscal 1996, as a result of a continued shift to lower-margin products.

                                       24
<PAGE>

Fiscal 1997 Compared With Fiscal 1996 (continued)
      Selling, general, and administrative expenses as a percentage of revenues
increased to 51% in fiscal 1997 from 35% in fiscal 1996. The increase was
primarily due to costs related to expanding the Company's administrative and
management efforts for its Spa Thira business and domestic and international
licensing programs; increased marketing efforts, including national advertising
costs for the physician-licensing program; and legal costs associated with
obtaining and protecting the Company's patent rights.
      Research and development expenses increased to $5.7 million in fiscal 1997
from $3.5 million in fiscal 1996, primarily due to continued pre-clinical and
clinical research related to improving the effectiveness of the Company's
hair-removal process and developing its SoftLight Laser Peel skin-resurfacing
process, and the investigation of other health and beauty applications for its
proprietary laser technology.
      Interest income decreased to $2.1 million in fiscal 1997 from $3.5 million
in 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 locations and licensing programs and cash used to fund the Company's
operating loss. Interest expense in fiscal 1997 represents interest associated
with the $115.0 million principal amount of 4 3/8% subordinated convertible
debentures issued in August 1997.
      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, beginning in the third quarter of fiscal 1997.
      The effective tax rate approximates the statutory federal income tax rate
in fiscal 1997 due to nondeductible amortization of cost in excess of net assets
of acquired company offset by a state income tax benefit arising from operating
losses in certain states. The effective tax rate is less than the statutory
federal income tax rate in fiscal 1996 due to nondeductible amortization of cost
in excess of net assets of acquired company and the impact of a provision for
state income taxes.

Liquidity and Capital Resources

      Consolidated working capital was $48.6 million at October 3, 1998,
compared with $95.5 million at September 27, 1997. Included in working capital
are cash, cash equivalents, and available-for-sale investments of $55.9 million
at October 3, 1998, compared with $100.3 million at September 27, 1997.
Operating activities used $24.5 million of cash during fiscal 1998. Cash was
used primarily to fund the Company's loss, excluding noncash items. Cash of $3.5
million was used to fund an increase in inventories due to the development of
new branded product lines at CBI, introduced in the fourth quarter of fiscal
1998. A decrease in accounts payable used $2.4 million of cash, primarily due to
the timing of payments.
      Excluding available-for-sale investment activity, the Company's investing
activities in fiscal 1998, consisted primarily of $4.5 million of expenditures
for purchases of property, plant, and equipment, including the purchase of laser
systems and components from Trex Medical Corporation, a majority-owned
subsidiary of ThermoTrex Corporation (Note 8). In June 1998, a wholly owned
subsidiary of the Company merged with The Greenhouse Spa, exchanging 1,000,000
shares of Company common stock, valued at $8.0 million at the time of the
transaction, and the repayment of $4.2 million of debt for all of the
outstanding stock of The Greenhouse Spa (Note 3). In connection with certain of
the Company's joint venture arrangements, the Company advanced $1.7 million
under a note receivable (Note 8).
      The Company's financing activities during fiscal 1998 consisted primarily
of repurchases of Company common stock. In September 1997, the Company's Board
of Directors authorized the repurchase by the Company of up to 1,000,000 shares
of Company common stock through September 4, 1998, in the open market, in
negotiated transactions, or pursuant to the exercise by investors of
standardized put options written on the Company's common stock. During fiscal
1998, the Company purchased 643,000 shares of its common stock for $8.8 million.

                                       25
<PAGE>


Liquidity and Capital Resources (continued)

      The Company's capital expenditures during fiscal 1999 will primarily be
affected by the number of physicians and other domestic and international
licensees engaged in its licensing programs and converting the remaining eleven
domestic Spa Thira locations to Greenhouse spas. Depending on the extent of
renovations necessary, the cost of converting each spa is expected to be
approximately $50,000 to $150,000. In addition, 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.

Market Risk

      The Company is exposed to market risk from changes in interest rates and
equity prices, which could affect its future results of operations and financial
condition. The Company manages its exposure to these risks through its regular
operating and financing activities.

Interest Rates
      The Company's available-for-sale investments and long-term obligations are
sensitive to changes in interest rates. Interest rate changes would result in a
change in the fair value of these financial instruments due to the difference
between the market interest rate and the rate at the date of purchase or
issuance of the financial instrument. A 10% decrease in year-end fiscal 1998
market interest rates would result in a negative impact of $1.2 million on the
net fair value of the Company's interest-sensitive financial instruments.

