ThermoLase Corporation

                        Consolidated Financial Statements

                                Fiscal Year 1996
PAGE
<PAGE>
 ThermoLase Corporation
 Consolidated Statement of Operations
                                                       Nine Months       Year
                                     Year Ended           Ended          Ended
                                ---------------------  -----------     -------
 (In thousands except           Sept. 28,   Sept. 30,    Sept. 30,    Dec. 31,
 per share amounts)                  1996        1995         1995        1994
 -----------------------------------------------------------------------------
                                           (Unaudited)
 Revenues (Note 11)
   Product revenues               $23,165     $23,348      $17,544     $18,682
   Service revenues                 4,647           -            -           -
                                  -------     -------      -------     -------
                                   27,812      23,348       17,544      18,682
                                  -------     -------      -------     -------
 Costs and Operating Expenses:
   Cost of product revenues        15,063      14,714       11,424      10,785
   Cost of service revenues         4,964           -            -           -
   Selling, general and admin-
     istrative expenses (Note 9)    9,761       8,128        6,158       5,744
   Research and development
     expenses                       3,470       3,774        3,151       2,324
                                  -------     -------      -------     -------
                                   33,258      26,616       20,733      18,853
                                  -------     -------      -------     -------
 Operating Loss                    (5,446)     (3,268)      (3,189)       (171)

 Interest Income                    3,482         971          789         595
 Interest Expense, Related Party
   (Note 9)                             -           -            -        (116)
 Gain (Loss) on Sale of
   Investments (Note 3)               115         (41)           -         (42)
                                  -------     -------      -------     -------
 Income (Loss) Before Income                                                  
   Taxes and Cumulative Effect
   of Change in Accounting
   Principle                       (1,849)     (2,338)      (2,400)        266
 Income Tax (Provision) Benefit
   (Note 8)                           463         663          721        (260)
                                  -------     -------      -------     -------
 Income (Loss) Before                                                         
   Cumulative Effect of Change
   in Accounting Principle         (1,386)     (1,675)      (1,679)          6
 Cumulative Effect of Change in
   Accounting Principle, Net of
   Tax (Note 3)                         -           -            -           9
                                  -------     -------      -------     -------
 Net Income (Loss)                $(1,386)    $(1,675)     $(1,679)    $    15
                                  =======     =======      =======     =======
 Earnings (Loss) per Share
   Before Cumulative Effect of
   Change in Accounting Principle $  (.03)    $  (.04)     $  (.04)    $     -
                                  =======     =======      =======     =======
 Earnings (Loss) per Share        $  (.03)    $  (.04)     $  (.04)    $     -
                                  =======     =======      =======     =======
 Weighted Average Shares           40,353      37,880       38,005      35,767
                                  =======     =======      =======     =======
 The accompanying notes are an integral part of these consolidated financial
 statements.
                                        2PAGE
<PAGE>
   ThermoLase Corporation
   Consolidated Balance Sheet
                                                 September 28,  September 30,
   (In thousands except share amounts)                    1996           1995
   --------------------------------------------------------------------------
   Assets
   Current Assets:
     Cash and cash equivalents                        $ 7,923        $13,146
     Available-for-sale investments, at quoted
       market value (amortized cost of $44,205
       and $52,281) (Note 3)                           44,132         52,294
     Accounts receivable, less allowances of
       $319 and $256                                    4,572          4,255
     Inventories                                        4,269          5,203
     Prepaid expenses                                     408            186
     Prepaid income taxes (Note 8)                      1,882            852
                                                      -------        -------
                                                       63,186         75,936
                                                      -------        -------
   Property and Equipment, at Cost, Net                19,323          4,168
                                                      -------        -------
   Other Assets                                         4,679            319
                                                      -------        -------
   Cost in Excess of Net Assets of Acquired
     Company                                            8,332          9,040
                                                      -------        -------
                                                      $95,520        $89,463
                                                      =======        =======
   Liabilities and Shareholders' Investment
   Current Liabilities:
     Accounts payable                                 $ 5,179        $ 3,405
     Accrued payroll and employee benefits              1,008            538
     Accrued income taxes                                 245            412
     Deferred revenue                                     913              -
     Other accrued expenses                             1,546          1,818
     Due to parent company and affiliated companies     7,098          1,072
                                                      -------        -------
                                                       15,989          7,245
                                                      -------        -------
   Deferred Lease Liability                               494              -
                                                      -------        -------

   Commitments and Contingencies (Notes 9 and 10)

   Shareholders' Investment (Notes 5 and 6):
     Common stock, $.01 par value, 50,000,000
       shares authorized; 40,803,932 and
       40,109,772 shares issued                           408            401
     Capital in excess of par value                    85,813         84,354
     Accumulated deficit                               (3,516)        (2,130)
     Treasury stock at cost, 116,570 and
       21,944 shares                                   (3,621)          (415)
     Net unrealized gain (loss) on available-for-
       sale investments (Note 3)                          (47)             8
                                                      -------        -------
                                                       79,037         82,218
                                                      -------        -------
                                                      $95,520        $89,463
                                                      =======        =======
   The accompanying notes are an integral part of these consolidated financial
   statements.
                                        3PAGE
<PAGE>
 ThermoLase Corporation
 Consolidated Statement of Cash Flows

                                                       Nine Months       Year
                                     Year Ended           Ended          Ended
                                ---------------------  -----------     -------
                                Sept. 28,   Sept. 30,   Sept. 30,    Dec. 31,
 (In thousands)                      1996        1995        1995        1994
 -----------------------------------------------------------------------------
                                           (Unaudited)
 Operating Activities:
   Net income (loss)             $ (1,386)   $ (1,675)   $ (1,679)   $     15
   Adjustments to reconcile net
     income (loss) to net cash
     provided by (used in)
     operating activities:
       Cumulative effect of
         change in accounting
         principle (Note 3)             -           -           -          (9)
       Depreciation and
         amortization               1,482         836         640         741
       Provision for losses on
         accounts receivable           63         153         153          40
       (Gain) loss on sale of
         investments (Note 3)        (115)         41           -          42
       Loss on disposal of
         property and equipment         -         125         125           -
       Deferred lease liability       494           -           -           -
       Changes in current
         accounts, excluding the
         effects of acquisition:
           Accounts receivable       (380)     (1,132)       (540)     (1,093)
           Inventories                934      (2,402)     (1,101)     (1,743)
           Other current assets    (1,221)       (586)       (846)        182
           Accounts payable         1,774       1,859       1,355         796
           Other current
             liabilities            2,205       2,138       1,317        (648)
                                 --------    --------    --------    --------
   Net cash provided by (used
     in) operating activities       3,850        (643)       (576)     (1,677)
                                 --------    --------    --------    --------
 Investing Activities:
   Acquisition, net of cash
     acquired (Note 4)                  -        (197)          -        (197)
   Investment in other assets
     (Note 1)                      (4,400)          -           -           -
   Purchases of available-for-
     sale investments             (49,500)    (49,793)    (49,793)     (9,700)
   Proceeds from maturities of
     available-for-sale
     investments                   56,525      10,700       6,000       3,700
   Proceeds from sale of
     available-for-sale
     investments                      615         959           -       3,958
   Purchases of property and
     equipment                    (13,230)     (2,975)     (1,584)     (2,736)
   Other                              553         256         101         460
                                 --------    --------    --------    --------
   Net cash used in investing
     activities                  $ (9,437)   $(41,050)   $(45,276)   $ (4,515)
                                 --------    --------    --------    --------
                                        4PAGE
<PAGE>
 ThermoLase Corporation
 Consolidated Statement of Cash Flows (continued)

