UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-15443
THERAGENICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 58-1528626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5325 Oakbrook Parkway
Norcross, Georgia 30093
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 271-0233
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X _ NO ___
As of November 12, 1998 the number of shares of $.01 par value common stock
outstanding was 29,391,762.
THERAGENICS CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Page No.
Condensed Balance Sheets
December 31, 1997 and September 30, 1998 . . . . . . . . . . . . 3
Condensed Statements of Earnings
For the three and nine months ended September 30, 1997 and 1998 . 5
Condensed Statements of Cash Flows
For the three and nine months ended September 30, 1997 and 1998 . 6
Condensed Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 1998 . . . . . . . . . . 7
Notes to Condensed Financial Statements . . . . . . . . . . . . . 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
THERAGENICS CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
December 31, September 30,
1997 1998
<S> <C> <C>
------------------ ------------------
CURRENT ASSETS
Cash and short-term investments $30,161,614 $21,685,191
Marketable securities 8,391,807 6,714,375
Trade accounts receivable 2,925,390 4,492,496
Inventories 433,873 670,706
Refundable income taxes - 134,738
Deferred income tax asset - 93,000
Prepaid expenses and other current assets 160,620 454,783
------------------ ------------------
TOTAL CURRENT ASSETS 42,073,304 34,245,289
PROPERTY AND EQUIPMENT
Buildings and improvements 3,333,728 16,818,703
Leasehold improvements 138,978 138,978
Machinery and equipment 14,698,623 22,230,812
Office furniture and equipment 66,464 154,521
------------------ ------------------
18,237,793 39,343,014
Less accumulated depreciation and
amortization (4,695,669) (6,222,186)
------------------ ------------------
13,542,124 33,120,828
Land 525,754 525,754
Construction in progress 14,917,788 15,462,430
------------------ ------------------
TOTAL PROPERTY AND EQUIPMENT 28,985,666 49,109,012
OTHER ASSETS
Patent costs 71,836 65,199
Other 9,503 8,948
------------------ ------------------
TOTAL OTHER ASSETS 81,339 74,147
------------------
------------------
TOTAL ASSETS $71,140,309 $83,428,448
================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
THERAGENICS CORPORATION
CONDENSED BALANCE SHEETS - CONTINUED
DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, September 30,
1997 1998
<S> <C> <C>
------------------ ------------------
CURRENT LIABILITIES
Trade accounts payable $1,435,154 $746,747
Accrued salaries, wages and payroll taxes 689,610 675,850
Income taxes payable 845,364 -
Other current liabilities 137,097 358,743
------------------ ------------------
TOTAL CURRENT LIABILITIES 3,107,225 1,781,340
LONG-TERM LIABILITIES
Deferred income taxes 1,000,000 1,460,000
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000
shares authorized; 29,075,682 and 29,386,212
issued and outstanding 290,756 293,862
Additional paid-in capital 55,594,988 58,080,523
Retained earnings 11,147,340 21,812,723
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 67,033,084 80,187,108
------------------ ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $71,140,309 $83,428,448
================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
THERAGENICS CORPORATION
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------------------------------- -----------------------------------------
------------------ ----------------- ----------------- ------------------
1997 1998 1997 1998
<S> <C> <C> <C> <C>
------------------ ----------------- ----------------- ------------------
REVENUE
Product sales - affiliates $5,078,682 $11,095,101 $5,078,682 $28,008,490
Product sales - non affiliates 1,913,825 8,832 12,143,682 40,250
Licensing Fees 25,000 25,000 75,000 75,000
------------------ ----------------- ----------------- ------------------
7,017,507 11,128,933 17,297,364 28,123,740
COSTS AND EXPENSES
Cost of sales 1,580,207 3,183,913 4,284,908 7,786,699
Selling, general & administrative 1,179,545 1,644,022 3,755,651 4,288,510
Research & development 11,090 262,268 45,567 352,206
------------------ ----------------- ----------------- ------------------
2,770,842 5,090,203 8,086,126 12,427,415
OTHER INCOME (EXPENSE)
Interest income 502,970 273,882 897,690 1,041,518
Interest and financing costs (3,893) (15,170) (18,515) (38,823)
Other 355 1,303 (35,726) (1,637)
------------------ ----------------- ----------------- ------------------
499,432 260,015 843,449 1,001,058
Earnings before income taxes 4,746,097 6,298,745 10,054,687 16,697,383
Income tax expense 1,803,517 2,267,347 3,820,781 6,032,000
------------------ ----------------- ----------------- ------------------
NET EARNINGS $2,942,580 $4,031,398 $6,233,906 $10,665,383
================== ================= ================= ==================
NET EARNINGS PER COMMON SHARE
(Note C)
Basic $0.10 $0.14 $0.23 $0.37
Diluted $0.10 $0.13 $0.22 $0.35