Equity Prices
      The Company's 4 3/8% subordinated convertible obligation is sensitive to
fluctuations in the price of Company common stock into which it is convertible.
In addition, the Company's common stock subject to redemption is sensitive to
fluctuations in the price of the Company's units. Changes in equity prices would
result in changes in the fair value of the Company's convertible obligation and
common stock subject to redemption due to the difference between the current
market price and the market price at the date of issuance of the financial
instrument. A 10% increase in the year-end fiscal 1998 market equity prices
would result in a negative impact of $13.9 million on the net fair value of the
Company's price-sensitive equity financial instruments.

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 internal business 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 tested and evaluated its critical information-technology
systems for year 2000 compliance. The Company plans to upgrade or replace its
noncompliant systems. The Company expects that all of its material
information-technology systems will be year 2000 compliant by the end of 1999.
The Company is also evaluating the potential year 2000 impact on its facilities,
including its buildings and utility systems. Any problems that are identified
will be prioritized and remediated based on their assigned priority. The Company
will continue periodic testing of its critical internal business systems and
facilities in an effort to minimize operating disruptions due to year 2000
issues.

                                       26
<PAGE>

Year 2000 (continued)

Contingency Plan
      The Company intends to develop 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
      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. The Company does
not track costs incurred for its year 2000 compliance project. Such costs are
principally the related payroll costs for its information systems employees.

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,
vendors, or customers 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. 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.





                                       27
<PAGE>

                           Forward-looking Statements

      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 risk 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 1999 and beyond to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company.

      Recent Operating Losses of the Company. The Company incurred losses of
approximately $41.2 million, $12.4 million, $1.4 million, and $1.7 million in
fiscal 1998, 1997, 1996, and 1995, respectively. At October 3, 1998, the
Company's accumulated deficit was $57.1 million. There can be no assurance that
the Company will achieve profitable operations in any future period.

      Difficulty in Retaining Qualified Management. The Company has had
difficulty in retaining management, technical, marketing, and sales personnel,
due in part to the relocation of the Company headquarters to Carrollton, Texas.
The Company's future success depends in part on whether the Company can attract
and retain highly qualified management, technical, marketing, and sales
personnel. The Company faces significant competition for the services of such
personnel. There can be no assurance that the Company will attract and retain
personnel with the background and expertise necessary to support the development
of the Company's businesses. The failure to hire and retain such personnel could
materially adversely affect the financial position and results of operations of
the Company. The Company continues to employ The Greenhouse Spa management and
other personnel and will rely on such management and personnel to operate The
Greenhouse Spa and assist in the conversion of the Spa Thira locations to
Greenhouse spas. There can be no assurance that the Company will be able to
continue to retain the services of The Greenhouse Spa management and other
personnel on terms acceptable to the Company.

      Conversion of Spa Thiras; Focus of Business; Absence of Experience
Relating to Day-Spa Operations. The Company is in the process of converting its
domestic Spa Thira locations to Greenhouse luxury day spas. The Company has
minimal experience relating to the ownership, operation, or marketing of spas
providing traditional day spa services or, with the exception of the Greenhouse
management, relating to the ownership, operation, or marketing, of a destination
spa. In connection with the conversions, the Company is refocusing its laser
hair-removal spa business to include a broader range of day-spa services such as
skin resurfacing (including the Company's SoftLight Laser Peel), traditional
day-spa services, and an expanded line of beauty and personal care products. The
Company will try to identify a mix of spa services and products and prices that
will lead to profitable operations. There can be no assurance that these efforts
will be successful.

      Future Significant Expenditures Required. Continued development of the
Company's business will require significant expenditures. There can be no
assurance that the balance of the Company's working capital will be sufficient
to fund its planned operations. The Company's financing requirements will depend
on many factors, including the progress of its licensing program, development
efforts, the refocusing of its business on traditional spa services as well as
additional services and products, and its ability to limit its expenses and
reduce operating losses. The Company may need to raise additional funds and if
needed, such funds may not be available on acceptable terms or at all. Neither
the Company's ultimate parent, Thermo Electron Corporation, nor any of its
subsidiaries, including ThermoTrex Corporation, has any obligation to supply any
funds to the Company. The inability of the Company to raise needed funds would
have a material adverse effect on the Company's financial condition and results
of operations.