                                                       Nine Months       Year
                                     Year Ended           Ended          Ended
                                ---------------------  -----------     -------
                                Sept. 28,   Sept. 30,   Sept. 30,    Dec. 31,
 (In thousands)                      1996        1995        1995        1994
 -----------------------------------------------------------------------------
                                           (Unaudited)
 Financing Activities:
   Net proceeds from issuance
     of Company common stock
     (Note 5)                    $  2,591    $ 55,544    $ 55,544    $ 14,784
   Payment of withholding taxes
     related to stock option
     exercises                     (2,227)       (776)       (776)          -
   Repayment of promissory note
     to parent company (Note 9)         -           -           -      (5,000)
                                 --------    --------    --------    --------
   Net cash provided by
     financing activities             364      54,768      54,768       9,784
                                 --------    --------    --------    --------
 Increase (Decrease) in Cash
   and Cash Equivalents            (5,223)     13,075       8,916       3,592
 Cash and Cash Equivalents at
   Beginning of Period             13,146          71       4,230         638
                                 --------    --------    --------    --------
 Cash and Cash Equivalents at
   End of Period                 $  7,923    $ 13,146    $ 13,146    $  4,230
                                 ========    ========    ========    ========

 Cash Paid (Refunded) For:
   Interest                      $      -    $      -    $      -    $    116
   Income taxes                  $     12    $     42    $    124    $    (82)

 Noncash Activities:
   Fair value of assets of
     acquired company            $      -    $    479    $      -    $    479
   Cash paid for acquired
     company                            -        (197)          -        (197)
                                 --------    --------    --------    --------
     Liabilities assumed of
       acquired company          $      -    $    282    $      -    $    282
                                 ========    ========    ========    ========


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



                                        5PAGE
<PAGE>
   ThermoLase Corporation
   Consolidated Statement of Shareholders' Investment and Common Stock Subject
   to Redemption

                                       Common         Common
                                        Stock         Stock,       Capital in
                                   Subject to       $.01 Par        Excess of
   (In thousands)                  Redemption          Value        Par Value
   --------------------------------------------------------------------------
   Balance January 1, 1994          $ 14,511       $    130         $      -
   Net income                              -              -                -
   Net proceeds from initial
     public offering of common
     stock (Note 5)                        -             27           14,757
   Accretion related to common
     stock subject to redemption         254              -             (107)
   Expiration of redemption
     rights (Note 1)                 (14,765)            31           14,734
   Cumulative effect of change
     in accounting principle
     (Note 3)                              -              -                -
   Change in net unrealized gain
     (loss) on available-for-
     sale investments (Note 3)             -              -                -
                                    --------       --------         --------
   Balance December 31, 1994               -            188           29,384
   Net loss                                -              -                -
   Effect of two-for-one stock
     split                                 -            188             (188)
   Net proceeds from sale of
     common stock (Note 5)                 -             24           55,311
   Issuance of stock under
     employees' and directors'
     stock plans                           -              1             (153)
   Change in net unrealized gain
     (loss) on available-for-
     sale investments (Note 3)             -              -                -
                                    --------       --------         --------
   Balance September 30, 1995              -            401           84,354
   Net loss                                -              -                -
   Issuance of stock under
     employees' and directors'
     stock plans                           -              7            1,459
   Change in net unrealized gain
     (loss) on available-for-
     sale investments (Note 3)             -              -                -
                                    --------       --------         --------
   Balance September 28, 1996       $      -       $    408         $ 85,813
                                    ========       ========         ========
                                        6PAGE
<PAGE>
   ThermoLase Corporation
   Consolidated Statement of Shareholders' Investment and Common Stock Subject
   to Redemption (continued)


                                                                          Net
                                                                   Unrealized
                                                               Gain (Loss) on
                                                                   Available-
                                  Accumulated       Treasury         for-sale
   (In thousands)                     Deficit          Stock      Investments
   --------------------------------------------------------------------------
   Balance January 1, 1994          $   (319)      $      -         $      -
   Net income                             15              -                -
   Net proceeds from initial
     public offering of common
     stock (Note 5)                        -              -                -
   Accretion related to common
     stock subject to redemption        (147)             -                -
   Expiration of redemption
     rights (Note 1)                       -              -                -
   Cumulative effect of change
     in accounting principle
     (Note 3)                              -              -               (9)
   Change in net unrealized gain
     (loss) on available-for-
     sale investments (Note 3)             -              -             (115)
                                    --------       --------         --------
   Balance December 31, 1994            (451)             -             (124)
   Net loss                           (1,679)             -                -
   Effect of two-for-one stock
     split                                 -              -                -
   Net proceeds from sale of
     common stock (Note 5)                 -              -                -
   Issuance of stock under
     employees' and directors'
     stock plans                           -           (415)               -
   Change in net unrealized gain
     (loss) on available-for-
     sale investments (Note 3)             -              -              132
                                    --------       --------         --------
   Balance September 30, 1995         (2,130)          (415)               8
   Net loss                           (1,386)             -                -
   Issuance of stock under
     employees' and directors'
     stock plans                           -         (3,206)               -
   Change in net unrealized gain
     (loss) on available-for-
     sale investments (Note 3)             -              -              (55)
                                    --------       --------         --------
   Balance September 28, 1996       $ (3,516)      $ (3,621)        $    (47)
                                    ========       ========         ========


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

                                        7PAGE
<PAGE>
    ThermoLase Corporation
    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(SM) for the removal of unwanted hair. The
    SoftLight system uses a low-energy, dermatology laser in combination with
    a lotion that absorbs the laser's energy to disable hair follicles. The
    Company markets the SoftLight hair-removal service in the U.S. through
    its Spa Thira salons and through a network of independent doctors, who
    pay the Company a per-procedure fee, and internationally through joint
    ventures and other licensing arrangements. The Company also manufactures
    and markets skin-care, bath, and body products through its CBI
    Laboratories, Inc. (CBI) subsidiary, which manufactures the lotion used
    in the SoftLight hair-removal process.

    Relationship with ThermoTrex Corporation and Thermo Electron Corporation

         The Company was incorporated in January 1993 as a wholly owned
    subsidiary of ThermoTrex Corporation (ThermoTrex). As of September 28,
    1996, ThermoTrex owned 25,960,996 shares of the Company's common stock,
    representing 64% of such stock outstanding. ThermoTrex is a 51%-owned
    public subsidiary of Thermo Electron Corporation (Thermo Electron).

    Principles of Consolidation

         The accompanying financial statements include the accounts of the
    Company and its wholly owned subsidiary. All significant 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 joint ventures at
    cost, and adjusts the carrying value of the investment to recognize its
    share of earnings or losses of the joint venture. 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

         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 transition period, which ended on September
    30, 1995, was the 39-week period from January 1, 1995 to September 30,
    1995, referenced as "fiscal 1995." References to "fiscal 1996" and "1994"
    are for the years ended September 28, 1996 and December 31, 1994,
    respectively. Fiscal 1996 and 1994 each included 52 weeks. The unaudited
    consolidated statements of operations and cash flows for the 52-week
    period ended September 30, 1995 are presented for comparative purposes
    only.

                                        8PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements
    1.   Nature of Operations and Summary of Significant Accounting Policies
         (continued)

    Revenue Recognition

         The Company generally recognizes product revenues upon shipment.
    The Company offers a variety of treatment plans for its spa-based
    hair-removal 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, in fiscal 1996, was six months based upon the average
    service pattern for customers treated during the year. Deferred revenue
    in the accompanying fiscal 1996 balance sheet represents unearned revenue
    from hair-removal treatments at the Company's Spa Thira salons which will
    be recognized in fiscal 1997.