WEIGHTED AVERAGE SHARES
(Note C)
Basic 28,898,412 29,364,178 27,009,698 29,213,500
Diluted 30,060,028 30,159,160 28,093,824 30,363,843
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
THERAGENICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ----------------------------------
--------------- -------------- -------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net earnings $2,942,580 $4,031,398 $6,233,906 $10,665,383
Adjustments to reconcile net earnings to net cash
provided by operating activities
Deferred income taxes 465,000 260,000 1,360,000 367,000
Depreciation and amortization 398,058 702,022 1,167,557 1,533,154
Stock based compensation - 81,867 - 81,867
Changes in assets and liabilities:
Accounts receivable (1,771,189) (1,085,243) (3,896,841) (1,567,106)
Inventories (55,451) (61,238) (239,381) (236,833)
Prepaid expenses and other current assets (73,424) (48,998) (135,232) (294,163)
Other assets - 151 - 555
Trade accounts payable (478,131) 278,375 (35,611) (688,407)
Accrued salaries, wages and payroll taxes 72,844 228,407 (258) (13,760)
Income taxes 67,366 2,007,427 799,492 1,009,898
Other current liabilities 7,572 33,735 180,673 221,646
--------------------------------- ------------------------------------
Total adjustments (1,367,355) 2,396,505 (799,601) 413,851
--------------------------------- ------------------------------------
Net cash provided by operating activities 1,575,225 6,427,903 5,434,305 11,079,234
--------------------------------- ------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases and construction of property and
equipment (3,043,095) (5,320,141) (7,506,296) (21,649,863)
Purchases of marketable securities - (2,489,573) - (2,489,573)
Maturities of marketable securities - 3,917,005 - 4,167,005
Other 2,212 - 6,637 -
--------------------------------- ------------------------------------
Net cash used by investing activities (3,040,883) (3,892,709) (7,499,659) (19,972,431)
--------------------------------- ------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments on revolving line of credit - - (3,458,436) -
Proceeds from exercise of stock options and warrants 551,652 147,506 899,703 416,774
Proceeds from issuance of common stock, net - - 37,017,298 -
Other - - 48,759 -
--------------------------------- ------------------------------------
Net cash provided by financing activities 551,652 147,506 34,507,324 416,774
--------------------------------- ------------------------------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (914,006) 2,682,700 32,441,970 (8,476,423)
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 36,342,099 19,002,491 2,986,123 30,161,614
---------------------------------- -------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $35,428,093 $21,685,191 $35,428,093 $21,685,191
================================== =====================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
THERAGENICS CORPORATION
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
Number of Par value paid-in Retained
shares $.01 capital earnings Total
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 14,537,841 $145,378 $55,740,366 $11,147,340 $67,033,084
Two-for-one stock split 14,537,841 145,378 (145,378) -
Exercise of stock options
and warrants 310,530 3,106 413,668 416,774
Compensatory stock options 81,867 81,867
Income tax benefit from
exercise of stock options
and early disposition of shares 1,990,000 1,990,000
Net earnings for the period 10,665,383 10,665,383
--------------- ---------------- ---------------- ----------------- -----------------
BALANCE, September 30, 1998 29,386,212 $293,862 $58,080,523 $21,812,723 $80,187,108
=============== ================ ================ ================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
SEPTEMBER 30, 1998
- ------------------
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments, which are, in
the opinion of management, necessary to present fairly the financial position as
of September 30, 1998, the results of operations and cash flows for the three
and nine months ended September 30, 1997 and 1998 and the changes in
stockholders' equity for the nine months ended September 30, 1998. All such
adjustments are of a normal recurring nature. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements and
notes be read in conjunction with the audited financial statements and notes for
the year ended December 31, 1997, included in the Form 10-K filed by the
Company.
NOTE B - CONSTRUCTION IN PROGRESS
The $15.5 million of construction in progress at September 30, 1998 primarily
represents progress payments on Theragenics' most recent capacity expansion
projects. The expansion projects, which are expected to cost approximately $60.0
million, include a manufacturing facility and four cyclotrons for the Phase I
expansion project and six cyclotrons with supporting facilities and an
administrative facility for the Phase II expansion project. The manufacturing
facility and two cyclotrons, representing total costs of approximately $19.6
million, were placed in service in the third quarter of 1998.