      Potential for Customer Claims; Insurance. The Company has received
complaints from several of its physician licensees, joint venture partners, and
consumers stating that that the Company's SoftLight hair-removal process has not
met their expectations. Some of these parties have filed lawsuits against the
Company. The Company may receive similar allegations and/or become subject to
similar lawsuits in the future. There can be no assurance that

                                       28
<PAGE>

additional litigation relating to such claims will not be brought against the
Company, or that the Company would prevail in any or all such cases, if brought.
The Company has no insurance coverage for such claims. In addition, the laser
hair-removal and skin-resurfacing market involves the treatment of persons who
could be harmed by or have an adverse reaction to the SoftLight laser resulting
in liability claims against the Company. Such claims could result in damages
against the Company and negative publicity. The Company currently carries
general liability, product liability, and other insurance coverage. There can be
no assurance that such coverage will be adequate to cover all losses arising
from such claims or that in the future such insurance will be available to the
Company at reasonable cost or at all.

      Disappointing Market Acceptance; Need for Improved SoftLight Laser
Hair-Removal Process. Market acceptance of the SoftLight laser hair-removal
process has been disappointing to date. The Company continues to study the
SoftLight laser hair-removal process to better understand the effects of the
process. Failure to improve the process, including extending the duration of
time for which hair is removed using the SoftLight process, will continue to
limit the Company's ability to successfully commercialize the SoftLight laser
hair-removal process. The Company continues to have difficulty demonstrating to
consumers that the SoftLight laser hair-removal process offers advantages over
traditional methods of hair-removal and alternative laser and other types of
hair-removal systems. There can be no assurance that the Company will be
successful in its efforts to improve the SoftLight laser hair-removal process or
the market acceptance thereof.

      Uncertain Market Acceptance of SoftLight Laser Peel. The SoftLight Laser
Peel for skin resurfacing is a new application of the SoftLight process and
differs from alternative methods of skin resurfacing. Consumers may not accept
or be receptive to the potential benefits of the SoftLight Laser Peel. Market
acceptance of the SoftLight Laser Peel will depend in large part upon the
ability of the Company to demonstrate to consumers the safety and effectiveness
of the SoftLight Laser Peel and its advantages over other methods of skin
resurfacing, including carbon dioxide and erbium skin-resurfacing lasers and
chemical peels. There can be no assurance that the SoftLight Laser Peel will
achieve sufficient market acceptance in order to permit the Company to
successfully commercialize the SoftLight Laser Peel.

      Dependence Upon Proprietary Technology. There can be no assurance that
other companies or individuals are not investigating, developing, or using other
technologies that are similar to the Company's technology, that the Company will
be awarded any additional patents, or that the Company's patents or any
additional patents, if issued, will provide the Company with sufficiently broad
patent coverage to provide any significant deterrent to competitive products or
services. The Company knows of several companies that are commercializing other
laser-based hair- removal systems and skin-resurfacing techniques. If 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 persons other than the Company, which, if
infringed by the Company, would permit the owner to prevent the Company from
marketing, licensing, or using the SoftLight hair-removal and skin-resurfacing
processes and entitle the owner to damages for past infringement. The Company
has from time to time received allegations that the SoftLight hair-removal
process infringes the intellectual property rights of others, and the Company
may receive similar allegations in the future. There can be no assurance that
litigation relating to such a claim will not be brought against the Company, or
that the Company would prevail in any or all such cases, if brought. The
Company's financial position and results of operations would be materially
adversely affected if the Company devotes substantial financial or management
resources to intellectual property litigation. The Company has pending patent
applications relating to laser hair removal in various countries outside the
United States. There can be no assurance that any of these patent applications
will result in any patents being issued. In September 1998, the European Patent
Office issued a patent to the Company for its SoftLight laser hair-removal
process. That patent is being challenged. The issuance of additional patents to
the Company with respect to any technological improvements or new products and
the validity and enforceability of such patents may be essential to the success
of the Company. There can be no assurance that the Company will be able to
obtain such patent protection.

                                       29
<PAGE>

      The Company has registered trademarks and service marks in the United
States and certain foreign countries for "SoftLight". The Company also has
trademark and service mark applications for the "SoftLight" marks in various
other foreign countries. No assurance can be given that any pending trademark or
service mark application will be granted.