         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 license fees are
    recorded as revenue at the time the technology is transferred to the
    practitioner. Fees arising from hair-removal procedures performed by
    these physicians are recognized when such procedures are performed.

    Pre-opening Spa Costs

         The Company expenses all pre-opening costs associated with the
    establishment and startup of its Spa Thira salons as such costs are
    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.

    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.

    Earnings (Loss) per Share

         Earnings (loss) per share have been computed based on the weighted
    average number of shares outstanding during the period. Weighted average
    shares in 1994 include the effect of the exercise of stock options that
    were computed using the treasury stock method. Because the effect of the
                                        9PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements
    1.   Nature of Operations and Summary of Significant Accounting Policies
         (continued)

    exercise of stock options would be anti-dilutive in fiscal 1996 and
    fiscal 1995, such options were not included in weighted average shares.

    Cash and Cash Equivalents

         As of September 28, 1996, $6,001,000 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, money market funds, commercial paper, 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. As of September 28, 1996,
    the Company's cash equivalents also included money market fund
    investments. Cash equivalents are carried at cost, which approximates
    market value.

    Available-for-sale Investments

         Pursuant to SFAS No. 115, "Accounting for Certain Investments in
    Debt and Equity Securities," the Company's debt and marketable equity
    securities are accounted for at market value (Note 3).

    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:

    (In thousands)                                          1996      1995
    ----------------------------------------------------------------------
    Raw materials and supplies                           $ 1,521   $ 2,864
    Work in process and finished goods                     2,748     2,339
                                                         -------   -------
                                                         $ 4,269   $ 5,203
                                                         =======   =======








                                       10PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements
    1.   Nature of Operations and Summary of Significant Accounting Policies
         (continued)

    Property 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: machinery and
    equipment -- three to ten years, and leasehold improvements -- the
    shorter of the term of the lease or the life of the asset. Property and
    equipment consist of the following:

    (In thousands)                                          1996      1995
    ----------------------------------------------------------------------
    Machinery and equipment                              $14,384   $ 3,382
    Leasehold improvements                                 6,001     1,325
    Construction in process                                  958       268
                                                         -------    ------
                                                          21,343     4,975
    Less: Accumulated depreciation and amortization        2,020       807
                                                         -------    ------
                                                         $19,323   $ 4,168
                                                         =======   =======
    Other Assets


         In June 1996, ThermoLase purchased $4,400,000 of convertible
    preferred stock of AntiCancer, representing an approximate 10% equity
    interest in AntiCancer on a fully diluted basis. AntiCancer is a San
    Diego-based company that is developing a new chemotherapeutic drug for
    cancer patients, and that is also developing certain technologies that
    may be relevant to the SoftLight hair-removal process and other
    personal-care applications. The Company has the option to purchase for
    $2,500,000 an additional 5% equity interest in AntiCancer on a fully
    diluted basis, exercisable at any time before the earlier of June 19,
    2011, or AntiCancer's initial public offering of stock. This investment
    is being accounted for under the cost method of accounting. In addition,
    the Company has licensed certain technology from AntiCancer (Note 10).


    Cost in Excess of Net Assets of Acquired Company

         The excess of cost over the fair value of net assets of the
    acquired company is amortized using the straight-line method over 40
    years. Accumulated amortization was $658,000 and $422,000 at September
    28, 1996 and September 30, 1995, 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
    business in assessing the recoverability of this asset.

    Deferred Lease Liability

         Deferred lease liability in the accompanying balance sheet
    represents facilities rent which is being recognized ratably over the
    respective lease terms.
                                       11PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements
    1.   Nature of Operations and Summary of Significant Accounting Policies
         (continued)

    Common Stock Subject to Redemption

         Common stock subject to redemption in the accompanying statement of
    shareholders' investment and common stock subject to redemption
    represents amounts associated with redemption rights that were issued in
    March 1993. These redemption rights expired in November 1994, and as a
    result, the Company transferred $14,765,000 of common stock subject to
    redemption to common stock and capital in excess of par value.

    Stock Split

         All weighted average share and per share information has been
    restated to reflect a two-for-one stock split, effected in the form of a
    100% stock dividend, which was distributed in June 1995. 

    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, and due to parent company and affiliated companies. The
    carrying amounts of the Company's cash and cash equivalents, accounts
    receivable, accounts payable, and 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 3 for information pertaining to the fair
    value of available-for-sale investments.

    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.







                                       12PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements
    2.   Unaudited Comparative Results

         The following unaudited financial information for the nine months
    ended October 1, 1994 is presented to provide comparative results for
    fiscal 1995, included in the accompanying statement of operations.

                                                                   Nine
                                                               Months Ended
    (In thousands except per share amounts)                   October 1,1994
    ------------------------------------------------------------------------
    Revenues                                                        $12,878
                                                                    -------

    Costs and Operating Expenses:
      Cost of revenues                                                7,495
      Selling, general and administrative expenses                    3,774
      Research and development expenses                               1,701
                                                                    -------
                                                                     12,970
                                                                    -------

    Operating Loss                                                      (92)

    Interest Income                                                     413
    Interest Expense, Related Party                                    (116)
    Loss on Sale of Investments                                          (1)
                                                                    -------
    Income Before Income Taxes and Cumulative
      Effect of Change in Accounting Principle                          204
    Income Tax Provision                                               (202)
                                                                    -------
    Income Before Cumulative Effect of Change
      in Accounting Principle                                             2
    Cumulative Effect of Change in Accounting
      Principle, Net of Tax                                               9
                                                                    -------
    Net Income                                                      $    11
                                                                    =======
    Earnings per Share Before Cumulative
      Effect of Change in Accounting Principle                      $     -
                                                                    =======
    Earnings per Share                                              $     -
                                                                    =======
    Weighted Average Shares                                          34,759
                                                                    =======








                                       13PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements
    3.   Available-for-sale Investments

         Effective January 2, 1994, the Company adopted SFAS No. 115,
    "Accounting for Certain Investments in Debt and Equity Securities." In
    accordance with SFAS No. 115, the Company's debt and marketable equity
    securities are classified as 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 currently as a component of shareholders' investment titled "Net
    unrealized gain (loss) on available-for-sale investments." Cumulative
    effect of change in accounting principle in the accompanying 1994
    statement of operations represents the reversal of an unrealized loss,
    net of related tax effects, recorded as other expense in the 1993
    statement of operations. This amount was recorded as a reduction of
    shareholders' investment in the accompanying 1994 financial statements.

         The aggregate market value, cost basis, and gross unrealized gains
    and losses of available-for-sale investments by major security type, as
    of September 28, 1996 and September 30, 1995, are as follows:

    1996

                                                         Gross        Gross
                               Market      Cost     Unrealized   Unrealized
    (In thousands)              Value     Basis          Gains       Losses
    -----------------------------------------------------------------------
    Government agency
      securities             $43,458    $43,531       $     -       $   (73)
    Other                        674        674             -             -
                             -------    -------       -------       -------
                             $44,132    $44,205       $     -       $   (73)
                             =======    =======       =======       =======

    1995

                                                         Gross        Gross
                               Market      Cost     Unrealized   Unrealized
    (In thousands)              Value     Basis          Gains       Losses
    -----------------------------------------------------------------------
    Government agency
      securities             $50,647    $50,671       $     -       $   (24)
    Corporate bonds              540        503            37             -
    Other                      1,107      1,107             -             -
                             -------    -------       -------       -------
                             $52,294    $52,281       $    37       $   (24)
                             =======    =======       =======       =======



                                       14PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements
    3.   Available-for-sale Investments (continued)

         Available-for-sale investments in the accompanying 1996 balance
    sheet include $34,051,000 with contractual maturities of one year or less
    and $10,081,000 with contractual maturities of more than one year through
    five years. Actual maturities may differ from contractual maturities as a
    result of the Company's intent to sell these securities prior to maturity
    and as a result of put and call options that enable the Company and/or
    the issuer to redeem these securities at an earlier date.