NOTE C - STOCK SPLIT
On March 16, 1998, the board of directors approved a two-for-one common stock
split, effected in the form of a 100% stock dividend, which was distributed on
April 15, 1998 to shareholders of record on March 31, 1998. The stock split has
been recognized by reclassifying the par value of the additional shares
resulting from the split from additional paid-in capital to common stock. All
references to shares outstanding and per share amounts have been restated to
reflect the stock split.
On June 12, 1998, the shareholders approved an increase in the number of
authorized common shares from 50,000,000 to 100,000,000.
NOTE D - NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, in June 1998. SFAS 133 will be effective for the Company's
fiscal year beginning January 1, 2000. SFAS 133 requires that all derivatives be
carried in the balance sheet at their fair value. Changes in fair value of
derivatives will be either recorded in earnings currently or in other
comprehensive income, depending upon the intended use of the derivative.
Management does not currently expect the adoption of SFAS 133 to have a material
impact on the Company's results of operations or financial condition.
THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
(Unaudited)
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. Also, in June 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires costs of start-up activities and
organizational costs, as defined, to be expensed as incurred. These statements
are effective for the Company's fiscal year beginning January 1, 1999.
Management does not expect either of these SOP's to have a material impact on
the Company's results of operations or financial condition.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
Revenues
Revenues for the quarter and nine months ended September 30, 1998 increased
$4,111,000, or 58.6%, and $10,826,000, or 62.6%, respectively, over revenues
from the comparable periods of 1997. These increases were attributable to the
Company's ability to increase production volume of Theraseed(R) with additional
cyclotron and assembly capacity, including the addition of cyclotron numbers
five and six during the third quarter of 1998. Contributing to the increase in
revenues was increased patient awareness of the Theraseed(R) procedure.
Costs and expenses
Cost of sales
Cost of sales for the quarter and nine months ended September 30, 1998 increased
$1,604,000, or 101.5% and $3,502,000, or 81.7%, respectively, over cost of sales
from the comparable periods of 1997. These increases are a result of the
increases in sales volumes over the 1997 periods. Cost of product sales as a
percentage of revenue increased during the quarter ended September 30, 1998 to
28.6% from 22.5% during the third quarter of 1997. Cost of product sales as a
percentage of revenue also increased during the nine months ended September 30,
1998, to 27.7% from 24.8% during the comparable 1997 period. These increases
were attributable to an increase in the manufacturing fixed cost base as
depreciation and other fixed expenses associated with additional cyclotrons and
new manufacturing facilities were incurred during 1998. The Company has also
increased the number of manufacturing employees and enhanced employee
compensation and benefits during 1998 in an effort to continue to attract and
retain qualified employees. The Company will continue to strive to offer
competitive compensation and benefits programs in order to attract and retain
qualified employees. The Company also incurred moving, training, testing and
other start-up expenses during 1998 associated with its new manufacturing
facilities, which were placed in service in the third quarter. Additionally, the
1998 periods included testing and start-up expenses related to cyclotron numbers
five and six, both of which were placed in service during the third quarter of
1998, and cyclotron number seven, for which final acceptance was not given by
the Company until October 1998.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the quarter and nine
months ended September 30, 1998 increased $464,000, or 39.3% and $533,000, or
14.2%, respectively, over the comparable periods of 1997. However, SG&A expenses
as a percentage of revenue decreased to 14.8% in the third quarter of 1998 from
16.8% in the third quarter of 1997, and to 15.2% for the nine months ended
September 30, 1998 from 21.7% for the comparable 1997 period
The increases in SG&A expenses for the 1998 periods over the 1997 periods were
primarily attributable to increases in professional fees and compensation and
benefits. The increase in professional fees was primarily due to legal fees in
connection with the on-going protection of the Company's trade secrets and other
proprietary information. Compensation and benefits increased as the Company
continued to add employees and build infrastructure to support its increasing
operations. Additionally, the third quarter of 1998 included non-recurring SG&A
expenses of approximately $175,000 related to the initial listing of the
Company's common stock on the New York Stock Exchange. This listing was
undertaken in an effort to benefit the Company's shareholders by increasing
liquidity and decreasing volatility of the Company's common stock.
The increases in SG&A expenses described above were partially offset by a
reduction in selling expenses as result of a sales and marketing agreement with
Indigo Medical, Inc. (Indigo). Under this agreement Indigo, a subsidiary of
Johnson & Johnson, bears the cost of a substantial portion of the selling and
marketing efforts related to Theraseed(R). The decrease in SG&A expenses as a
percentage of revenue in the 1998 periods from the 1997 periods is primarily a
result of the decreases in these selling expenses. Selling and marketing related
expenses are not expected to continue to decline however, since the sales and
marketing agreement with Indigo became effective during the third quarter of
1997.