      Need to Comply with FDA Regulations. The laser used in the SoftLight
hair-removal and skin-resurfacing process must comply with United States Food
and Drug Administration (FDA) regulations governing the use and marketing of
medical devices. The Company's hair-removal system received FDA clearance in
April 1995 and its SoftLight Laser Peel skin-resurfacing procedure received FDA
clearance in May 1998. In addition, the Company is subject to regulatory
requirements in foreign countries where the Company conducts its business or
advertises its services and products. Obtaining regulatory approvals is a
lengthy, expensive, and uncertain process. There can be no assurance that
foreign regulatory agencies will grant the necessary clearances or that the
process to obtain such clearances will not be excessively expensive or lengthy.
For example, in 1996 the Company established a joint venture to commercialize
the SoftLight laser hair-removal process in Japan and since that time has been
seeking the approval of the Japanese Ministry of Health to commercialize the
SoftLight process in Japan. We have submitted information requested by the
Japanese Ministry of Health, including the results of clinical trials performed
in Japan, and the Company continues to await a decision by the Japanese Ministry
of Health.
      Most of CBI's products are classified as cosmetics, which are regulated by
the FDA, and are subject to inspection by the FDA. Furthermore, CBI manufactures
a few preparations, principally sunscreens and skin-bleaching agents, that are
classified as over-the-counter drugs, and CBI has an FDA license for this
purpose. This license requires, among other things, that CBI adhere to the FDA's
Good Manufacturing Practices procedures for finished pharmaceuticals, and
subjects CBI's facility to inspection by the FDA. CBI also markets nutritional
supplements which are also subject to FDA regulations.
      The FDA also imposes various requirements on manufacturers and sellers of
products under its jurisdiction such as labeling, manufacturing practices,
record keeping, and reporting. The FDA may also require post-market testing and
surveillance programs of drugs or devices to monitor a product's effects.
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/or criminal prosecutions.

      Compliance with State and Foreign Regulations. The extent to which a
physician must be involved in the performance of SoftLight laser hair-removal
and skin-resurfacing procedures, including a physician's ability to delegate to
nonphysicians responsibility for performing particular services, depends upon
applicable laws and regulations. Many jurisdictions have taken the position that
the use of lasers for hair-removal constitutes the practice of medicine. In
those jurisdictions, responsibility for performing laser hair-removal procedures
must be in accordance with applicable laws and regulations relating to the
performance and/or delegation of medical acts. Some jurisdictions have also
imposed limitations on the classes of persons to whom laser hair-removal
procedures can be delegated and the conditions under which such delegation is
permissible. Regulatory authorities in some jurisdictions have taken, and other
regulatory agencies may take, some or all of the following positions: (i) that a
physician must evaluate each person for whom laser hair-removal procedures are
performed, (ii) that a supervising physician must be present at all times at the
site where such procedures are being performed, (iii) that only a physician may
use a laser for hair- removal, or (iv) that persons performing laser
hair-removal procedures must have particular licenses or qualifications and may
perform laser hair-removal procedures only under particular conditions. The
adoption of these or similar regulatory requirements may have a material adverse
impact on the Company's operations and ability to conduct operations in
jurisdictions in which such requirements are imposed. For example, a requirement
in a particular jurisdiction that a physician must personally perform laser
hair-removal procedures would significantly limit the potential providers of
SoftLight laser hair-removal procedures in that jurisdiction and may materially
affect the costs associated with the performance of SoftLight laser hair-removal
procedures in that jurisdiction. The use of lasers for hair-removal is a new use
for lasers, and there can be no assurance that review by regulatory authorities
on matters

                                       30
<PAGE>

such as the practice of medicine, the licensure of facilities, equipment or
personnel, and franchising, will not result in decisions that could adversely
affect the operations of the Company. Furthermore, interpretations of current
laws and regulations or changes in current laws and regulations could make
compliance by the Company more difficult or expensive. The SoftLight Laser Peel
may be subject to similar regulatory risks.
      The Company's SoftLight laser hair-removal and skin-resurfacing procedures
have been performed, under varying degrees of physician supervision, by
registered nurses, licensed practical nurses, cosmetologists, aestheticians, and
electrologists. The Company believes that the exercise of judgment by the
Company and supervising physicians with respect to delegation of responsibility
for performing SoftLight laser hair-removal and skin-resurfacing procedures
complies with applicable requirements. However, there can be no assurance that
regulatory agencies or courts will agree with such judgments.