         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 the 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. Loss on sale of investments in the
    accompanying 1994 statement of operations resulted from gross realized
    gains of $29,000 and gross realized losses of $71,000 relating to the
    sale of available-for-sale investments.


    4.   Joint Venture and Acquisition

    Joint Venture

         In January 1996, the Company entered into a joint venture agreement
    and a technology license agreement to market its SoftLight system in
    Japan. The Company currently holds a 50% stake in the joint venture but
    may increase its ownership to 51% pursuant to a fair-value purchase
    option. Under the terms of the joint venture agreement, the Company will
    receive payments for the use of the SoftLight system equal to 2% of the
    joint venture's revenues through calendar year 2010, with a minimum
    guaranteed payment of $2,000,000 for fiscal 1996, which was recorded in
    fiscal 1996. An additional payment of $1,000,000 is guaranteed for fiscal
    1997, should the formula-derived amount total less than $1,000,000 in
    fiscal 1997. The fiscal 1997 amount is subject to certain exceptions in
    the event the joint venture is unable to obtain patent protection in
    Japan on certain prescribed terms, although as amounts are paid, they
    become nonrefundable without regard to the status of patents in Japan. If
    cumulative licensing fees paid to the Company exceed $50,000,000, the
    rate will decrease to .25% through calendar year 2010. Starting in
    calendar year 2011, the rate will be 1%.

    Acquisition

         On November 14, 1994, CBI acquired substantially all of the assets,
    subject to certain liabilities, of Marcor Laboratories, Inc. (Marcor) for
    $136,000 in cash and the repayment of $61,000 of existing indebtedness of
    Marcor. Marcor distributes skin-care products. This acquisition has been
    accounted for using the purchase method of accounting, and its results of
    operations have been included in the accompanying financial statements
    from the date of acquisition. Allocation of the purchase price for this
    acquisition was based on estimates of the fair value of the net assets
    acquired.

                                       15PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements
    5.   Common Stock

         In June 1995, the Company sold 200,000 shares of its common stock
    in private placements for net proceeds of $2,563,000. In August 1995, the
    Company sold 2,250,000 shares of its common stock in a public offering
    for net proceeds of $52,772,000.

         In July 1994, the Company sold 5,349,572 shares of its common stock
    in connection with its initial public offering, pursuant to a rights
    offering, for net proceeds of $14,784,000.

         At September 28, 1996, the Company had reserved 3,420,940 unissued
    shares of its common stock for possible issuance under stock-based
    compensation plans.


    6.   Stock-based Compensation 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. A third
    plan, adopted in fiscal 1995, permits 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 generally lapse ratably over
    periods ranging from four 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 or its majority-owned subsidiaries.




                                       16PAGE
<PAGE>
ThermoLase Corporation
Notes to Consolidated Financial Statements

6.    Stock-based Compensation Plans (continued)

     No accounting recognition is given to options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity. A summary of the Company's stock option
information for fiscal 1996, fiscal 1995, and 1994 is as follows:

                            1996                 1995               1994
                      -----------------   -----------------   ----------------
                               Range of            Range of           Range of
                                 Option              Option             Option
                       Number    Prices   Number     Prices  Number     Prices
(In thousands except       of       per       of        per      of        per
per share amounts)     Shares     Share   Shares      Share  Shares      Share
------------------------------------------------------------------------------
Options outstanding,            $ 1.75-             $ 1.75-            $ 1.75-
  beginning of year     3,341   $20.53     2,707    $ 4.68     2,477   $ 2.50
                                 23.48-              11.74-              3.00-
    Granted               339    29.55       872     20.53       236     4.68
                                  1.75-               1.75-
    Exercised            (746)   11.74      (184)     2.50         -        -
                                  2.50-               1.75-
    Lapsed or cancelled  (114)   20.53       (54)     2.50        (6)    2.50
                        -----              -----               -----
Options outstanding,            $ 1.75-             $ 1.75-            $ 1.75-
  end of year           2,820   $29.55     3,341    $20.53     2,707   $ 4.68
                        =====              =====               =====
                                $ 1.75-             $ 1.75-
Options exercisable     2,820   $29.55     3,341    $20.53         -   $    -
                        =====              =====               =====
Options available
  for grant               451                676                 493
                        =====              =====               =====





                                       17PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements

    7.   Employee Benefit Plans

    Employee Stock Purchase Plan

         Prior to November 1, 1996, substantially all of the Company's
    full-time employees could participate in an employee stock purchase plan
    sponsored by ThermoTrex, under which employees could purchase shares of
    ThermoTrex's and Thermo Electron's common stock. Effective November 1,
    1996, substantially all of the Company's full-time employees may
    participate in employee stock purchase plans sponsored by the Company and
    Thermo Electron, under which employees can purchase shares of the
    Company's and Thermo Electron's common stock.  Under these plans, shares
    of common stock may be purchased at the end of a 12-month plan year at
    95% of the fair market value at the beginning of the plan year, and the
    shares purchased are subject to a six-month resale restriction. Prior to
    November 1, 1995, the applicable shares of common stock could be
    purchased at 85% of the fair market value at the beginning of the plan
    year, and the shares purchased were subject to a one-year resale
    restriction. Shares are purchased through payroll deductions of up to 10%
    of each participating employee's gross wages.

    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 $144,000 and $108,000 in fiscal 1996 and
    fiscal 1995, respectively.


    8.   Income Taxes

         The components of the income tax (provision) benefit for fiscal
    1996, fiscal 1995, and 1994 are as follows:

    (In thousands)                                 1996      1995      1994
    -----------------------------------------------------------------------
    Currently refundable (payable):
      Federal                                    $  80     $ 154     $(177)
      State                                         25       (82)     (116)
                                                 -----     -----     -----
                                                   105        72      (293)
                                                 -----     -----     -----
    Deferred:
      Federal                                      328       609        28
      State                                         30        40         5
                                                 -----     -----     -----
                                                   358       649        33
                                                 -----     -----     -----
                                                 $ 463     $ 721     $(260)
                                                 =====     =====     =====


                                       18PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements

    8.   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 income (loss) before income taxes and
    cumulative effect of change in accounting principle due to the following:

    (In thousands)                                  1996      1995     1994
    -----------------------------------------------------------------------
    Income tax (provision) benefit
      at statutory rate                          $  629    $  816    $ (90)
    Differences resulting from:
      State income taxes, net of federal tax         36       (28)     (73)
      Nondeductible expenses                       (202)      (67)     (97)
                                                 ------    ------    -----
                                                 $  463    $  721    $(260)
                                                 ======    ======    =====

         Prepaid income taxes in the accompanying balance sheet consist of
    the following:

    (In thousands)                                  1996      1995
    --------------------------------------------------------------
    Prepaid income taxes:
      Net operating loss                         $2,226    $  660
      Inventory basis differences                   714       431
      Accruals and other reserves                   207       133
      Accrued compensation                          212       129
      Allowance for doubtful accounts               121        96
      Other, net                                     65       104
                                                 ------    ------
                                                  3,545     1,553
      Less: Valuation allowance                   1,663       701
                                                 ------    ------
                                                 $1,882    $  852
                                                 ======    ======

         The year-end 1996 valuation allowance relates to employee exercises
    of stock options for which no tax benefit was recognized, and will be
    used to increase capital in excess of par value when the net operating
    loss is realized. The year-end 1995 valuation allowance related primarily
    to the uncertainty surrounding the realization of future tax benefits
    associated with acquisition reserves related to CBI, and was used to
    reduce cost in excess of net assets of acquired company during fiscal
    1996, when such uncertainty was reduced. As of September 28, 1996, the
    Company had federal tax net operating loss carryforwards of $6,184,000
    that begin to expire in fiscal 2009.