Research and development
In the third quarter of 1998 research and development (R&D) expenses increased
to $262,000 from $11,000 in the third quarter of 1997. For the nine months ended
September 30, 1998, R&D expenses increased to $352,000 from $46,000 in the
comparable 1997 period. These increases were a result of development efforts to
improve the Company's proprietary production processes. Management may
accelerate efforts and investment in research and development from time to time
in the future when and if appropriate opportunities arise. As a result, R&D
expenses may fluctuate significantly on a quarterly basis.
Other income
Other income decreased by $239,000, or 47.9%, for the quarter ended September
30, 1998 from the quarter ended September 30, 1997. For the nine months ended
September 30, 1998, other income increased $158,000, or 18.7%, over the nine
months ended September 30, 1997. The increase in the 1998 year to date period
over 1997 is due to the interest income generated from the investment of the
proceeds of the Company's secondary stock offering, which was completed in April
1997. These funds have and will continue to be utilized for the Company's
current and future expansion programs. The reduction in other income for the
third quarter of 1998 from the third quarter of 1997 resulted from the
application of a portion of the proceeds of the secondary offering to fund the
expansion programs. As funds continue to be used for expansion programs,
management expects other income to return to levels consistent with historical
amounts.
Income tax expense
The effective income tax rates were 36.0% and 36.1% for the quarter and nine
months ended September 30, 1998, respectively. The effective income tax rates
for the quarter and nine months ended September 30, 1997 were 38.0% for each
period. The decrease in the effective income tax rates during the 1998 periods
from the 1997 periods is due to tax exempt interest earned on invested cash
during 1998.
Liquidity and Capital Resources
The Company had cash and short-term investments of $21.7 million at September
30, 1998, compared to $30.2 million on December 31, 1997, a decrease of $8.5
million. For the nine months ended September 30, 1998, operating activities
generated $11.1 million in cash. This consisted of net earnings of $10.7 million
plus non-cash expenses (primarily depreciation) of $2.0 million, reduced by an
increase in receivables of $557,000, an increase in inventories of $237,000, an
increase in prepaid expenses and other current assets of $294,000 and a decrease
in accounts payable and accrued expenses of $481,000.
During the nine months ended September 30, 1998, investing activities utilized
$20.0 million in cash. The Company utilized $21.7 million in cash for purchases
and construction of property and equipment. Progress payments on the Company's
current capacity expansion projects represented the most significant portion of
these expenditures. Phase I of the project, which includes a manufacturing
facility and four cyclotrons, is expected to cost approximately $30.0 million
and be completed during the first quarter of 1999. Spending on Phase I was
approximately $24.9 million through September 30, 1998, of which $11.3 million
was spent during the nine months ended September 30, 1998. The manufacturing
facility and two of the cyclotrons were placed in service during the third
quarter of 1998. This brings the number of fully operational cyclotrons in
service to six at the end of the third quarter of 1998.
The Company also has expansion projects underway consisting of six additional
cyclotrons, supporting facilities and an administrative facility. The total cost
of these projects is expected to be approximately $30.0 million and to be
completed in various stages through 1999. Spending on these projects was
approximately $10.2 million through September 30, 1998 of which $9.3 million was
spent during the nine months ended September 30, 1998.
Other investing activities during the nine months ended September 30, 1998
included $1.1 million in spending on other capital expenditures, consisting
primarily of machinery and equipment, and net maturities of short-term bond
investments, which provided $1.7 million in cash during the period.
Financing activities, consisting of the exercise of stock options and warrants,
provided $417,000 in cash during the nine months ended September 30, 1998. This
was a significant decrease from the $34.5 million in cash provided from
financing activities during the nine months ended September 30, 1997. The 1997
period included net proceeds from the issuance of common stock of $37.0 million,
proceeds from the exercise of stock options and warrants of $900,000, the
repayment of a $3.5 million line of credit and $50,000 provided from other
activities.
Management believes that the Company's current cash balances, financing
arrangements and anticipated cash flows from operations are adequate to meet the
financing needs of the Company through 1998. In the event additional financing
becomes necessary, management may choose to raise those funds through other
forms of financing as appropriate.