      Limited Operating History; Need to Develop New Marketing Strategy. The
Company has been in business a short time. The Company began commercial sales of
services using the SoftLight hair-removal process through its spas in November
1995 and through its physician network in June 1996. The Company began to offer
its SoftLight Laser Peel skin-resurfacing procedure in June 1998. The Company's
initial marketing and commercialization strategy was centered around a belief
that the Company's services would command a premium price in the marketplace.
Based on feedback from customers, the Company has shifted away from premium
pricing. The Company is currently revising its marketing and commercialization
strategy including refocusing its spa operations to include more traditional spa
services and expanding beauty and personal care product offerings. As part of
these efforts, the Company will be converting its remaining Spa Thira spas into
Greenhouse luxury day spas. The Company is restructuring its U.S. licensing
program to, among other things, require licensees to pay a fixed monthly fee
(rather than an initial fee and per treatment fee) and to charge licensees for
various other products and services. The Company now seeks to establish
relationships with distributors who would sell SoftLight lasers and the
Company's other products and services in new markets outside of the United
States. The Company would derive one-time sale revenues from such relationships
rather than initial and per-procedure royalty fees. No assurance can be given
that this revised marketing and commercialization strategy will be successful.

      Intense Competition. Competition in the market for personal-care products
and services is intense. The SoftLight hair-removal process competes with
electrolysis and other traditional methods of hair removal, as well as other
lasers which have been or in the future may be cleared by the FDA for hair
removal. Competition limits the prices the Company is able to charge for its
services. In addition, the Company's services could become obsolete or
uneconomical if a competitor introduces a new product or process accomplishing
the same objective.

      Dependence on International Relationships. The Company depends on its
foreign joint venture partners and licensees who provide the SoftLight
hair-removal and skin-resurfacing processes in foreign countries to provide the
Company with knowledge and expertise in such countries relating to business,
cultural, legal, and regulatory matters that may impact the establishment and
operation of SoftLight hair-removal and skin-resurfacing businesses in those
countries. There can be no assurance that the SoftLight hair-removal and
skin-resurfacing processes themselves or the Company's business models will (i)
be acceptable to foreign regulatory authorities or (ii) achieve consumer
acceptance in such countries.
      In addition, there can be no assurance that the Company will be able to
effectively manage the non-U.S. businesses without devoting additional resources
to working with the Company's foreign joint venture partners and licensees to
ensure compliance with the Company's standards and the performance by such
partners of legal and contractual obligations owed to the Company.


                                       31
<PAGE>

      Potential Impact of Year 2000 on Processing of Date-sensitive Information.
The Company believes its products are not year 2000 sensitive. 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.
While the Company expects that upgrades to its internal business systems will be
completed in a timely fashion, there can be no assurance that the Company will
not encounter unexpected costs or delays. If any of the Company's material
suppliers or vendors experience business disruptions due to year 2000 issues,
the Company may 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. 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.




                                       32
<PAGE>

                         Selected Financial Information
<TABLE>
<CAPTION>

<S>                                         <C>        <C>       <C>        <C>        <C>        <C>
                                                                                         Nine
                                                                                        Months      Year
                                                            Year Ended                 Ended (a)     Ended
                                             ----------------------------------------- ---------- ----------
(In thousands except per share amounts)       Oct. 3,  Sept. 27, Sept. 28,  Sept. 30,  Sept. 30,   Dec. 31,
                                             1998 (b)   1997 (c)      1996       1995   1995 (d)   1994 (e)
------------------------------------------- ---------- --------- ---------- ---------- ---------- ----------
                                                                                       (Unaudited)
Statement of Operations Data
Revenues                                    $  40,091  $ 45,233  $  27,812  $  23,348  $  17,544  $  18,682
Income (Loss) Before Cumulative Effect        (41,186)  (12,405)    (1,386)    (1,675)    (1,679)         6
  of Change in Accounting Principle
Net Income (Loss)                             (41,186)  (12,405)    (1,386)    (1,675)    (1,679)        15
Basic and Diluted Loss per Share                (1.07)     (.31)      (.03)      (.04)      (.04)         -
  Before Cumulative Effect of Change
  in Accounting Principle
Basic and Diluted Loss per Share                (1.07)     (.31)      (.03)      (.04)      (.04)         -