                                       19PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements

    9.   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 pays Thermo Electron
    annually an amount equal to 1.0% of the Company's revenues. The Company
    paid an annual fee equal to 1.20% and 1.25% of the Company's revenues in
    calendar year 1995 and 1994, respectively. The annual fee is reviewed and
    adjusted annually by mutual agreement of the parties. For these services,
    the Company was charged $293,000, $211,000, and $234,000 in fiscal 1996,
    fiscal 1995, and 1994, respectively. 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 provides certain services to the Company, which are
    charged to the Company based on actual usage. These services include
    personnel administration, accounting, data processing, and general
    administrative management. For these services, the Company was charged
    $327,000, $175,000, and $101,000 in fiscal 1996, fiscal 1995, and 1994,
    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 $125,000, $22,000, and $16,000 in fiscal 1996,
    fiscal 1995, and 1994, respectively. Currently, the cost of the area
    occupied by the Company is $223,000 per year. 

    Repurchase Agreement

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

                                       20PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements

    9.   Related Party Transactions (continued)

    Short-term Borrowings

         To help finance the acquisition of CBI in December 1993, the
    Company borrowed $5,000,000 from ThermoTrex, pursuant to a promissory
    note due December 1994 and bearing interest at the 90-day Commercial
    Paper Composite Rate plus 25 basis points. The weighted average interest
    rate of the promissory note was 4.16% in 1994. This note was repaid in
    July 1994 with proceeds from the Company's initial public offering of
    common stock.

    Laser Manufacturing Arrangement

         During fiscal 1996 and fiscal 1995, the Company purchased laser
    systems at an aggregate cost of $8,549,000 and $350,000, respectively,  
    from Trex Medical Corporation, a publicly traded, majority-owned
    subsidiary of ThermoTrex. The Company has committed to purchase
    additional lasers at an aggregate cost of $6,402,000.


    10.  Commitments and Contingencies

    Operating Leases

         In addition to the leases described in Note 9, the Company occupies
    office, manufacturing, warehouse, and service facilities under
    noncancellable operating lease arrangements that expire at various dates
    through 2006. The accompanying statement of operations includes expenses
    from operating leases of $915,000, $316,000, and $534,000 in fiscal 1996,
    fiscal 1995, and 1994, respectively. Future minimum payments due under
    noncancellable operating leases as of September 28, 1996, are $1,604,000
    in fiscal 1997; $1,812,000 in fiscal 1998; $1,829,000 in fiscal 1999;
    $1,912,000 in fiscal 2000; $2,145,000 in fiscal 2001; and $7,968,000 in
    fiscal 2002 and thereafter. Total future minimum lease payments are
    $17,270,000.

    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 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.


                                       21PAGE
<PAGE>
    ThermoLase Corporation
    Notes to Consolidated Financial Statements

    10.  Commitments and Contingencies (continued)

         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.

    Contingencies

         The Company has from time to time received allegations that its
    SoftLight laser-based 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 without a license 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.


    11.  Export Sales

         Export sales were $2,820,000 in fiscal 1996, and were less than 10%
    of the Company's total revenues in fiscal 1995 and 1994. In general,
    export sales are denominated in U.S. dollars.


    12.  Unaudited Quarterly Information

    (In thousands except per share amounts)

                                           Three Months Ended
                              --------------------------------------------
                              Dec. 30,   March 30,   June 29,   Sept. 28,
    Fiscal 1996                   1995        1996       1996        1996
    Revenues                   $ 7,400     $ 7,020    $ 6,314     $ 7,078
    Gross profit                 2,240       2,617      1,813       1,115
    Net loss                       (82)        (77)       (22)     (1,205)
    Loss per share                   -           -          -        (.03)


                                          April 1,    July 1,    Sept. 30,
    Fiscal 1995 (a)                           1995       1995         1995
    Revenues                               $ 6,109    $ 5,642      $ 5,793
    Gross profit                             2,515      2,115        1,490
    Net loss                                   (46)      (499)      (1,134)
    Loss per share                               -       (.01)        (.03)

    (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.


                                       22PAGE
<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 64%-owned subsidiary of
   ThermoTrex Corporation) and subsidiary as of September 28, 1996 and
   September 30, 1995, and the related consolidated statements of operations,
   shareholders' investment and common stock subject to redemption, and cash
   flows for the year ended September 28, 1996, the nine months ended
   September 30, 1995, and the year ended December 31, 1994. 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 subsidiary as of September 28, 1996 and
   September 30, 1995, and the results of their operations and their cash
   flows for the year ended September 28, 1996, the nine months ended
   September 30, 1995, and the year ended December 31, 1994, in conformity
   with generally accepted accounting principles.



                                          Arthur Andersen LLP



   Boston, Massachusetts
   November 1, 1996





                                       23PAGE
<PAGE>
    ThermoLase Corporation


    Management's Discussion and Analysis of Financial Condition and Results
    of Operations

         Forward-looking statements, within the meaning of Section 21E of the
    Securities Exchange Act of 1934, are made throughout this Management's
    Discussion and Analysis of Financial Condition and Results of Operations.
    These statements involve a number of risks and uncertainties, including
    those detailed immediately after this Management's Discussion and
    Analysis of Financial Conditions and Results of Operations under the

    caption "Forward-looking Statements."

    Overview

         The Company has developed a laser-based system called SoftLight(SM)
    for the removal of unwanted hair. The SoftLight system uses a low-energy,
    dermatology laser in combination with a lotion that absorbs the laser's
    energy to disable hair follicles. In April 1995, the Company received
    clearance from the U.S. Food and Drug Administration (FDA) to
    commercially market services using the SoftLight system. The Company
    began earning revenue from the SoftLight system in the first quarter of
    fiscal 1996 as a result of opening its first commercial salon (Spa Thira)
    in La Jolla, California, in November 1995. The Company opened additional
    salons in Dallas in June 1996, in Houston and Beverly Hills in September
    1996, in Denver in October 1996, and in Boca Raton in November 1996. The
    Company also plans to open a salon in suburban Detroit in December 1996
    and has signed leases for four additional sites in Greenwich,
    Connecticut; Manhasset, New York; suburban Minneapolis, and Palm Beach,
    Florida. In June 1996, the Company initiated a program to license to
    doctors the right to perform the Company's patented SoftLight
    hair-removal procedure. In this program, the Company licenses its
    technology to physicians and receives a per-procedure royalty that varies
    depending on the location treated. The Company also provides the doctors
    with the lasers and supplies that are necessary to perform the service.
    The Company is marketing the SoftLight system internationally through
    joint ventures and other licensing arrangements, including separate joint
    ventures established in Japan in January 1996 and in France in November
    1996, and a licensing arrangement established in Saudi Arabia in November
    1996. The Company also manufactures and markets skin-care, bath, and body
    products through its CBI Laboratories, Inc. (CBI) subsidiary, which
    manufactures the lotion used in the SoftLight hair-removal process.