Impact of the Year 2000 Issue
Introduction
Many computer systems used today were designed and developed using two digits,
rather than four, to specify the year. Consequently, such systems may recognize
a date of "00" as the year 1900 instead of the year 2000. Other problems may
also be encountered, such as the inability to recognize special codes that make
use of the date field. These and other problems may exist in primary software
products and embedded systems such as microcontrollers. This may cause many
computer systems to fail or create inaccurate results unless corrective measures
are taken. Additionally, a company may be affected by the computer systems of
their customers and vendors, even though that company's internal computer
systems may be Year 2000 (Y2K) compliant.
State of Readiness
The Company began to assess the status of its Y2K readiness during 1997 and
developed a plan intended to make its information technology assets, including
embedded microcontrollers ("IT assets"), year 2000 ready. The plan covers the
following phases: (i) inventory of IT assets, (ii) assessment of repair
requirements (iii) repair and testing, and (iv) creation of contingency plans in
the event of Y2K related failures. The inventory and assessment phases have been
completed for all critical IT assets. Repairs and testing of critical IT assets
is currently in process and is scheduled to be completed in the second quarter
of 1999.
The Company's Y2K compliance also depends upon the compliance of others. The
Company has contacted its critical suppliers and significant customer to
evaluate their Y2K programs and state of readiness, and to evaluate whether a
Y2K related disruption at these entities would have a material adverse effect on
the Company's operations as the year 2000 approaches. At the current date, the
Company has received responses from approximately 43% of the entities contacted,
none of which have indicated that a year 2000 related business interruption is
anticipated. However, while the Company believes it is taking reasonable action
in this regard, Theragenics is not in a position to guarantee the performance of
others or predict whether any assurances and representations received from
others will ultimately prove to be accurate. Additionally, the Y2K compliance of
the Company's critical suppliers and significant customer also depends upon the
Y2K compliance of their critical suppliers and customers. The Company also
relies on governmental agencies, utility companies, telecommunication service
providers, financial institutions and other service providers outside of the
Company's control. There is no assurance that any of these entities will not
experience a year 2000 related failure and business interruption. Such failures
could have a material adverse effect on the Company's financial position and
results of operations.
Costs to Address the Year 2000 Issue
The Company has incurred costs of approximately $50,000 in addressing the Y2K
issue, consisting primarily of replacing IT assets that were not Y2K compliant.
Remaining costs of Y2K remediation are not expected to be material.
Risks of the Company's Year 2000 Issues
The Company has not currently identified any critical IT assets under its
control that present a material risk of not being Y2K compliant in a timely
manner, or for which an acceptable alternative cannot be implemented. As testing
continues however, it is possible that IT assets could be identified that
present a material risk of a Y2K interruption, and that such an interruption
could have a material adverse effect on the Company's financial position and
results of operations.
The Company does not possess the ability to control its critical suppliers,
significant customer or the health care providers that utilize its product. Y2K
related disruptions at these entities could result in delays in the supply of
goods and services and capital equipment from the Company's vendors, delays in
receiving payments from the Company's significant customer, and delays in the
ordering of product and scheduling of Theraseed(R) procedures by the health care
providers, among other things. Such potential delays could be of a short-term
nature or could be more significant and longer-term. The failure of any of these
entities to properly address their year 2000 issues could have a materially
adverse effect on the Company's financial position and results of operations.
Additionally, the failure of the Company's primary equipment vendor to deliver
cyclotrons in accordance with the terms of the purchase contracts could have a
materially adverse effect on the Company's ability to increase its production
capacity.
Contingency Plans
Contingency plans for critical IT assets are currently being developed. These
contingency plans are in the early stages of development and will be modified as
the risks of potential Y2K interruptions continue to be assessed.
Forward Looking Statements
This document contains certain forward looking information within the meaning of
the Private Securities Litigation Reform Act of 1995 including, without
limitation, statements regarding possible benefits associated with the alliance
with Indigo Medical, Inc., future costs of sales, SG&A expenses, expansion
plans, possible electronic data processing problems related to the year 2000 and
the sufficiency of the Company's liquidity and capital resources. From time to
time, the Company may also make other forward-looking statements relating to
such matters as well as anticipated financial performance, business prospects,
technological developments, research and development activities and similar
matters. These forward-looking statements are subject to certain risks,
uncertainties and other factors which could cause actual results to differ
materially from those anticipated, including risks associated with the
management of growth, year 2000 issues, government regulation of the therapeutic
radiological pharmaceutical and device business, dependence on health care
professionals, and competition from other brachytherapy products and
conventional and newly developed methods of treating localized cancer.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT:
THERAGENICS CORPORATION
By: /s/ M. Christine Jacobs
------------------------
M. Christine Jacobs
Chief Executive Officer
/s/ Bruce W. Smith
--------------------------
Bruce W. Smith
Treasurer and Chief Financial Officer
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