Balance Sheet Data
Working Capital                             $  48,597  $ 95,469  $  47,197             $  68,691  $  16,235
Total Assets                                  134,215   174,595     95,520                89,463     33,570
Long-term Obligations                         115,066   115,000          -                     -          -
Common Stock Subject to Redemption             40,500    40,500          -                     -          -
Shareholders' Investment                      (41,691)      333     79,037                82,218     28,997
</TABLE>


(a) In September 1995, the Company changed its fiscal year end from the Saturday
    nearest December 31 to the Saturday nearest September 30. Accordingly, the
    Company's 39-week transition period ended September 30, 1995, is presented.
(b) Reflects restructuring costs (Note 13) and establishment of a tax valuation
    allowance (Note 7). 
(c) Reflects the issuance of $115.0 million principal amount
    of 4 3/8% subordinated convertible debentures and
    the reclassification of $40.5 million to "Common stock subject to
    redemption" from "Shareholders' investment" due to the Company's stock
    exchange transaction.
(d) Reflects the net proceeds of the Company's private placements and public 
    offering of common stock.
(e) Reflects the net proceeds of the Company's initial public offering and 
    the adoption of SFAS No. 115, "Accounting for Certain Investments in Debt
    and Equity Securities."

                                       33
<PAGE>

Common Stock and Unit Market Information
      The Company's common stock is traded on the American Stock Exchange under
the symbol TLZ. The following table sets forth the high and low sale prices of
the Company's common stock for 1998 and 1997, as reported in the consolidated
transaction reporting system.
<TABLE>
<CAPTION>
<S>                                                             <C>        <C>        <C>        <C>

                                                                     Common Stock              Units
                                                                --------------------- ----------------------
Fiscal 1998                                                          High        Low        High        Low
--------------------------------------------------------------- ---------- ---------- ---------- -----------
First Quarter                                                   $18 11/16   $10 1/2     $18 7/8     $17
Second Quarter                                                    11 1/4      5 1/2      17 3/16     15 5/8
Third Quarter                                                      8 1/2      5 1/8      16 1/2      15 5/8
Fourth Quarter                                                     7 9/16     4 1/4      16 1/8      15 1/8
                                                                               

Fiscal 1997
--------------------------------------------------------------- ---------- ---------- ---------- -----------
First Quarter                                                   $24 7/8     $15 7/8     $     -     $    -
Second Quarter                                                   17 3/8      12 3/8           -          -
Third Quarter                                                    14 7/8       9 1/4      18 1/4     16 1/8
Fourth Quarter                                                   18          13 1/16     18 7/8     17 1/4
</TABLE>

      As of October 30, 1998, the Company had 375 holders of record of its
common stock and 19 holders of record of its units. This does not include
holdings in street or nominee names. The closing market prices on the American
Stock Exchange for the Company's common stock and units on October 30, 1998,
were $5 1/2 per share of common stock and $16 1/4 per unit.

Transfer Agent
      American Stock Transfer & Trust Company is the transfer agent for the
Company's common stock and units and maintains holders' activity records. The
agent will respond to questions on issuance of stock and unit certificates,
change of ownership, lost stock and unit certificates, and change of address.
For these and similar matters, please direct inquiries to:

      American Stock Transfer & Trust Company
      Shareholder Services Department
      40 Wall Street, 46th Floor
      New York, New York 10005
      (718) 921-8200

Security Holder Services
      Holders of ThermoLase Corporation common stock and units who desire
information about the Company are invited to contact the Investor Relations
Department, ThermoLase Corporation, 81 Wyman Street, P.O. Box 9046, Waltham,
Massachusetts 02454-9046, (781) 622-1111. A mailing list is maintained to enable
holders whose stock or units is held in street name, and other interested
individuals, to receive quarterly reports, annual reports, and press releases as
quickly as possible. Quarterly distribution of printed reports is limited to the
second quarter report only. All material is available from Thermo Electron's
Internet site (http://www.thermo.com/subsid/tlz1.html).

Dividend Policy
      The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Board of Directors and will depend upon, among other factors,
the Company's earnings, capital requirements, and financial condition.

                                       34
<PAGE>

Form 10-K Report
      A copy of the Annual Report on Form 10-K for the year ended October 3,
1998, as filed with the Securities and Exchange Commission, may be obtained at
no charge by writing to the Investor Relations Department, ThermoLase
Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046.

Annual Meeting
      The annual meeting of shareholders will be held on Thursday, March 11, 
1999, at 10:00 a.m. at the Westin Hotel, 70 Third Avenue, Waltham, 
Massachusetts.

<PAGE>