    Results of Operations

         In September 1995, the Company changed its fiscal year end from the
    Saturday nearest December 31 to the Saturday nearest September 30.
    Accordingly, the results of operations for 1996 compares the year ended
    September 28, 1996 (fiscal 1996) with the unaudited year ended September
    30, 1995 (1995). The results of operations for 1995 compares the nine
    months ended September 30, 1995 (fiscal 1995) with the unaudited nine
    months ended October 1, 1994 (fiscal 1994).

                                       24PAGE
<PAGE>
    ThermoLase Corporation

    Fiscal 1996 Compared With 1995

         Revenues increased 19% to $27,812,000 in fiscal 1996 from
    $23,348,000 in 1995, primarily due to the inclusion of $2,647,000 of
    revenues from the Company's Spa Thira salons and doctors' licensing
    program, as well as $2,000,000 in SoftLight licensing fees from the joint
    venture established in Japan in January 1996. Revenues at CBI were
    $23,165,000 in fiscal 1996, compared with $23,348,000 in 1995. The
    Company estimates that CBI will continue to represent a smaller portion
    of total revenues as revenues from hair-removal services increase.

         During fiscal 1996, the Company opened its first four Spa Thira
    salons, including two which opened in September 1996. Under the current
    pricing structure, the majority of spa clients pay a fixed fee in advance
    to receive a series of treatments, as necessary. Consequently, the
    Company defers revenue related to such payments, which is recognized over
    the anticipated treatment period. As the Company collects further data
    concerning the number of treatments required and duration of the
    treatment period, the period of revenue recognition may be affected.

         In January 1996, the Company entered into a joint venture agreement
    to market the SoftLight process in Japan, as well as its laser-based
    skin-rejuvenation process, if and when available. The Company currently
    holds a 50% stake in the joint venture with an option to increase its
    ownership to 51% pursuant to a fair-value purchase option. The agreement
    calls for the Company to receive minimum guaranteed payments of
    $1,000,000 in fiscal 1997, subject to certain exceptions in the event the
    joint venture is unable to obtain patent protection in Japan on
    prescribed terms.

         The gross profit margin in fiscal 1996 was 28%, compared with 37%
    in 1995. The gross profit margin from the Company's hair-removal business
    was negative 7% in fiscal 1996 due to the early operations of the Spa
    Thira business, which has been operating below maximum capacity as the
    Company develops a client base, continues refining its operating
    procedures, and incurs pre-opening costs in connection with new spa
    openings, offset in part by the effect of revenues from the joint venture
    in Japan and doctors' licensing program. As the Company opens additional
    Spa Thira locations in fiscal 1997, the effect of operating each spa
    below maximum capacity as the Company develops its client base, as well
    as pre-opening costs, will have a negative impact on the consolidated
    gross profit margin. The gross profit margin from the sale of skin care
    and other personal care products at CBI was 35% in fiscal 1996, compared
    with 37% in 1995. The decline in the gross profit margin was the result
    of a shift at CBI to lower-margin products sold to high volume retailers
    in fiscal 1996.

         Selling, general and administrative expenses as a percentage of
    revenues was 35% in both periods, with an increase to $9,761,000 in
    fiscal 1996 from $8,128,000 in 1995. The increase was primarily due to
    costs related to setting up a personal-care service organization for Spa
    Thira, including the hiring of senior management and administrative
                                       25PAGE
<PAGE>
    ThermoLase Corporation

    Fiscal 1996 Compared With 1995 (continued)

    staff, as well as legal costs associated with expanding the Company's
    hair-removal business domestically and internationally, offset in part by
    lower spending at CBI.

         Research and development expenses decreased to $3,470,000 in fiscal
    1996 from $3,774,000 in 1995. The Company expects to increase its
    research and development expenses in fiscal 1997, as it increases
    pre-clinical and clinical research related to improving the effectiveness
    of the Company's hair-removal process and developing its skin-
    rejuvenation process and investigates other health and beauty
    applications for its proprietary laser technology.

         Interest income increased to $3,482,000 in fiscal 1996 from
    $971,000 in 1995, primarily as a result of interest income earned on
    invested proceeds from the Company's August 1995 public offering of
    common stock and June 1995 private placement of common stock.

         The effective tax rates in both periods differ from the statutory
    federal income tax rate due to nondeductible amortization of cost in
    excess of net assets of acquired company, incurred in connection with the
    acquisition of CBI, and the impact of CBI's state income taxes.


    Fiscal 1995 Compared With Fiscal 1994

         Revenues increased 36% to $17,544,000 in fiscal 1995 from
    $12,878,000 in fiscal 1994, primarily due to an increase in demand as a
    result of the Company's focus on designing and selling custom brands of
    its skin-care and other personal-care products to large retailers and, to
    a lesser extent, the inclusion of $1,025,000 in additional revenues from
    Marcor, which was acquired in November 1994.

         The gross profit margin was 35% in fiscal 1995, compared with 42%
    in fiscal 1994. The decline in the gross profit margin in fiscal 1995 was
    due to lower margins on the sale of skin-care and other personal-care
    products as a result of an increase in the price of raw materials and a
    shift in product mix. In addition, the decline in the gross profit margin
    resulted from pre-opening costs of the first Spa Thira salon. These
    decreases were offset in part by the inclusion in fiscal 1994 of a
    nonrecurring adjustment to expense $250,000 of inventory revalued at the
    time of CBI's acquisition by the Company. 

         Selling, general and administrative expenses increased to
    $6,158,000 in fiscal 1995 from $3,774,000 in fiscal 1994, primarily due
    to increased selling efforts to expand the market for the Company's
    skin-care and other personal-care products. In addition, during the third
    quarter of fiscal 1995, the Company hired a chief executive officer and a
    vice president of operations, which resulted in an increase in the
    Company's administrative expenses.

         Research and development expenses increased to $3,151,000 in fiscal
    1995 from $1,701,000 in fiscal 1994, due to the acceleration of the
                                       26PAGE
<PAGE>
    ThermoLase Corporation


    Fiscal 1995 Compared With Fiscal 1994 (continued)

    Company's research and development efforts associated with the SoftLight
    system, including process optimization studies.

         Interest income increased to $789,000 in fiscal 1995 from $413,000
    in fiscal 1994, as a result of interest income earned on invested
    proceeds from the Company's August 1995 public offering of common stock,
    June 1995 private placement of common stock, and July 1994 initial public
    offering of common stock. Interest expense, related party in 1994
    represents interest associated with a $5,000,000 promissory note issued
    to ThermoTrex Corporation (ThermoTrex) in connection with the acquisition
    of CBI. This note was repaid in full in July 1994.

         The effective tax rates in fiscal 1995 and fiscal 1994 differ from
    the statutory federal income tax rate due to nondeductible amortization
    of cost in excess of net assets of acquired company, incurred in
    connection with the acquisition of CBI, and the impact of CBI's state
    income taxes.

    Liquidity and Capital Resources

         Working capital was $47,197,000 at September 28, 1996, compared
    with $68,691,000 at September 30, 1995. Included in working capital are
    cash, cash equivalents, and available-for-sale investments of $52,055,000
    at September 28, 1996, compared with $65,440,000 at September 30, 1995.
    Operating activities provided cash of $3,850,000 during fiscal 1996,
    primarily due to an increase in accounts payable and other accrued
    expenses, including an increase in deferred revenue of $913,000 related
    to the Company's Spa Thira salons.

         During fiscal 1996, the Company expended $13,230,000 for purchases
    of property and equipment. The Company purchased laser systems from Trex
    Medical Corporation, a publicly traded, majority-owned subsidiary of
    ThermoTrex, for an aggregate cost of $8,549,000, including $3,132,000 of
    purchases made during the fourth quarter, which are included in due to
    parent company and affiliated companies in the accompanying 1996 balance
    sheet. The Company has committed to purchase additional lasers at an
    aggregate cost of $6,402,000.

         During fiscal 1996, the Company expended $4,400,000 for an
    approximate 10% equity interest in AntiCancer Incorporated (AntiCancer).
    Pursuant to a licensing agreement entered into with AntiCancer, the
    Company will pay up to $1,500,000 upon the attainment of certain
    milestones by AntiCancer, and is substantially responsible for
    development costs incurred after the attainment of such milestones
    (Note 10).

         In November 1996, the Company entered into a joint venture
    agreement, which is subject to certain conditions, to market its
    SoftLight system in France, as well as its laser-based skin-rejuvenation
    process, if and when available. The Company has committed to provide up

                                       27PAGE
<PAGE>
    ThermoLase Corporation


    Liquidity and Capital Resources (continued)

    to $5,000,000 to fund working capital requirements of the joint venture
    in exchange for its 50% stake in the joint venture.

         In September 1996, the Company's Board of Directors authorized the
    repurchase by the Company of up to $10,000,000 of Company common stock
    through August 28, 1997, in market transactions or pursuant to the
    exercise by investors of standardized put options written on the
    Company's common stock. As of December 1, 1996, no shares had been
    repurchased, however the Company had contingent obligations under
    outstanding put options to purchase up to 80,000 shares for $1,500,000.

         In addition to the Denver, Boca Raton, and suburban Detroit spas
    which were being completed as of September 28, 1996, the Company has
    signed leases in Greenwich, Connecticut; Manhasset, New York; suburban
    Minneapolis; and Palm Beach, Florida, where it plans to open additional
    Spa Thira salons. The Company plans to open between 10 and 20 additional
    spas in various parts of the United States during fiscal 1997. Depending
    on the size of the salon, each facility will require approximately
    $1,500,000 to $2,500,000 for such items as leasehold improvements and
    laser systems. In addition, the Company expects to expend between
    $8,000,000 and $10,000,000 during fiscal 1997 for equipment related to
    its program to license doctors the right to perform hair-removal
    services. Although the Company has no material commitments for capital
    expenditures, except as noted above, such expenditures will largely be
    affected by the number of Spa Thira locations that can be developed and
    the number of doctors engaged in the licensing program. The Company
    believes its existing resources will be sufficient to meet the capital
    requirements of its existing businesses for the foreseeable future.

    Forward-looking Statements - Risk Factors

         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 1997 and beyond to
    differ materially from those expressed in any forward-looking statements
    made by, or on behalf of, the Company.

         Need for Continued Product Development. The Company continues to
    study the SoftLight system to better understand the effects of the system
    and to develop the system in order to increase its effectiveness and the
    length of time between treatments. These studies will also be used to
    further clarify the duration for which hair can be removed, the number of
    treatments required to effectively remove hair from a given area, and the
    effectiveness of the process across a broad range of skin types and
    anatomical sites. In addition, the Company is continuing to monitor
    subjects and customers for the development of possible side effects.
    Failure to further improve the SoftLight process, including extending the
    duration for which hair can be removed, may limit the Company's ability
    to successfully commercialize the SoftLight process.


                                       28PAGE
<PAGE>
    ThermoLase Corporation


    Forward-looking Statements - Risk Factors (continued)

         Uncertain Market Acceptance. The SoftLight process is significantly
    different from current commercially available hair-removal technologies.
    With any new cosmetic technology, there is a risk that the marketplace
    may not accept, or be receptive to, the potential benefits of such
    technology. Market acceptance of the SoftLight process will depend, in
    large part, upon the ability of the Company to demonstrate to consumers
    the safety and effectiveness of the SoftLight process and its advantages
    over other types of hair-removal treatment. There can be no assurance
    that the SoftLight process will be accepted by the general public. The
    Company's skin-rejuvenation system is also different from current
    skin-rejuvenation treatments and, if successfully developed, will be
    subject to similar market acceptance risks.

         Need to Manage Growth and to Attract Qualified Personnel. The
    Company presently intends to commercialize the SoftLight process in the
    United States primarily through affiliated spas and a network of
    physicians using the process as part of their practices. The Company will
    be required to recruit and train a large number of personnel for its
    spas, including medical staff such as physicians, registered nurses,
    physician assistants, or other personnel. There may be only a limited
    number of such persons with the requisite skills, and it may become
    increasingly difficult for the Company to hire such personnel over time.
    The Company will also be required to recruit qualified physicians for its
    network of physician practices that offer the SoftLight process. Such
    qualified physicians may not be available or interested in offering the
    SoftLight process in their private practices. The Company's
    commercialization strategy may also significantly strain operational,
    management, financial, sales and marketing, and other resources. To
    manage growth effectively, the Company must continue to enhance its
    systems and controls and successfully expand, train, and manage its
    employee base and physician network. There can be no assurance that the
    Company will be able to manage this expansion effectively.

         Dependence Upon Proprietary Technology. There can be no assurance
    that other companies are not investigating or developing other
    technologies that are similar to the ThermoLase technology, that any
    additional patents will be issued to the Company, or that the Company's
    patents or any additional patents, if issued, will afford the Company
    sufficiently broad patent coverage to provide any significant deterrent
    to competitive products or services. In the event the Company becomes
    involved in a patent infringement claim, the expense of litigating such
    claim may be costly. In addition, there may be patents or intellectual
    property rights owned by others, which, if infringed by the Company,
    would permit the owner to prevent the Company from using the SoftLight
    process without a license and to be entitled to damages for past
    infringement. The Company has from time to time received allegations that
    the SoftLight process infringes the intellectual property rights of
    others, and the Company may continue to receive such allegations in the
    future. There can be no assurance that litigation relating to such a
    claim will not be brought against the Company. If the Company is
    obligated to devote substantial financial or management resources to
    patent litigation, its ability to fund its operations and to pursue its

                                       29PAGE
<PAGE>
    ThermoLase Corporation

    Forward-looking Statements - Risk Factors (continued)

    business goals may be impaired. The issuance of additional patents to the
    Company and the validity and enforceability of such patents may be
    essential to the success of the Company

         Uncertainty of Development of Skin-rejuvenation System. The
    Company's skin-rejuvenation system is at an early stage of development.
    The Company received a United States patent covering this system in June
    1995 and, in late 1995, began clinical trials at a Westwood, New Jersey,
    clinical site and at the University of New Mexico to determine the safety
    and efficacy of the system. The Company is required to complete its
    clinical trials and to obtain FDA clearance before it can commercially
    market its skin-rejuvenation system. There can be no assurance that the
    clinical studies will support the Company's belief as to the
    effectiveness of the skin-rejuvenation system.

         Need to Comply with FDA Regulations. The SoftLight process is
    subject to FDA regulations governing the use and marketing of medical
    devices. The Company's hair-removal system received FDA clearance in
    April 1995; however, its skin-rejuvenation system must receive FDA
    clearance before it can be commercially used in the United States. In
    addition, the Company will be subject to requirements in certain foreign
    countries where the SoftLight process may be marketed. The process of
    obtaining regulatory approvals is lengthy, expensive, and inherently
    uncertain. No assurance can be given that the FDA will not require the
    Company to perform substantial clinical trials before clearance is
    granted. There can be no assurance that the appropriate clearances from
    the FDA will be granted or that the process to obtain such clearances
    will not be excessively expensive or lengthy.

         Most of CBI's products are classified as cosmetics, are regulated
    by the FDA, and are subject to inspection. Furthermore, CBI manufactures
    a few preparations, principally sun blocks and skin-fading agents, which
    are classified as pharmaceuticals, and CBI has a FDA license for this
    purpose. This license requires, among other things, that CBI adheres to
    the FDA's Good Manufacturing Practices procedures for pharmaceuticals,
    and CBI is subject to facilities inspection by the FDA.

         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 also may
    require post-market testing and surveillance programs 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
    criminal prosecutions.

         Need to Comply with State Regulations. The Company recognizes, for
    purposes of commercializing its centers, that the operation of the
    SoftLight process may be deemed by certain regulators to constitute the
    practice of medicine. If operation of the SoftLight process is determined
    to involve the practice of medicine, the degree of physician involvement
    required under applicable laws and regulations in delivering the process
    is unclear. In addition, many states prohibit business corporations from
                                       30PAGE
<PAGE>
    ThermoLase Corporation


    Forward-looking Statements - Risk Factors (continued)

    engaging in the practice of medicine, employing physicians, or entering
    into certain financial arrangements with physicians, including fee
    splitting.

         The Company believes there are several possible structures it can
    employ to provide for physician involvement where required, including,
    where possible, direct employment and independent contractor status. In
    some states, including California, however, the Company will be required
    to license the right to use the SoftLight process to an independent
    medical corporation. However, no formal ruling regarding the Company's
    various structures and relationships has been obtained from any
    government agency and there can be no assurance that any such ruling
    would deem such structures and relationships in compliance with
    applicable laws and regulations. There can be no assurance that review of
    the Company's business by courts or healthcare, tax, labor, and other
    regulatory authorities that have jurisdiction over matters including,
    without limitation, the corporate practice of medicine, licensure of
    facilities and equipment, and franchising will not result in
    determinations that could adversely affect the operations of the Company
    or that the healthcare regulatory environment will not change in a manner
    that would restrict the Company's proposed operations or limit the
    expansion of the Company's business or otherwise adversely affect the
    Company.

         Limited Operating History. To date, the Company has made only
    limited commercial sales of services using the SoftLight process through
    its spas currently in operation and through its physician network. The
    members of the Company's current senior management, substantially all of
    whom have joined the Company within the last eighteen months, continue to
    develop the marketing and commercialization strategy for the Company.
    However, because the Company has opened only six spas and has only
    recently had sales through its physician network, it has only a limited
    operating history on which to base such strategy. No assurance can be
    given that the Company will be able to devise a successful marketing and 
    commercialization strategy or attract the personnel necessary to
    effectively implement such strategy.

         Intense Competition. Competition in the market for personal-care
    products and services is very intense. The SoftLight process will compete
    with electrolysis and other methods of hair removal, including persons
    who may attempt to infringe the Company's patents. In addition, a number
    of laser manufacturers have recently announced that they have filed
    applications with the FDA seeking to obtain clearance to market a laser
    for hair removal. Competition from these sources could limit the
    Company's ability to charge premium prices for its hair-removal services.
    In addition, the Company's services could be rendered obsolete or
    uneconomical by the introduction of new hair-removal products or
    processes.



                                       31PAGE
<PAGE>
 ThermoLase Corporation

 Selected Financial Information

                                        Nine Months
 (In thousands          Year Ended       Ended (a)          Year Ended
                   --------------------  ---------  ---------------------------
 except per        Sept. 28,  Sept. 30,  Sept. 30,  Dec. 31,   Jan. 1,  Jan. 2,
 share amounts)         1996       1995   1995 (b)  1994 (c)  1994 (d)     1993
 ------------------------------------------------------------------------------
                             (Unaudited)
 Statement of
   Operations Data:
     Revenues        $27,812    $23,348    $17,544   $18,682   $   625 $     -
     Income (loss) 
       before cumul-
       ative effect
       of change in
       accounting
       principle      (1,386)    (1,675)    (1,679)        6       (16)    (215)
     Net income
       (loss)         (1,386)    (1,675)    (1,679)       15       (16)    (215)
     Earnings (loss)
       per share
       before cumula-
       tive effect
       of change in 
       accounting
       principle        (.03)      (.04)      (.04)        -         -    (.01)
     Earnings (loss)
       per share        (.03)      (.04)      (.04)        -         -    (.01)

 Balance Sheet Data:
   Working capital   $47,197               $68,691   $16,325   $ 3,610 $     -
   Total assets       95,520                89,463    33,570    23,551      71
   Long-term 
     obligations           -                     -         -         -       -
   Common stock
     subject to
     redemption            -                     -         -    14,511       -
   Shareholders' 
    investment        79,037                82,218    28,997      (189)     71

 (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 the net proceeds of the Company's private placements and public
     offering of common stock.
 (c) Reflects the net proceeds of the Company's initial public offering and the
     adoption of Statement of Financial Accounting Standards (SFAS) No. 115,
     "Accounting for Certain Investments in Debt and Equity Securities."
 (d) Reflects the net proceeds of the Company's private placement and the
     December 1993 acquisition of CBI Laboratories.
                                       32PAGE
<PAGE>
    ThermoLase Corporation


    Common Stock Market Information

         The following table shows the market range for the Company's common
    stock based on reported sales prices on the American Stock Exchange
    (symbol TLZ) for fiscal 1996 and fiscal 1995. Prices have been restated
    to reflect a two-for-one stock split distributed in June 1995.

                               Fiscal 1996              Fiscal 1995
                          ---------------------    ---------------------
    Quarter                    High         Low         High         Low
    --------------------------------------------------------------------
    First                 $27 5/8     $17 1/4      $ 6 15/16   $ 3  5/8
    Second                 31          20 7/8       22  3/8      5 15/16
    Third                  36 1/2      24 1/4       25  1/2     19  1/2
    Fourth                 30 3/4      19 7/8

         As of November 22, 1996, the Company had 503 holders of record of
    its common stock. This does not include holdings in street or nominee
    names. The closing market price on the American Stock Exchange for the
    Company's common stock on November 22, 1996, was $20 1/8 per share.

    Stock Transfer Agent

         American Stock Transfer & Trust Company is the stock transfer agent
    and maintains shareholder activity records. The agent will respond to
    questions on issuances of stock certificates, changes of ownership, lost
    stock certificates, and changes 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

    Shareholder Services

         Shareholders of ThermoLase Corporation who desire information about
    the Company are invited to contact John N. Hatsopoulos, Vice President
    and Chief Financial Officer, ThermoLase Corporation, 81 Wyman Street,
    P.O. Box 9046, Waltham, Massachusetts 02254-9046, (617) 622-1111. A
    mailing list is maintained to enable shareholders whose stock is held in
    street name, and other interested individuals, to receive quarterly
    reports, annual reports, and press releases as quickly as possible.
    Beginning with the 1997 fiscal year, quarterly distributions will be
    limited to the second quarter report only.  All quarterly reports and
    press releases are also available through the Internet at the Company's
    home page on the World Wide Web (http://www.thermo.com/subsid/tlz.html).



                                       33PAGE
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    ThermoLase Corporation


    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.

    Form 10-K Report

         A copy of the Annual Report on Form 10-K for the year ended
    September 28, 1996, as filed with the Securities and Exchange Commission,
    may be obtained at no charge by writing to John N. Hatsopoulos, Vice
    President and Chief Financial Officer, ThermoLase Corporation, 81 Wyman
    Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046.

    Annual Meeting

         The annual meeting of shareholders will be held on Wednesday, March
    12, 1997, at 10:00 a.m. at the Westin Hotel, 70 Third Avenue, Waltham,
    Massachusetts.